Industry Trends: COVID-19 (1Q20)

First quarter data provides the earliest picture of the COVID-19 crisis on the credit union industry.

The first quarter of 2020 ended with the start of COVID-19 shutdowns, forcing many businesses to close and the economy to stagnate. Financial institutions, many of which rely on a high velocity i.e., turnover of money, have been struggling to control drastic swings in deposit and loan balances. The U.S. Government and Federal Reserve have stepped in to provide some relief, but the uncertainty of the situation has challenged institutions, including credit unions, to find ways to continue operations and support consumers while also maintaining their own solvency.

Key Points

  • The credit union loan-to-share ratio fell to 81.1% at the end of March, a decline of 2.8 percentage points from year-end 2019 and 1.2 percentage points below one year ago. As a result, credit unions have added $48.7 billion of liquidity to their balance sheets since last quarter, the largest total on record.
  • Loan originations remained strong following two Federal Reserve rate cuts. Driven by mortgage refinances, year-to-date originations totaled $140.0 billion, the most ever in a first quarter. Still, shares grew faster with 15.6% annual growth in certificates and 10.7% growth in drafts leading the way.
  • Total delinquency was up 5 basis points from a year ago to 0.63%. Credit unions, however, were prepared for this increase with a coverage ratio allowance for loan loss over delinquent loans of 142.0% as of March 31.
  • Total credit card lines grew 8.6% annually to $217.0 billion. This increase reflects the additional credit members sought as unemployment levels rose.

NET LIQUIDITY CHANGE

FOR U.S. CREDIT UNIONS | DATA AS OF 03.31.20
Callahan & Associates | CreditUnions.com

The industry’s loan-to-share ratio fell dramatically as members flocked to safe-haven deposits, leading to the largest quarterly net liquidity increase on record.

COVERAGE RATIO: NOW VS THE GREAT RECESSION

FOR U.S. CREDIT UNIONS | DATA AS OF 03.31.20
Callahan & Associates | CreditUnions.com

Coverage ratios are far higher now than they were in 2007-2008, the last time the U.S. faced an economic collapse of this magnitude.

TOTAL LINES OF CREDIT AND CREDIT CARD UTILIZATION

FOR U.S. CREDIT UNIONS | DATA AS OF 03.31.20
Callahan & Associates | CreditUnions.com

Credit unions have added lines of credit to provide relief to members.


The Bottom Line

Although low interest rates have spurred loan demand among members, the sudden rate cuts compressed credit union margins, and the industry’s net income is down dramatically as a result. Despite this, early signs show credit unions are prepared to aid their members and are well-capitalized enough to cover expected losses, though net worth levels will need to be monitored if share liabilities continue to increase.

Without official data from the NCUA, Callahan is reporting first quarter data trends from institutions that represent 99.7% of the industry’s assets.

This article appeared originally in Credit Union Strategy & Performance. Read More Today.

June 30, 2020

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