CUNA’s May Monthly Credit Union Estimates (MCUE) is the movement’s best, near-real-time, comprehensive summary of the impact the COVID-19 crisis is having on U.S. credit unions. As was the case in April, the effects of the crisis are significant – but are in line with CUNA economists’ expectations.
Most importantly, credit unions remain well-positioned to continue to serve members in the downturn, says CUNA Chief Economist Mike Schenk. The May MCUE report reflects credit union operating results for the first two-and-one-half months of the crisis.
“The effects of immense fiscal and monetary policy responses are obvious: Low market interest rates and the SBA’s Paycheck Protection Program have clearly helped to boost loan growth, while the combination of big stimulus payments and rich unemployment benefits have pushed deposit balances up at an incredible pace,” Schenk said.
Overall, credit union loan balances were up by 1.0% in May - a 12% annualized pace.
“That’s the fastest monthly increase in nearly two years (the June 2018 increase was 1.1%),” Schenk said. “Fixed rate mortgages (+2.0%) and PPP-related growth in commercial loans (+6.7%) accounted for most of the gain, though used autos (+0.6%) also increased at a decent pace. The 12-month increase in loan balances came in at 6.8% - just shy of the full-year 2019 result.”
By May 20 all states that had imposed stay-at-home or shelter in place orders had begun lifting the restrictions and in many areas people were allowed to go back to restaurants and offices and places of worship.
Those developments suggested loan growth might accelerate further in the coming months. However, the recent spike in COVID cases in many states will dim the prospect of big increases in loan demand over the near-term.
“On the deposit side of the ledger, the MCUE data continues to show massive growth in credit union savings balances. Savings balances increased by 2.6% during the month of May, a hefty annualized increase of over 31%. The 12.0% year-to-date May increase is an all-time high over the 30+ years that CUNA has collected MCUE data,” he said. “It’s interesting to note that those increases have occurred against a backdrop of generally rising equity prices and generally declining financial market volatility since the beginning of April.
Credit union members continued to keep savings short and liquid with regular shares and share drafts accounting for roughly 85% of total savings growth in the month.
Fast savings growth and weak loan growth pushed the movement’s loan-to-share ratio down from 84.4% at the start of the year to a four-year low of 76.9%.
“No five-month period in MCUE’s 30-year history reflects a decline as severe as this 7.5 percentage point slide,” Schenk said. “Of course, declining loan-to-share ratios are typically associated with falling net interest margins and weaker bottom-line results.”
Dollar delinquency as a percent of loans held steady, starting the month at 0.69% and ending May at 0.70% - matching the reading at the beginning of the year.
Fast asset growth and more obvious earnings pressures combined to push the aggregate credit union capital-to-asset ratio down from 11.2% at the start of the year to 10.5% at the end of May.
“The 0.80% drop is the most dramatic five- month decline since the Great Recession, but overall capitalization levels are substantially higher than the 7.0% level seen as “well capitalized” by credit union regulators,” Schenk said. “And credit unions collectively remain well-positioned to continue to serve members in the downturn.”
For more information on economic and credit union financial expectations over the next 18 months look to the CUNA Economic and Credit Union Forecast, available at CUNA.org/economics.