First Quarter Stats Highlight Inequity in Credit Union Carve-Outs

Recently, first quarter data was released by the Federal Deposit Insurance Corp. (FDIC) for banks and by the National Credit Union Association (NCUA) for credit unions. Trying to compare some aspects of the data is an apples-to-oranges problem, but some other areas are pretty easy. Yet others leave me baffled! FDIC-insured banks earned $39.1 billion in the first quarter, which is down from the first quarter in 2015 by 1.9 percent. Of that, community banks earned $5.2 billion, which was up 7.4 percent. However, NCUA-insured credit unions earned $9.2 billion on an annualized rate, up 3.5 percent from one year earlier. The overall decline in bank earnings was primarily by the large-bank sector, due to adding $4.2 billion to loan loss reserves to offset potential losses in the energy sector. Also, those same banks saw decreases of noninterest income of $2.2 billion.

FDIC-insured banks increased their outstanding loan and lease portfolios for the year by 6.9 percent, while community banks’ increase was 8.9 percent. However, NCUA-insured credit unions increased outstanding loans and leases by an eye-popping 10.7 percent from the 2015 level. No doubt, the income tax exemption provided to credit union charter institutions allows loan pricing advantages over tax-paying banks.

For banks, capital levels increased by $1.8 billion, which is a 4 percent increase. Credit unions, meanwhile, saw a decrease in overall capital levels of 3 basis points. Even at that, they reported an industrywide capital level of 10.78 percent. It is noteworthy that banks increased capital levels significantly, while credit unions suffered a slight decrease.

Some other interesting statistics from the NCUA report is that, of the 5,954 federally insured credit unions, 493 are over $500 million in assets, 1,047 are between $100 million and $500 million in assets, 2,659 are between $10 million and $100 million in assets, and 1,755 are less than $10 million in assets. The largest of those four groups had 7.8 percent growth in loans outstanding, while the smallest group was down 4.7 percent. The largest group had membership growth of 6 percent, while the smallest was down 0.9 percent. The largest group had a return on average assets of 87 basis points, while the smallest group returned just 5 basis points.

As an industry, credit unions have added 13 million members over the past five years and currently have 103.7 million members (customers), an increase over last year of 3.8 percent. That member base is well over half of the adult population of the United States! It becomes more difficult to warrant the special carve-outs provided to credit unions through reduced regulation and federal tax exemption. From a comparative perspective, the credit union industry and the community banking industry have about the same number of institutions: 5,954 credit unions and 5,664 community banks. This is the battleground. Credit unions rarely compete with the largest commercial banks. Both community banks and credits unions are in the $1 trillion range of assets. How can it be possible today that credit unions continue to enjoy regulatory and tax advantages over community banks? It’s baffling.

– S. Joe DeHaven

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