First Quarter, 2020
- Commercial Banks witnessed record breaking growth in assets and deposits, with 42.3% and 43.0% annualized QOQ
- Credit Unions grew significantly in assets and deposits, with 18.3% and 17.0% annualized QOQ
- Quarterly ROAs for CUs and Commercial Banks steeply declined
Financial Performance
The credit union industry experienced a decline in performance in the first quarter of 2020 while commercial banks experienced its largest decrease in profitability since 2008. For credit unions, profitability dropped due to tighter net interest margins, and increasing efficiency ratios. Profitability for commercial banking decreased mostly due to increasing reserves through provisioning for loan losses, but also lower net interest margins. The credit union industry ROA has nearly been cut in half from a year ago as figures moved from 0.95% to 0.53%. Commercial banking industry ROA is nearly a third of what it was one year ago as figures have shifted to 0.39% from 1.36%. ROE metrics experienced similar results to ROA figures with steep declines from one year ago; credit unions endured a decline from 8.72% to 4.72%, while commercial banks suffered a drop to 3.49% from 11.88%.
CU net income fell 40% from the previous year, posting $2.13 billion this quarter. Commercial bank net income decreased by 69% to $17.41 billion during the same period.
Net interest margins narrowed for credit unions over the last quarter and year as the decreasing yield on earning assets has outpaced the decrease in funding cost (COF). COF for credit unions has fallen into the high 90bps range (of average assets). Yield on investments experienced a deeper decline as opposed to loan yields but both contributed to the decrease of earnings as a percent of assets. Net interest margins also tightened for commercial banks over the last quarter and year. COF for banks is in the high 60bps range, which is about 25% lower than one year ago when it was in the low 90bps range.
Credit Union Operating Environment
Total credit union membership increased, with total membership as of Q1 of 2020 breaching 122 million at 122.7 million, up from 118.6 million one year ago—an addition of 4.1 million new members. The total number of branches has also increased, by over 1,400 branches YoY, and sits around 22,500 branches today. Total industry assets touched $1.66 trillion this quarter. YoY asset growth increased to 8.74% from 7.75% a quarter ago, as did share growth, from 8.04% to 8.14%. Loan growth picked up more by increasing to 6.47% from 6.14% last quarter but is still down from the 800 bps range a year ago…
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