Credit unions are forging into this year’s tighter lending environment with a strong 2013 report under their belt after witnessing growth in several key indicators, including first mortgage loans, the National Credit Union Administration said in its 2013 report.
This comes during a time that lenders have to realign their business to fit reduced origination volumes.
In fact, community lenders, who also serve a local community, are estimated to have a strong, unique footing in their markets to succeed in 2014.
“Community banks, I think, are best prepared and best equipped. They are uniquely positioned, and their market is well defined,” Christina Boyle, vice president and interim head of the Single-Family Sales and Relationship Management organization with Freddie Mac said. “They are not trying to be positioned in everything.”
At the same time, credit unions are proving to stay afloat and grow in five distinct ways.
First-mortgage loans reached $267.8 billion, rising 2.1% from the previous quarter and up 8.8% from year-ago levels. In addition, nearly 62% of first mortgage loans in the latest reports had fixed rates. As a whole, total loans at credit unions increased nearly 2.2% to $645.2 billion in the fourth quarter of 2013, with loans growing nearly 8% compared to the end of 2012.
2. Membership grew
Credit union membership grew by slightly more than 343,000 in the fourth quarter of 2013 and by more than 2.4 million for the year, bringing the total at the end of the fourth quarter of 2013 to 96.3 million: a record high. Although the number of federally insured credit unions fell to 6,554, 3.9% for the year, the decline is consistent with trends spanning four decades.
3. Delinquency and net charge-off ratios dropped
The ratios of delinquency and net charge-off for credit unions both inched lower in the fourth quarter. The delinquency ratio fell to 1.01% in the fourth quarter from 1.02% in the previous quarter and from 1.16% at the end of 2012, while the net charge-off ratio held steady during the fourth quarter at an annualized 57 basis points.
4. Long-term investments grow
Despite a decline in investments overall during the second half of the year, growth in long-term investments kept increasing in 2013. Credit unions’ investments increased from $280 billion at the beginning of the year to $299 billion at the end of the second quarter, then declined to $285 billion by the end of the year.
5. Assets rose, shares grow
Credit unions’ total assets increased by $5.3 billion in the fourth quarter, and $40 billion for the year, hitting just over $1.06 trillion.
But amid all the good news, NCUA Board Chairman Debbie Matz still gave a note of caution, urging credit unions not to leverage their futures by taking on excessive interest rate risk.
“The current rate environment is a challenge for profitability, but federally insured credit unions should avoid falling into the trap of over-concentration in long-term investments,” Matz said.
“It’s easy to get trapped chasing near-term profits by increasingly concentrating investments in long terms. That can imperil a credit union because it increases interest rate risk. The growth in 5-to-10 year investments of nearly 60% is cause for concern. For many credit unions it may be prudent, at this time, to accept lower return on assets to avoid exacerbating interest rate risks,” she continued.