2020: Slower Loan Growth, but Record Originations and Deposits

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U.S. credit unions’ fourth-quarter 2020 financial results show a nearly identical trend coming out of the previous quarter. Refinance mortgages, purchase mortgages, and used auto loans were reinforcing the industry’s lending growth as it continued socking away higher loan-loss provisions and bracing for a possible uptick in delinquencies and charge-offs in 2021.

The latest trends released this week keep showing a changing world for credit unions nationwide as they served members going from autumn into winter. Their balance sheets spotlight an economy in recovery, household budgets recuperating, members still in financial need, savings rates skyrocketing, and record low interest rates mostly incentivizing purchases of homes and used vehicles — or refinancing of both.

This evolving picture was presented by Callahan & Associates Chief Collaboration Officer Jay Johnson and CEO Jon Jeffreys during this week’s “Fourth Quarter Trendwatch” webinar (click here for presentation slides). From Dec. 31, 2019 – Dec. 31, 2020 (year-over-year unless otherwise noted), U.S. credit unions experienced the following trends:

  • The surge in member savings continues.
  • Total loan originations reached a record $680 billion in 2020 as credit unions helped members take advantage of low interest rates.
  • Total deposit balances increased $273 billion in 2020, the largest annual change ever.
  • With more than 60 percent of members holding a credit union checking account, credit unions are increasingly their primary financial institution.
  • The average member relationship grew more than $1,800 in 2020, led by record deposit growth.
  • Total deposit balances increased 20.4 percent ($273 billion) in 2020 to reach $1.6 trillion year-end.
  • Members directed their savings to core deposit accounts in 2020, with total balances in this segment (checking, savings, money market) increasing 29.1 percent annually and accounting for 102.8 percent in total deposit growth.
  • Core deposits in 2020 drove the savings surge, growing nearly six times that of 2019.
  • Rapid deposit growth quickly pushed the industry’s loan-to-deposit ratio (or loan-to-share) lower.
  • The industry’s record total loan originations were led by mortgage lending, with credit unions granting 1.2 million loans for home purchases and refinances.
  • Asset quality remained strong at year-end, and credit unions are well-prepared to navigate member financial challenges in 2021.
  • Credit unions originated 1.2 million mortgage loans for members as rates reached record lows.
  • Total annual loan growth (annual percentage growth of all categories combined) slowed as members reduced debt amid slower consumer spending and economic uncertainty (growth was mostly in first mortgages and used autos).
  • The industry’s total delinquency rose 6 basis points in fourth-quarter 2020, the first quarterly increase of the year (but asset quality metrics improved). Nonetheless, delinquency improved across the industry’s portfolio (although there is uncertainty about the depth of duration of the economic slowdown and recovery).
  • Historically low interest rates reduced the industry’s net interest margin (NIM). Despite a challenging environment, credit unions still posted a positive bottom line and ended the year in a strong financial position.
  • “Other” operating income (including mortgage sales and interchange income) generated marginal revenue growth.
  • Credit unions sold a record amount of low-yielding mortgages to the secondary market.
  • Credit unions reduced fees during the recent economic downturn, lowering fee income per-member to its lowest level since 2005.
  • Returns declined across the balance sheet as interest rates were reduced.
  • The industry’s net interest margin (NIM) tightened 34 basis points in 2020 and sits 19 basis points below the operating expense ratio (OpEx).
  • Credit unions posted $8.5 billion in loan-loss provisions, the highest ever (as uncertainty was still looming regarding loan forbearances/deferments and the economy’s direction).
  • The industry’s return on assets (ROA) decreased 23 basis points, although credit unions remained profitable.
  • The industry’s 10.3 percent net worth ratio remains well above the National Credit Union Administration’s (NCUA) 7-percent “well capitalized” level despite record asset growth (due to deposits).
  • The median net worth ratio at year-end was 10.9 percent, with more than 99 percent of credit union assets “well capitalized.”
  • Credit unions had reserved $1.85 for every $1 of delinquent loans as of late 2020.

CMG’s ‘Credit Union Trends Report’
Released in January 2021, click here to view CUNA Mutual Group Chief Economist Steve Rick’s forecast for U.S. credit union loan and deposit growth for 2021.

Also, you can view his economic projections for the year.

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