Credit unions’ net interest margin continues decline; net income up, delinquencies down

Federally insured credit unions’ (FICUs) net interest margin showed its steepest quarterly decline in a year in first-quarter 2021 data released Friday by the institutions’ federal regulator.

The trend is similar to what the Federal Deposit Insurance Corp. (FDIC) reported for banks in late May.

The National Credit Union Administration (NCUA) data release showed credit unions’ net interest margin at 2.57% as of March 31, down 25 basis points from Dec. 31, 2020, and 38 basis points from a year ago.

The agency said the institutions’ first-quarter 2021 net income was up $11.3 billion, or 134.9%, over the year; $7.7 billion, or 64%, of that growth occurred from Dec. 31, 2020, through March 31. The NCUA said the increase in net income was due in large part to strong growth in other operating income and a decline in the provisioning for loan, lease, and credit loss expenses.

Noting that credit unions “are not out of the woods yet,” referring to the past year’s challenges amid the pandemic, NCUA Chairman Todd Harper said FICUs “performed well overall in the first quarter of 2021,” with strong net income, steady loan growth, and lower delinquency rates.

“Compressed margins continued due to low interest rates, and as expected, economic stimulus payments drove growth in insured shares, ultimately contributing to lower net worth levels across the credit union system,” said Harper. “In these uncertain economic times, credit unions should continue to focus on the fundamentals of capital, asset quality, earnings, and liquidity as the government’s economic stimulus and forbearance programs come to an end. As community cooperatives, credit unions should also focus on their duty to their members in assisting with their financial well-being.”

In other data released Friday:

  • Assets at federally insured credit unions totaled $1.95 trillion as of March 31, up $311 billion, or 19%, from March 31, 2020, and $105 billion, or 19%, from Dec. 31.
  • Insured shares and deposits totaled $1.56 trillion, growing $286 billion, or 22.4%, year over year and $97.3 billion, or 6.6%, during the quarter alone.
  • Loans outstanding grew to a total of $1.17 trillion – up $49 billion, or 4.4%, over the year and $2.9 billion, or 0.2%, during the first quarter. The average outstanding loan balance in the first quarter of 2021 was $16,157, up $282, or 1.8%, from one year earlier. (It declined $18 during the quarter.)
  • Net income totaled $19.7 billion for the first quarter, up $11.3 billion, or 134.9%, year over year and $7.7 billion, or 64%, during the first quarter of 2021. Interest income declined $3.2 billion, or 5.3%, over the year to $57.7 billion. Non-interest income increased $5.9 billion, or 29%, to $26.2 billion, mainly due to growth in other operating income, the agency said.
  • The provision for loan and lease losses or credit loss expense declined $5.6 billion, or 66.1%, over the year ending March 31.
  • The delinquency rate at federally insured credit unions was 46 basis points in the first quarter of 2021, down 17 basis points compared with the first quarter of 2020. Loan performance improved or was little changed in most major categories, the agency said.
  • The net charge-off ratio for all FICUs was 32 basis points in the first quarter of 2021, down from 45 basis points in the fourth quarter of 2020 and 58 basis points in the first quarter of 2020.
  • FICUs’ aggregate net worth increased by $14.9 billion, or 8.3%, over the year to $195.3 billion. The aggregate net worth ratio — net worth as a percentage of assets — was 10.01% as of March 31, 2021, down from 10.32% reported Dec. 31 and 11% as of March 31, 2020.

Rising Net Income, Elevated Insured Share Growth Reported in First Quarter of 2021

Quarterly Credit Union Data Summary 2021 Q1