Spring is here, Major League Baseball is in full swing and there's a corollary for credit unions in the post-COVID business environment. An earnings "squeeze play" is on. The industry remains profitable, but exceptional deposit growth and diminished earnings are squeezing capital. This article discusses the earnings pressures credit unions face, their effect and expected duration and a potentially important financial tool that may well help your credit union alleviate capital stresses that inhibit growth.

Key Financials Metrics In 2020

Across all credit union asset size groups, 2020 imposed a peculiar mix of performance metrics.  Deposit growth was impressive at 20.3%. Net interest margin, which had increased in each of the prior seven fiscal years, declined by 34 bps to 2.82%, narrowing the space in which most lending institutions must succeed in order to survive. Declining asset yields significantly outpaced declining cost of funds in an unsustainable race to the bottom. Credit unions responded by cutting operating expenses, which settled at 3.0% at year end; some of the OPEX reductions came from lower credit and debit card expense, which meant corresponding offsets to interchange income. To complicate matters, loan loss provisions were up, jumping to 50 bps, the highest level in a decade as delinquency and charge-offs continued to rise.