Second Quarter, 2020

  • Commercial Banks increased provisioning with provision for loan losses to average assets more than tripling YoY.
  • Reserves/NPAs continue trending upward by 78% for Commercial Banks and 25% for CUs YoY. 
  • Net charge offs as a percentage of average loans remain repressed for CUs but picked up by 12% for Commercial Banks YoY.

Financial Performance

For the quarter, profitability measures in the credit union and commercial bank industries were mixed. Credit union profits increased due to the falling cost of funds and improved efficiencies. Profits for commercial banks decreased primarily due to increased credit provisioning. However, the year over year numbers paint a different picture. The credit union industry’s ROA has been slashed by 40% from a year ago as figures moved to 0.61% from 0.97%, while commercial banks’ ROAs were cut by nearly 75%, as figures have shifted to 0.34% from 1.41%. ROE metrics experienced similar results to ROA figures with steep declines from one year ago; credit unions endured a decline to 5.70% from 8.81%, while commercial banks suffered a drop to 3.35% from 12.24%.

Credit union net income decreased 29% from the previous year, posting $2.63 billion this quarter. Commercial bank net income decreased by 72% to $16.95 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 outpaced the decrease in funding cost (COF). COF for credit unions has fallen into the low 80bps 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 mid 30bps range, which is about 65% lower than one year ago when it was in the high 90bps range.

Credit Union Operating Environment 

Total credit union membership increased, with total membership as of Q2 2020 surpassing 123 million at 123.7 million, up from 119.7 million one year ago—an addition of almost 4 million new members. The total number of branches also increased, by 1,368 branches YoY, and sits around 22,523 branches today. Total industry assets exceeded $1.7 trillion this quarter. YoY asset growth increased to 14.98% from 8.74% a quarter ago, as did share growth, to 16.39% from 8.14%. Loan growth lagged, increasingly only slightly to 6.50% from 6.47% last quarter…

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