While Canada’s big banks posted record profits this week, B.C.’s credit union system recorded a second consecutive quarterly decline this year.
According to regulatory filings filed by Central 1 Credit Union on August 29, B.C.’s credit union system posted a 14.5% drop in net operating income to $82.5 million for the second quarter ending June 30 from $94.5 million in the same period in 2012.
Higher labour expenses drove the quarterly decline. Financial margins from loans to members dipped only 0.1% year-over-year. But salary and benefit expenses rose 9.7%, or by $14.8 million, compared with labour costs in 2012’s second quarter. Those declines were only partially offset by a $1.2 million drop in the amount of loan losses for the quarter.
Despite the system’s operating results, credit unions continue to attract capital. Combined assets of the B.C. system rose 4.9% year-over-year to $58.2 billion, driven by second-quarter member deposit growth of 6%. For a ninth consecutive year, credit unions were ranked first in overall customer service excellence among all financial institutions in the 2013 Ipsos Best Banking awards.
But results in the second quarter add to the 32% drop in profits in the first quarter of 2013.
The dip in first-quarter results was led by a drop in interest margins of $15 million as lower loan yields offset overall loan growth. Salaries and benefit costs rose $11.4 million and net losses from loans rose $6.2 million compared with 2012’s first quarter.
The results don’t bode well for the federal government expecting higher tax revenue from the country’s local financial cooperatives. The government has hiked the income taxes owed on credit unions to 15% from 11%.
Concerns were raised earlier this week when Deloitte warned that credit unions could face a 28% tax rate because of a technical issue with the legislation that removed the preferential tax rate for financial institutions. But it was later reported that the federal Finance Department will fix the issue.
