Net income and net worth increased at federally insured credit unions during the third quarter, but overall lending was flat and the rate of member bankruptcies increased over last year, according to data released last week by the NCUA.

From July through September, those credit unions had an 11.3% increase in net income, from $1.8 billion to $3 billion. Net worth rose from $89.3 billion to $90.6 billion, a 1.4% jump.

The delinquency ratio rose to 1.74% from 1.73% in the second quarter. Overall credit union lending was virtually unchanged, it rose 0.1%. Real estate loans rose 0.1%, following a 0.4% growth in the second quarter. Used car loans rose only 1.8% and unsecured loans increased by 1.4%. New vehicle loans fell 3.6%.

The data also showed that the number of members filing for bankruptcy was 268,141 through the third quarter of 2010, compared to 246,386 over the same nine months of 2009. Member bankruptcies reached 323,737 at the end of 2009.

Foreclosed and repossessed assets grew by 8.3% to $1.8 billion in the third quarter.

NCUA Chairman Debbie Matz sought to highlight the positive results, while acknowledging the difficulties.

“Positive trends are emerging,” she said in a statement. Matz singled out a 0.45% increase in return on average assets, compared with a 0.40% rise during the second-quarter.

She added that while credit unions are making progress, the agency is well aware of the “stressed financial environment” facing many credit unions and that is why the agency is increasing the size of its examination staff and making the examination process more rigorous.

The 2011 budget approved by the NCUA Board last month includes funds to add 78 people to the examination staff, including 60 field staff.

The difficulties facing credit unions were also evident in NAFCU's annual survey in preparation for the meeting it held with the Federal Reserve last week.

The report said that increased assessments by the NCUA, coupled with more deposits and slower loan growth have seriously strained many credit unions. Though the association concluded that the “conservative and prudent management” of many credit unions helped them deal with the challenges more effectively than some other financial institutions.

NAFCU's report concluded that a key reason for the loan decline is that the recession and slow recovery caused federal credit unions to tighten their lending standards. According to the NAFCU report, 47.1% of respondents said they were tightening their standards for unsecured loans. That's a decline from 63.6% last year.

The survey also found that 56.2% of respondents tightened standards on unsecured credit cards and 40.6% tightened standards on first mortgages.

Credit union executives cited rising delinquencies and charge-offs, declining property values and funding source constraints as key reasons for the higher standards.

The survey also found that 71% of respondents had seen increased foreclosures notices in the past year and 63.1% had an increase in real estate foreclosures.

The problems of corporate credit unions not only caused natural person credit unions to have to pay more to the NCUA, but also caused them to rethink how much money they want to deposit in them. The survey showed that only 5.1% of respondents will increase their lines of credit at the corporates, compared with 7.3% last year.

In its report, NAFCU said the biggest regulatory concerns are the new regulations likely to be issued by the Bureau of Consumer Financial Protection that will be launched next year and the cap on interchange fees that Congress authorized the Fed to set.

In addition, the association said that the Financial Accounting Standard Board's proposal to expand fair value accounting methods would “add ambiguity and volatility to credit union balance sheets.”

–cmmarx@cutimes.com

Instant Insights /

NCUA Data Shows Lending is Flat and Member Bankruptcies Have Risen

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