Callahan Reports Pleasant Surprises in Q2 Credit Union Performance

Credit unions demonstrated strong performance in several areas in the second quarter of 2020 – including membership growth, share balances, lending and asset quality – despite the economic challenges brought forth by the COVID-19 pandemic.

During Callahan & Associates’ quarterly Trendwatch webinar Wednesday, Chief Collaboration Officer Jay Johnson and President/CEO Jon Jeffreys revealed healthy membership growth numbers, with credit unions adding 4.1 million new members over the last year, and tremendous growth in share balances. In the first six months of 2020, share balances rose nearly three times as much as they did during the first six months of 2019 (13.0% versus 4.9%).

One surprising result from the second quarter, according to the Washington, D.C.-based consulting firm, was that total loan originations rose by 26.5% year-to-date as of June 30, 2020, marking the highest loan volume increase on record during the first half of a calendar year.

That increase was primarily driven by first mortgages, with the loan category at $130.1 billion at the end of June 2020, an increase of 94.2% from the $67 billion recorded during the first six months of 2019. Johnson noted that low rates have particularly drawn borrowers to fixed-rate mortgages – in the first half of 2020, fixed-rate mortgages accounted for 78.4% of all mortgage originations, an increase from 67% during the first half of 2019.

Credit unions’ record loan growth was not only driven by mortgages. “Some credit unions are still going gangbusters on auto lending,” Johnson said, with outstanding used auto loans growing by 3.9% in the first half of the year. Annual growth in loan balances fell in other loan categories as of June 30, with new auto loans at -3.2%, other real estate loans at -2.3% and credit cards at -2.4%. First mortgages led the pack with 12.9% annual growth.

With loan and payment forgiveness programs in place, asset quality at credit unions remained surprisingly strong in the second quarter, Callahan said. As of June 30, the delinquency ratio was at 0.58%, net charge-off ratio at 0.52% and asset quality ratio (net charge-off ratio plus delinquency ratio) totaling 1.10%.

Expanding on credit unions’ remarkable savings growth, Johnson noted that as members curbed their spending, credit unions saw year-over-year growth of 16.5% in total share balances – a jump from last year’s year-over-year growth of 6.0%. He added that interestingly, members have been directing their savings almost exclusively into liquid accounts, with regular share, checking and money market accounts making up 98% of the total share growth for the first six months of 2020. The jump in member savings resulted in a drop in credit unions’ loan-to-share ratio, which was at 76.2% on June 30.

The Callahan executives also reported steady employment numbers at credit unions. As of June 30, credit unions had 305,100 full-time employees and 22,400 part-time employees, representing total employee growth of 1.9% over the previous 12 months. However, that was still significantly lower than the total employee growth percentages reported in 2019 (3.8%), 2018 (3.9%), 2017 (3.8%), 2016 (4.1%) and 2015 (3.4%).

“All of this [growth] wouldn’t have been accomplished without the credit unions’ employees,” Johnson said. “A lot of credit unions’ focus has been on keeping employees safe, but they’re also talking about how to ensure they keep them engaged as they transition to remote work, or to different work environments in the branch or a return to the office. So not they’re not just focused on physical health, but on mental health and engagement.”