Credit unions can finally see the full picture of how the industry performed in 2020, and while it’s not pretty, it could have been worse.
Membership continued to grow, lending never dried up – thanks in large part to the mortgage-refinancing boom – and there was no liquidity crisis. However, as the National Credit Union Administration’s latest Quarterly Credit Union Data Summary shows, there were plenty of stiff headwinds at the close of last year that will continue to dog the industry well into 2021.
Deposit growth remains extremely high, with the industry closing out 2020 with insured shares and deposits up nearly 20% from one year before. On top of that, lending continued to slow, ending the year with growth of just 4.9%, and the loan-to-share ratio fell by more than 10 points compared to where it stood at the end of 2019.
If there’s good news to be found, it’s that the pace of consolidation in the industry wasn’t largely impacted by the pandemic and recession, and delinquency rates remain low.
- Assets and deposits surge
Credit union assets rose more than twice as fast in 2020 as they did in 2019, and the NCUA report shows the industry closed out last year with total assets of $1.84 trillion, a 17.7% increase from the previous year. By comparison, assets were up by 7.8% at the end of 2019.
Insured shares and deposits were up 19.8% to $1.47 trillion, compared with growth of just 7.4% the year before.
Total investments with maturities of three months or more were up a whopping 34.5% to reach $353.8 billion. That’s compared to growth of just 3.9% the year before, and reflects that credit unions are actively looking for other revenue opportunities as deposits roll in and lending slows.
- Membership growth continues to slide
The industry had 136 fewer federally insured credit unions at the end of 2020 than it had at the end of 2019, for a total of 5,099 active institutions. That is roughly the same rate of consolidation seen the previous year and is consistent with long-running trends, the agency said.
However, membership growth slowed slightly, with 4 million new members joining the rolls compared to 4.2 million the year before. Total membership at the end of 2020 stood at 124.3 million.
Federal charters currently comprise about 62% of the industry, with state-chartered institutions making up the remainder.
The number of credit unions with a low-income designation reached 2,642 at the end of the fourth quarter, up from 2,605 at the end of 2019, a slowdown compared to the 51 CUs that received that designation in 2019.
- Most lending slows
Total loans increased just 4.9% last year to reach a total of $1.16 trillion. By comparison, lending rose 6.2% in 2019.
Still, the industry’s average outstanding loan balance was up 3.2% from one year before, compared with growth of just 2.4% in 2019, reflective of the massive impact the home refinancing boom has had on credit union loan portfolios.
Mortgages closed out the fourth quarter with a 6.3% year-over-year lift, though that represented a slowdown from the 9% year-over-year growth seen at the end of the third quarter.
Auto loans were a mixed bag, rising just 1.3% overall, with used auto loans up by 4.5% and new auto loans down 3.7%. Credit card balances were also down, falling 6.4% to $61.8 billion. Commercial lending remained a bright spot, rising 15.2% year-over-year to reach $94.3 billion. That’s a slight decline from the 15.3% growth rate reported one year prior.
The industry’s loan-to-share ratio fell by more than 10 points to 73.2%, down from 84% at the end of 2019 and down from 85.6% at the end of 2018.
- Delinquencies down again
Despite the pandemic, recession and widespread unemployment, delinquency rates remain low. The industry's delinquency rate finished the year at 60 basis points, a 10-point drop from the fourth quarter of 2019.
Many loan categories saw delinquency rates stay steady or even improve. Fixed-rate real estate loans held at 43 basis points at the end of the fourth quarter, equal to where they stood one year before, while credit card delinquency rates fell substantially, finishing the year at 102 basis points, compared to 140 basis points at the end of 2019.
Delinquency rates on auto loans declined from 64 basis points at the end of 2019 to 50 basis points at the end of 2020, while commercial loans saw delinquencies tick up slightly, from 64 basis points at the end of 2019 to 68 basis points at the end of 2020.
The industry’s charge-off ratio stood at 45 basis points at the end of 2020, compared with 56 basis points the year before.
- Earnings stumble
Net income fell 14.9% compared to the fourth quarter of 2019, including a 1.8% ($1.1 billion) decline in interest income. However, noninterest income was up 11.3% ($23.6 billion) due mainly to what NCUA called “growth in other operating income.”
Interest expenses were also down, falling 11%, or $1.5 billion, from the end of 2019. Noninterest expenses, however, were up 6% to total $51.3 billion, with much of that driven by rising labor costs, which rose by 7.8% year-over-year, NCUA reported.
Credit unions’ aggregate net interest margin was up just 0.8% to $48.1 billion, compared to growth of nearly 8% at the end of 2019.
Allowances for credit losses surged by 30% to total $8.5 billion, compared with a decline of 0.8% in 2019.
- In 2020, bigger was better
Large credit unions continue to make most of the gains for the industry. Institutions with $500 million of assets or more hold 82% of all assets but make up less than 13% of the industry. Credit unions with at least $1 billion of assets saw lending increase by 9.2% while membership was up 9.7% and net worth increased 11.8%. Those with assets of $500 million or more also saw growth in those areas but at a slower pace.
Credit unions in every other asset category reported declines in lending, membership and net worth.
- Small credit unions getting squeezed
Return on average assets for the industry fell sharply year-over-year, dropping from 93 basis points at the end of 2019 to 70 at the close of 2020. Median ROA was 40 basis points, a 20 basis-point decline from where things stood one year prior.
While institutions of all sizes saw ROA decline by similar margins, the situation is worse at the lower end of the asset spectrum. ROA for credit unions with assets of $1 billion or more – which represent less than 1% of all active institutions – stood at 0.78% at the end of the fourth quarter. Meanwhile, credit unions with assets of $10 million or less – which make up over 22% of the industry – reported ROA of just 0.06%.
Overall, small credit unions – by NCUA’s definition, those with assets of $100 million or less – reported ROA of 0.37%.
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