Catalyst FCU Releases Q1 2012 ‘CUs at a Glance’

On the surface, industry performance data for the first quarter of 2012 show signs of improvement both in terms of growth and return, according to Brian Turner, director and chief strategist with Catalyst Strategic Solutions.  However, when you look into the details, Turner says a different picture emerges.

“Thanks in part to an 18.7 percent annualized increase in shares, total assets increased 16.7 percent during the first three months of 2012,” notes Turner.  “Loan growth even appears to have outpaced the first quarter of 2011 with a 0.4 percent annual rate.  And net income increased to an average return on assets of 0.84 percent, 17 basis points higher than 2011’s annual return.”

But the detail shows that, as a peer group, only those credit unions in the $500-million experienced positive loan growth during the quarter with significant contraction in each of the remaining groups.

“Net income did improve in each of the peer categories, as did return on equity capital, but the mismatch between asset and equity growth rates diluted average capitalization in each of the peer groups,” adds Turner.  “Loan delinquencies improved across the board.”

According to Turner, the larger credit unions ($500-million and greater) account for only 5.7 percent of the number of credit unions, yet they retain close to 65 percent of the assets and 63 percent of equity capital.  However, capital formation remains the strongest in the smaller credit unions ($100-million or less) with an average equity ratio of 11.5 percent versus an average of 9.8 percent for those greater than $100-million.

The data also shows that lower loan demand (or retention) supplemented with higher levels of cash has resulted in smaller credit union carrying a much shorter non-core asset duration. This, Turner says, affects marginal asset yields by pinpointing the lowest return on the prevailing yield curve and provides no benefit from the relative value strength still derived from core loan products (mortgages and vehicle loans).

“Many of the smaller credit unions have been the most resistant to retaining mortgage originations or being more aggressive with consumer loan offerings for fear of perceived IRR exposure or having to face examiner wrath,” says Turner.