In the third quarter of 2007 the mortgage meltdown grew, creating a credit crunch and liquidity crisis at many institutions. Market uncertainty led the Federal Reserve to cut interest rates by 50 basis points in September. This environment has created a sense of uncertainty about credit union performance during the quarter.
So what impact did this turmoil have on credit unions? While complete third quarter data won’t be available for another three weeks, preliminary results reported through Callahan’s First Look program indicate performance remains solid. To gain some perspective, we looked at the three largest credit unions for an indication of key trends. These three credit unions can be considered bellwethers for the industry.
In the third quarter, Navy (VA, $31.45B), State Employees (NC, $15.09B), and Pentagon (VA, $10.50B) all recorded strong financial results.
Double-digit growth was posted in key balance sheet categories and membership continues to rise. Summary performance is shown below for these three leaders. Highlights of their performance include:
- Navy had standout asset growth of 19.4% due in part to branch expansion. Fourteen branches were added over the last year, including five in the third quarter. Membership has increased 6.2% since third quarter 2006.
- At State Employees, the focus was on returning more to members as the 4.0% cost of funds is up by 50 basis points over the past year. Higher dividends resulted in 10.2% share growth led by 16% growth in money market balances.
- While many competitors pulled back from the mortgage market, Pentagon had a 28% increase in their real estate portfolio over the past year. Asset quality is not a concern as Pentagon has kept delinquencies low at 0.2%.
| NAVY (VA) | Sept.07 | 12-Month Growth |
| Assets | $31.45B | 19.4% |
| Loans | $24.87B | 28.2% |
| Shares | $23.92B | 17.3% |
| Capital | $3.56B | 10.39% |
| Members | 2,964,077 | 6.2% |
| Sept.06 | Sept.07 | |
| Loans/Shares | 95.14% | 103.95% |
| Capital/Assets | 12.23% | 11.31% |
| Interest Income/ Avg. Assets | 5.77% | 6.23% |
| Cost of Funds/ Avg. Assets | 2.55% | 3.18% |
| Net Interest Margin | 3.22% | 3.04% |
| Op. Expenses/ Avg. Assets | 2.75% | 2.90% |
| Loan Loss Provision/ Avg. Assets | 0.55% | 0.77% |
| Non-Interest Income/ Avg. Assets | 1.58% | 1.61% |
| ROA | 1.50% | 0.98% |
| STATE EMPLOYEES (NC) | Sept.07 | 12-Month Growth |
| Assets | $15.09B | 9.9% |
| Loans | $10.78B | 1.6% |
| Shares | $13.85B | 10.2% |
| Capital | $1.17B | 4.8% |
| Members | 1,413,284 | 5.4% |
| Sept.06 | Sept.07 | |
| Loans/Shares | 84.47% | 77.81% |
| Capital/Assets | 8.13% | 7.75% |
| Interest Income/ Avg. Assets | 5.01% | 5.45% |
| Cost of Funds/ Avg. Assets | 3.21% | 3.66% |
| Net Interest Margin | 1.80% | 1.79% |
| Op. Expenses/ Avg. Assets | 2.15% | 2.19% |
| Loan Loss Prov./ Avg. Assets | 0.13% | 0.07% |
| Non Interest Inc./ Avg. Assets | 0.85% | 0.89% |
| ROA | 0.37% | 0.41% |
| PENTAGON (VA) | Sept.07 | 12-Month Growth |
| Assets | $10.50B | 13.8% |
| Loans | $10.01B | 20.2% |
| Shares | $9.22B | 13.0% |
| Capital | $1.04B | 13.28% |
| Members | 769,231 | 7.9% |
| Sept.06 | Sept.07 | |
| Loans/Shares | 102.03% | 108.54% |
| Capital/Assets | 9.96% | 9.91% |
| Interest Income/ Avg. Assets | 5.59% | 6.05% |
| Cost of Funds/ Avg. Assets | 3.53% | 4.06% |
| Net Interest Margin | 2.06% | 1.98% |
| Op. Expenses/ Avg. Assets | 1.20% | 1.13% |
| Loan Loss Prov./ Avg. Assets | 0.13% | 0.26% |
| Non Interest Inc./ Avg. Assets | 0.56% | 0.85% |
| ROA | 1.27% | 1.17% |
While performance will vary across credit unions due to external and internal factors, these leaders highlight the broad strength of the industry. Timely information is more important this quarter than ever. Callahan & Associate’s First Look program provides free preliminary data analysis for credit unions using Peer-to-Peer,the most comprehensive financial analysis software for credit unions. To find out how your credit union’s performance compares to others across the industry, submit your 3Q data in XML format to 5300@creditunions.com .
