Widespread pandemic: Learnings and implications evident in first quarter data

In the current environment, member circumstances and behaviors are changing. It is incumbent upon credit union leadership to monitor these changes and respond accordingly.

First quarter call report data provides an indication of how credit unions initially responded to the COVID-19 pandemic. Although the industry likely won’t realize the full impact of the crisis until 2021 or later, this early reading provides insight into what to expect in the second half of 2020, including:

  • A record year for mortgage lending, primarily driven by refinancing activity. Origination balances in the first quarter of 2020 almost doubled first quarter performance from one year ago.
  • A lower loan-to-share ratio as consumer lending slows and share balances increase amid members conserving cash.
  • A negative impact on revenue from lower interest rates and reductions in non-interest income resulting from fee waivers and lower interchange income after a sharp drop in card transaction volume during stay-at-home orders.
  • A significant increase in provision for loan losses as credit unions buffer themselves against the economic fallout of double-digit unemployment. Most don’t expect to begin realizing losses until later in 2020 and into 2021 but do prefer to get ahead of potential issues.
  • A fall in net income from the combination of lower revenue and higher provision expenses.

Although the outlook is sobering, credit unions entered this year with a stronger financial profile than ever before. Asset and capital balances are more than double where they stood entering the Great Recession, operating efficiency is greater, and delinquency is lower. Perhaps most importantly, member relationships are much stronger as measured by product usage and average balances.

 

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