Credit Unions Gain Leverage from Battered Foes

The damage from the mortgage meltdown and credit crunch continues to impact bank income statements and balance sheets in 2008. Credit unions, on the other hand, continue to reap the combined benefits of their cooperative business model.

 
 

The damage from the mortgage meltdown and credit crunch continues to impact bank income statements and balance sheets in 2008. Credit unions, on the other hand, continue to reap the combined benefits of their cooperative business model and sound lending practices. Comparisons of key second quarter metrics released by the FDIC and current credit union data support this ability of credit unions to weather the current economic storm in good shape. Three areas to note in particular are:

  • Market Growth
    Credit unions increased first mortgage originations an astounding 40% in the first six months of 2008 over the same period in 2007 and have increased their market share to an all-time high of 3.8% from 2.6% in 2007. On the balance sheet, credit union assets are up 5.9% year to-date while bank assets have grown a modest 2.2%.

    Source: Callahan & Associates' Peer-to-Peer; Mortgage Bankers' Association
  • Asset Quality
    Credit union asset quality also remains solid. Delinquency continues to rise, albeit at a much slower pace than FDIC-insured institutions, up 7 bps to 0.98%. Non-current real estate loans in the mortgage market, while up 8 bps from the quarter before, increased at a much slower pace than FDIC insured institutions.


Source: Callahan & Associates' Peer-to-Peer, FDIC's Quarterly Banking Profile

  • Earnings & Capital
    Credit union revenue grew 4% in the first half of 2008. Interest income drove this solid growth, up 6.5% over the first half of 2007. Non-interest income expanded 9.3% over the same period. Credit unions also recognized a relatively modest 23 bps drop in ROA, but this is much smaller than the 106 bps drop experienced by banks. With a capital ratio of 11.5% compared to banks' 7.9%, credit unions remain in a strong balance sheet position at midyear.


Source: Callahan & Associates' Peer-to-Peer, FDIC's Quarterly Banking Profile

It is easy to adopt a defensive mindset when the majority of financial news and forecasts continue to be negative. The industry's strong performance through the first half of 2008 should encourage credit unions to continue the practices that allow them to perform well in a turbulent economy and look toward a positive future.

 

 

 

Sept. 8, 2008


Comments

 
 
 
  • Excellent debut article from a fellow Denisonian. Have credit unions noticed an uptick in mortgage delinquencies lately?
    Anonymous