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CUs End 2013 with Positive Financials, but Risks Loom Ahead
Tuesday, March 4, 2014 7:00 AM

America’s credit unions saw growth in several key indicators during 2013, but other trends were less positive, and National Credit Union Administration Board Chairman Debbie Matz sounded 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 five-to-10 year investments of nearly 60 percent 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.”

Loans, membership and net worth saw continued positive growth in the fourth quarter of 2013, but net interest margins continued to decline. Compressed net interest margins contributed to a fall in return on average assets compared to the fourth quarter of 2012. NCUA today released the new figures based on Call Report data submitted to and compiled by the agency for the quarter ending Dec. 31, 2013.

Loan growth continues its upward trend. Total loans at federally insured credit unions rose nearly 2.2 percent to $645.2 billion in the fourth quarter of 2013. Loans grew nearly 8.0 percent compared to the end of 2012. Lending continued to rise in nearly every category, including auto loans and first mortgage loans.

The growth in loans contributed to a rise in the overall loans-to-shares ratio, which reached 70.9 percent, the highest level since the end of 2010. Loan growth among federally insured credit unions out-paced growth in deposits for the first time since the fourth quarter of 2007.

Growth in long-term investments continued unabated during 2013, despite a decline in investments overall during the second half of the year. Additionally, membership in federally insured credit unions grew by slightly more than 343,000 in the fourth quarter of 2013 and by more than 2.4 million for the year. At the end of the fourth quarter of 2013, membership stood at 96.3 million, another new high.

Federally insured credit unions’ total assets grew by $5.3 billion in the fourth quarter and $40 billion for the year, to reach just over $1.06 trillion. Overall, share and deposit accounts at credit unions rose during the quarter by $4.2 billion to $910 billion, compared to $878 billion at the end of 2012. Rate-sensitive money market shares continued to grow.

Delinquency and net charge-off ratios for federally insured credit unions both dipped slightly in the third quarter. The delinquency ratio fell to 1.01 percent in the fourth quarter from 1.02 percent in the previous quarter and from 1.16 percent at the end of 2012. The net charge-off ratio held steady during the fourth quarter at an annualized 57 basis points.

For more information about the performance of federally insured credit unions, NCUA makes the complete details of the December 2013 Call Report available online here. A summary of fourth-quarter performance is available here, and financial trends data for federally insured credit unions are available here.