Navy Federal shows impact of provisions on results

The results of credit unions look radically different this year when loan loss provisions are removed.

This was the case in the second quarter with the nation’s largest credit union, the Navy Federal Credit Union of Vienna, Virginia ($ 147.9 billion in assets, 1.1 million members).

For the three months ended June 30, it generated net income of $ 921.1 million, including a gain of $ 214.3 million due to the withdrawal of a portion of its loan loss provisions. In the second quarter of 2020, net income was $ 67.3 million after subtracting a loan loss allowance of $ 779.4 million.

As it stands, net income was 2.66% of annualized average assets for the second quarter, up from 0.23% in the second quarter of 2020.

Excluding provisions, revenue represented 2.04% of average assets in the second quarter, compared to 3.00% a year earlier.

The main driver of income was net interest. For Navy Federal, it was $ 1.3 billion in the second quarter (before allowance for loan losses), virtually unchanged from either the second quarter of 2020 or the first quarter of this year. When weighted by average assets, it is down 13% from the previous year.

For all Top 10 credit unions, total loan origination was $ 47.9 billion for the three months ending June 30, up 41.3% from the second quarter of 2020 .

Navy Federal creations rose 29.5%, albeit respectably, to $ 23 billion.

The pattern of growth was similar: faster growth moving from real estate to other loans. Navy Federal residential real estate assemblies rose 8.4% to $ 6.8 billion, while non-real estate production rose 41% to $ 16.2 billion.

Navy Federal has experienced faster portfolio growth than others. It had $ 89.1 billion in loans as of June 30, up 6.4% from the previous year. Growth was 3.1% for the Top 10 and 4.8% for all credit unions.

New auto loan balances are down from last year’s levels since December 2019, and used car loan growth slowed last year, but has picked up in recent months. CUNA estimated that credit unions held $ 392.8 billion in auto loans, up 3.5% from the previous year.

Among the top 10, auto loans rose 8.5% to $ 49.1 billion as of June 30.

In contrast, Navy Federal held $ 19.1 billion in auto loans on June 30, up 18.8% from the previous year. New car loans increased 19.5% to $ 8.3 billion, while used car loans increased 18.3% to $ 10.8 billion.

As part of an analysis of CU time ranking among the top 10 credit unions, he contacted Navy Federal for comment. A spokesperson sent responses via email, as noted below.

CU time: Overall, Navy Federal outperforms the others in the Top 10. Navy Federal claimed $ 214 million in loan loss allowance revenue in the quarter, compared to an allowance charge of $ 779.4 million. in the second quarter of 2020. What does this say about loan quality and expectations?

Federal Navy: Some of our members are experiencing more favorable economic conditions, which translates into lower loss expectations. Our forecasts indicate that this trend may continue for our members.

CU time: Your net interest income was practically flat (it was declining for others). Why?

Federal Navy: Our net interest income was supported by our lending and investing activities, as well as the early extinguishment of our debt.

CU time: In addition to the fees and NCUA’s “Other operating income” line, the rest of the non-interest income declined by about $ 76 million, apparently a kind of one-time charge. What was it ?

Federal Navy: We incurred the expense because of the early extinguishment of the debt.

CU time: I see mortgage loan origination increasing, but not as fast as in the first quarter. What trend are you seeing and why?

Federal Navy: We continue to see an improvement in the economy. The low interest rate environment continues to lead to an increase in our origination and refinancing volume. However, many areas of the country where our members live and serve continue to experience inventory constraints, which could impact volume.

CU time: I see non-real estate build-ups growing much faster than real estate build-ups, and I see your auto balances increasing as well. How closely is this related? Do you see a significant improvement in the automobile and what do you attribute it to?

Federal Navy: We believe the increase in emissions from new and used car loans reflects pent-up demand from 2020, as people return to their workplaces or seek to replace their old vehicles that they retained during the pandemic. .

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