Credit unions bolstered profitability in first half of ’21, but still struggle to grow margins

Credit unions saw their net income rise by more than 77% in the first half of 2021, from year-end 2020, expanding it to $21.3 billion over the six-month period, the federal regulator of credit unions reported Wednesday.

In releasing mid-year financial performance data for federally insured credit unions, the National Credit Union Administration (NCUA) also noted that credit union memberships expanded during the first half of 2021 by 2.9 million, for a total of 127.2 members at the 5,029 federally insured credit unions (FICUs) nationwide.

Overall, the NCUA said, credit unions expanded their assets by $133 billion, reaching $1.98 trillion – an increase of 7.2% since year-end 2020.

Even though credit unions saw growth in assets, memberships, and net income, the overall net worth ratio (which is the primary indicator of credit union safety and soundness) for the industry in the first half of the year actually declined, the NCUA numbers show. At mid-year, the credit union net worth ratio fell to 10.17%, down 150 basis points from year-end (when it stood at 10.32%). Still, that level of the net worth ratio for the industry overall is considered well capitalized.

However, the net interest margin at credit unions (which is gauged by comparing the net interest income a credit union earns on loans to the interest it pays savers, a key indicator of profitability) remained steady during the first half of the year, at 2.57% of average assets (the same as at the end of the first quarter). That’s the first quarter in the last five that the ratio has not declined. However, the ratio for the second quarter is also tied for the lowest point it has been in the last five years (comparing second quarter figures only).

In other areas, NCUA reported:

  • Provision for loan and lease losses or credit loss expense declined $8.4 billion, or 86.2%, over the year (end of second quarter 2020 to end of second quarter 2021), to $1.3 billion at an annual rate in the second quarter of 2021.
  • Total loans outstanding increased $56.6 billion, or 5%, over the year to $1.19 trillion. The average outstanding loan balance in the second quarter of 2021 was $16,156, down $106, or 0.7%, from one year earlier. Credit union loan balances rose in most major categories compared with the second quarter of 2020, NCUA said.
  • The delinquency rate at federally insured credit unions was 46 basis points in the second quarter of 2021, compared with 58 basis points in the second quarter of 2020. Loan performance improved in major categories, the agency asserted.

Credit Unions’ Net Income, Insured Shares and Deposits Rise in Second Quarter