Financial Trends in Federally Insured Credit Unions - January 1 to September 30, 2007

Highlight

This report summarizes the trends of all federally insured credit unions that reported as of September 30, 2007. Change is measured from December 31, 2006.1

  • Assets increased $34.43 billion or 4.85% to $744.43 billion. This equates to an annualized asset growth rate of 6.47%.
  • Net Worth increased $3.72 billion or 4.54%. The net worth to assets ratio decreased slightly from 11.53% to 11.50%.
  • Earnings, as measured by the return on average assets, decreased from 0.82% to 0.75%.2
  • Loans increased $24.81 billion or 5.02% (6.69% annualized). The loan to share ratio increased from 82.23% to 82.66%.
  • Delinquent loans as a percentage of total loans increased from 0.68% to 0.81%.
  • Net Loan Charge-Offs (annualized) increased $179.67 million or 8.30%.
  • Shares increased $26.91 billion or 4.48%. This represents an annual share growth rate of 5.97%. The majority of the growth in shares continues to come from share certificates and money market accounts.
  • Current members increased by 1.2 million or 1.42%.
Number of Credit Unions Reporting
Year Federal CUs State CUs
2002 5,953 3,735
2003 5,776 3,593
2004 5,572 3,442
2005 5,393 3,302
2006 5,189 3,173
Sept 2007 5,068 3,095

Federally insured credit unions continued their solid performance in the first nine months of 2007. Loans, shares, and net worth grew; however, the delinquent loan ratio increased 13 basis points and the loan loss ratio increased 1 basis point indicating increasing potential concerns in credit quality of loan portfolios. While net interest margins continued to decline, credit unions achieved favorable operating results. Real estate loans remain the dominant loan category in credit unions, highlighting the need for continued vigilance in underwriting and sound asset-liability management practices.

Total Shares and Deposits
Type 2006 In Billions Sep 2007 In Billions % Change
Insured Shares & Deposits $535.13 $556.09 3.92%
Uninsured Shares & Deposits $66.06 $72.01 9.01%

Overall Trends

Asset Distribution - read alternative text below

 

 
Asset Distribution (Billions of Dollars)
Type Amount (Billions of Dollars) Percentage
Net Loans $515.6 70%
Investments $142.1 19%
Cash $51.0 7%
Fixed Assets $16.8 2%
Other $18.9 2%

Total Loans / Total Shares - read alternative text below

 

 
Total Loans / Total Shares
Year Percentage
2002 70.78%
2003 71.19%
2004 74.47%
2005 79.33%
2006 82.23%
September 2007 82.66%

The 10-year average is 75.53%.

Asset Growth vs. Membership Growth - read alternative text below

 

 
Asset Growth vs. Membership Growth (2007 Annualized)
Year Asset Growth Membership Growth
2002 11.08% 2.01%
2003 9.51% 1.86%
2004 6.04% 1.38%
2005 4.90% 1.13%
2006 4.62% 1.47%
September 2007 6.47% 1.90%

Net Worth

Net Worth Radios - read alternative text below

Net Worth Ratios
Year Aggregate Net Worth to Total Assets Average (non-dollar-weighted) Net Worth Ratio
2002 10.71% 13.50%
2003 10.71% 13.32%
2004 10.96% 13.60%
2005 11.24% 14.30%
2006 11.53% 15.08%
September 2007 11.50% 15.40%
Total Net Worth vs Secondary Capital
Type December 2006 in Billion September 2007 in Billions % Change
Total Net Worth $81.92 $85.64 4.54%
Secondary Capital $.027 $.028 0.95%
Net Worth Ratios by Percentile
Percentage of Credit Unions December 2006 Number of Credit Unions December 2006 % of Total September 2007 Number of Credit Unions September 2007 % of Total
7% or above 8,235 98.48% 8,056 98.69%
6% to 6.99% 58 0.69% 50 0.61%
4% to 5.99% 36 0.43% 33 0.40%
2% to 3.99% 20 0.24% 14 0.17%
0% t0 2.00% 8 0.10% 2 0.02%
Less than 0% 5 0.06% 8 0.10%

Net Worth remains strong as total dollars increased $3.72 billion or 4.54% during the first nine months of 2007. The number of credit unions subject to Prompt Corrective Action, as a percentage of total credit unions, decreased from 1.52% as of December 31, 2006, to 1.31% as of September 30, 2007.

Earnings

Return on Average Assets vs. Fee Income (Percentages) - read alternative text below

Return on Average Assets Vs. Fee Income (Percentages)
Year Return on Average Assets Fee Income
2002 1.07% 0.70%
2003 0.98% 0.75%
2004 0.91% 0.79%
2005 0.85% 0.82%
2006 0.82% 0.85%
September 2007 0.75% 0.86%

Yield Vs. Cost of Funds (percentages) - read alternative text below

Yield Vs. Cost of Funds (Percentages)
Year Yield on Avg. Loans Yield on Avg. Investments Cost of Funds
2002 7.62% 3.45% 2.29%
2003 6.78% 2.68% 1.67%
2004 6.19% 2.58% 1.41%
2005 6.12% 3.19% 1.72%
2006 6.47% 4.03% 2.34%
September 2007 6.69% 4.81% 2.74%

Operating Expenses Vs. Net Interest Margin - read alternative text below

Operating Expenses Vs. Net Interest Margin (Percentages)
Year Operating Expenses Net Interest Margin
2002 3.27% 3.63%
2003 3.23% 3.41%
2004 3.21% 3.32%
2005 3.24% 3.24%
2006 3.32% 3.16%
September 2007 3.37% 3.13%
Ratio (% Average Assets)
Type As of 2006 As of September 2007 Effet on ROA
Net Interest Margin 3.16% 3.13% - 3bp
+ Fee & Other Inc. 1.28% 1.32% + 4bp
- Operating Expenses 3.32% 3.37% - 5bp
- PLLL 0.32% 0.37% - 5bp
+ Non-Opr. Income 0.02% 0.04% + 2bp
= ROA 0.82% 0.75% - 7bp

The level of earnings continues to be effective, covering the cost of operations as well as contributing to the already solid level of net worth. Net interest margin contracted 3 basis points to 3.13% as the cost of funds increased at a faster rate than the yield on assets. Operating expenses and Provision for Loan & Lease Losses continue to rise in relation to average assets.

Loan Distribution

Loan Distribution (Billions of Dollars) - read alternative text below

Loan Distribution (Billions of Dollars)
Type Amount Percentage
Real Estate $264.2 51%
Vehicle $177.7 34%
Unsecured $51.7 10%
Other $25.6 5%

First Mortgage Real Estate (Billions of Dollars) - read alternative text below

First Mortgage Real Estate (Billions of Dollars)
Types Amount Percentage
Fixed Rate $100.9 58%
Adjustable Rate $28.6 16%
Balloon / Hybrid $45.3 26%
Loan Categories
Loan Category 2006 Balance In Billions % of Total Loans 2006 September 2007 Balance In Billions % of Total Loans in September 2007 Growth in Billions Growth Rate
Unsecured Credit Card $26.57 5.37% $28.01 5.39% $1.44 5.41%
All Other Unsecured $22.62 4.58% $23.73 4.57% $1.11 4.91%
New Vehicle $88.53 17.91% $88.22 16.99% -$0.31 -0.35%
Used Vehicle $87.58 17.71% $89.41 17.22% $1.83 2.10%
First Mortgage Real Estate $159.80 32.32% $174.77 33.66% $14.97 9.37%
Other Real Estate $84.37 17.07% $89.43 17.23% $5.06 6.00%
Leases Rec & All Other $24.92 5.04% $25.63 4.94% $0.71 2.84%
Total Loans $494.39 N/A $519.20 N/A $24.81 5.02%

Loan growth outpaced share growth during the first nine months of 2007 with total loans increasing $24.81 billion, resulting in the loan to share ratio increasing from 82.23% to 82.66%. The growth was again fueled by first mortgages and other real estate loans. Real estate loans comprise the largest portion of total loans at 50.89%, followed by vehicle loans at 34.21%. During the first nine months of 2007, fixed rate first mortgages increased $9.99 billion (10.99%), adjustable rate first mortgages increased $0.98 billion (3.53%), and balloon/hybrid first mortgages increased $4.00 billion (9.70%). Credit unions are reporting $5.6 billion or 3.21% of total first mortgage loans in Interest Only & Optional Payment First Mortgage Loans.

Delinquency Trends

Loan Distribution (Billions of Dollars) - read alternative text below

Loan Distribution (Billions of Dollars)
Type Amount Percentage
Real Estate $264.2 51%
Vehicle $177.7 34%
Unsecured $51.7 10%
Other $25.6 5%

First Mortgage Real Estate (Billions of Dollars) - read alternative text below

First Mortgage Real Estate (Billions of Dollars)
Type Amount Percentage
Fixed Rate $100.9 58%
Adjustable Rate $28.6 16%
Balloon / Hybrid $45.3 26%
Loan Categories
Loan Category 2006 Balance in Billions % of Total Loans 2006 September 2007 Balance In Billions % of Total Loans September 2007 Growth In Billions Growth Rate
Unsecured Credit Card $26.57 5.37% $28.01 5.39% $1.44 5.41%
All Other Unsecured $22.62 4.58% $23.73 4.57% $1.11 4.91%
New Vehicle $88.53 17.91% $88.22 16.99% -$0.31 -0.35%
Used Vehicle $87.58 17.71% $89.41 17.22% $1.83 2.10%
First Mortgage Real Estate $159.80 32.32% $174.77 33.66% $14.97 9.37%
Other Real Estate $84.37 17.07% $89.43 17.23% $5.06 6.00%
Leases Rec & All Other $24.92 5.04% $25.63 4.94% $0.71 2.84%
Total Loans $494.39 N/A $519.20 N/A $24.81 5.02%

Loan growth outpaced share growth during the first nine months of 2007 with total loans increasing $24.81 billion, resulting in the loan to share ratio increasing from 82.23% to 82.66%. The growth was again fueled by first mortgages and other real estate loans. Real estate loans comprise the largest portion of total loans at 50.89%, followed by vehicle loans at 34.21%. During the first nine months of 2007, fixed rate first mortgages increased $9.99 billion (10.99%), adjustable rate first mortgages increased $0.98 billion (3.53%), and balloon/hybrid first mortgages increased $4.00 billion (9.70%). Credit unions are reporting $5.6 billion or 3.21% of total first mortgage loans in Interest Only & Optional Payment First Mortgage Loans.

Delinquency Trends

Delinquency & Charge-Offs (Percentages) - read alternative text below

Delinquency & Charge-Offs (Percentages)
Year Delinquent Loans Net Charge-Offs
2002 0.79% 0.51%
2003 0.76% 0.56%
2004 0.72% 0.53%
2005 0.73% 0.54%
2006 0.68% 0.45%
September 2007 0.81% 0.46%

Delinquency (Billions of Dollars) - read alternative text below

Delinquency (Billions of Dollars)
Year 2-6 Months 6-12 Months 12+ Months
2002 1.90% 0.59% 0.23%
2003 2.02% 0.62% 0.25%
2004 2.13% 0.63% 0.22%
2005 2.46% 0.67% 0.22%
2006 2.50% 0.62% 0.23%
September 2007 3.12% 0.83% 0.26%

 

Real Estate Delinquency - read alternative text below

Real Estate Delinquency
Year 1st Mtg Fixed 1st Mtg Adj Other Fixed Other Adj. Total RE
2004 Approx. 0.20% Approx. 0.25% Approx. 0.35% Approx. 0.15% 0.25%
2005 Approx. 0.22% Approx. 0.25% Approx. 0.30% Approx. 0.20% 0.27%
2006 Approx. 0.25% Approx. 0.35% Approx. 0.25% Approx. 0.35% 0.34%
September 2007 Approx. 0.42% Approx. 0.43% Approx. 0.65% Approx. 0.58% 0.56%
Total Loan Charge-Offs and Recoveries and Outstanding Foreclosed Real Estate (* indicates annualized)
Type December 2006 In Billions Sep 2007 In Billions % Change
Total Loans Charged Off $2.67 $2.89* 8.05%*
Total Loan Recoveries $0.51 $0.55* 6.99%*
Total Net Charge-Offs $2.16 $2.34* 8.30%*
Foreclosed Real Estate $0.16 $0.27 65.66%

The quality of the loan portfolio deteriorated slightly as noted by a 13 basis point increase in delinquent loans to total loans during the first nine months of 2007, while the average net charge-off ratio increased only 1 basis point. There are some signs of stress in the performance of real estate loans, and the increasing real estate delinquency and loan losses are starting to impact the performance of the overall loan portfolio, as noted in the total delinquency and net charge-off numbers. Total delinquent real estate loans greater than 2 months increased from 0.34% at year-end 2006 to 0.56% as of September 30, 2007. All real estate delinquency categories increased with the largest being in Other Real Estate Fixed/Hybrid/Balloon loans which increased from 0.28% as of year-end 2006 to 0.65% as of September 30, 2007.

Investment Trends

SFAS 115 Investment Classification (Billions of Dollars) - read alternative text below

SFAS 115 Investment Classification (Billions of Dollars)
Type Amount Percentage
Non-SFAS $106.1 57%
AFS $54.3 29%
Trading $0.4 0%
HTM $25.9 14%

Total Non-SFAS 115 Investment Distribution - read alternative text below

Total Non-SFAS 115 Investment Distribution (Billions of Dollars)
Type Amount Percentage
Corporate CU $41.1 38%
All Other $2.8 3%
Cash Equivalents $9.2 9%
Cash on Deposit $35.4 33%
Banks, S&Ls & Savings Banks $15.7 15%
Natural Person CU $1.9 2%
Investment Maturity or Repricing Intervals
Interval December 2006 In Billions % of Total Investments 2006 September 2007 In Billions % of Total Investments September 2007
Less than 1 year $105.83 58.95% $109.68 58.74%
1 to 3 years $51.96 28.94% $49.11 26.30%
3 to 5 years $14.45 8.05% $18.56 9.94%
5 to 10 years $5.17 2.88% $6.81 3.65%
Greater than 10 years $2.10 1.17% $2.56 1.37%
Total Investments $179.51 N/A $186.72 N/A

Strong loan demand outpaced share growth, decreasing the amount of funds available for investment in 2007. The maturity structure of the investment portfolio remains very short, resulting in a low interest rate risk profile for this portion of the balance sheet. Credit unions maintain their investments in high quality, safe instruments. Almost 57% of investments are in cash or equivalents, deposits in corporate credit unions, and deposits in other financial institutions. These provide liquidity and are generally not vulnerable to changing market values. Of the remaining investments, which are subject to SFAS 115 classification, 84.9% are in U.S. Government or Federal Agency Securities.

Share Trends

Share Distribution (Billions of Dollars) - read alternative text below

Share Distribution (Billions of Dollars)
Type Amount Percentage
Non-Member Deposits $2.4 0%
Share Drafts $69.0 11%
Regular Shares $176.9 28%
Money Market Shares $108.4 17%
Share Certificates $209.3 34%
IRA / KEOGH $56.0 9%
Other Shares $6.1 1%-

Savings Maturities (Billions of Dollars) - read alternative text below

Savings Maturities (Billions of Dollars)
Type Amount Percentage
< 1 year $558.2 89%
1 to 3 years $51.8 8%
> 3 years $18.1 3%
Share Categories
Share Category 2006 Balance In Billions % of Total Shares 2006 September 2007 Balance In Billions % of Total Shares Sept 2007 Growth In Billions Growth Rate
Share Drafts $70.29 11.69% $68.96 10.98% -$1.34 -1.90%
Regular Shares $181.12 30.13% $176.88 28.16% -$4.24 -2.34%
Money Market Shares $100.46 16.71% $108.35 17.25% $7.90 7.86%
Share Certificates $188.89 31.42% $209.28 33.32% $20.39 10.79%
IRA / KEOGH Accounts $52.04 8.66% $56.04 8.92% $4.01 7.70%
All Other Shares $5.55 0.92% $6.15 0.98% $0.59 10.70%
Non-Member Deposits $2.84 0.47% $2.44 0.39% -$0.40 -13.95%
Total Shares $601.19 N/A $628.10 N/A $26.91 4.48%

Total shares grew 4.48% ($26.91 billion) in the first nine months of 2007. Strong growth in money market shares, IRA/KEOGH accounts and certificates accounted for the majority of the growth. During the period, regular shares and share draft balances declined overall. Total share certificates continue to be the largest category exceeding regular shares for the fourth consecutive quarter.

Asset Liability Management Trends

Cash + Short-term Investments/Assets - read alternative text below

Net Long-term Assets / Total Assets
Year Net Long-Term Assets
2002 22.93%
2003 25.35%
2004 25.20%
2005 25.14%
2006 27.05%
September 2007 29.27%

The 10-year average is 23.89%.

Share and Loan Growth (2007 Annualized) - read alternative text below

Share and Loan Growth (2007 Annualized)
Year Share Growth Loan Growth
2002 10.77% 6.28%
2003 9.11% 9.75%
2004 5.28% 10.14%
2005 3.84% 10.62%
2006 4.08% 7.89%
September 2007 5.97% 6.69%

Cash + Short-term Investments/Assets - read alternative text below

Cash + Short-Term Investments / Assets
Year Cash + Short-Term Investments
2002 19.64%
2003 17.01%
2004 16.08%
2005 15.83%
2006 15.86%
September 2007 15.60%

The 10-year average is 18.01%

Borrowings / Total Shares & Net Worth - read alternative text below

Borrowings / Total Shares & Net Worth
Year Borrowings
2002 1.14%
2003 1.60%
2004 1.98%
2005 2.70%
2006 2.71%
September 2007 2.99%

Credit unions continue to hold adequate levels of liquidity; however, trends are showing tightening liquidity. The decline in cash and short-term investments during the first nine months of 2007 is due to the strong loan growth outpacing share growth. The net long-term asset ratio of 29.27% presents potential interest rate risk exposure. Credit unions with higher levels of liquidity risk or interest rate risk must maintain diligent liquidity and interest rate risk management procedures.

Summary of Trends by Asset Group

Summary Table
Asset Group Asset Group Under $10 million Asset Group $10 million to $100 million Asset Group $100 million to $500 million Asset Group Over $500 million
# of Credit Unions 3,625 3,320 913 305
Total Assets $13.58 billion $114.78 billion $196.28 billion $419.79 billion
Average Assets (non dollar-weighted) $3.75 million $34.57 million $214.98 million $1.38 billion
Net Worth/Total Assets 16.60% 13.26% 11.85% 10.69%
Average Net Worth (non dollar-weighted) 18.02% 13.89% 11.85% 11.20%
Net Worth Growth -2.47% 2.16% 0.74% 10.89%
Return on Average Assets 0.62% 0.68% 0.65% 0.82%
Net Interest Margin/Average Assets 4.26% 3.80% 3.35% 2.80%
Fee & Other Income/Average Assets 0.71% 1.26% 1.46% 1.29%
Operating Expense/Average Assets 4.06% 4.11% 3.80% 2.92%
Members / Full-Time Employees 447.52 396.43 350.21 385.22
Provision for LLL/Average Assets 0.33% 0.30% 0.40% 0.38%
Loans/Shares 72.14% 74.38% 81.73% 85.75%
Delinquent Loans/Total Loans 2.14% 1.14% 0.96% 0.63%
% of Real Estate Lns Delinquent > 2 Mths 1.11% 0.79% 0.90% 0.38%
Net Charge-Offs/Average Loans 0.53% 0.45% 0.46% 0.47%
Share Growth -6.07% 0.29% -0.18% 11.31%
Loan Growth -7.43% -1.27% -0.50% 12.86%
Asset Growth -5.63% 0.38% -0.31% 12.19%
Membership Growth -8.02% -3.04% -2.81% 9.07%
Net Long-Term Assets/Total Assets 8.19% 21.94% 30.00% 31.62%
Cash + Short-Term Invest./Assets 30.74% 21.20% 14.89% 13.90%
Borrowings/Shares & Net Worth 0.19% 0.55% 1.89% 4.31%

Note: The growth trends are an aggregate figure and do not account for the credit unions which moved into or out of adjoining asset groups.

There is a distinct difference in the performance among the different asset groups. Net worth ratios are solid among all asset groups with the largest percentages being reported in the under $10 million category. The highest return on average assets, loan growth, share growth, and loan to share ratio is noted in the over $500 million asset group, with this group being the only one to report positive loan and membership growth for the first nine months of 2007.


Footnotes


1The financial results for prior periods may reflect changes when compared to the prior period trend letters due to subsequent call report modifications.

2The Return on Average Assets ratio is annualized net income divided by average assets for the period.

Last modified on
05/01/20