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A Canary in the Coal Mine? Reviewing Credit Union Financials From 2020

We’re all familiar with the canary in the coal mine allusion. It describes an early warning sentinel that can help alert us to danger when there is still time to take evasive action. Filene partner Mike Higgins may have found a fallen canary in our collective credit union financials.

Looking back

2020 started out with such great promise. The economy was continuing its long run of expansion since the great recession of 2008-09. Employment was near record levels. The yield curve was driving up net interest margin. All was good. Then COVID-19 arrived. By the end of the first quarter, we all thought quarantining for six weeks would be enough squash it and everything would turn back to normal by summer. How innocent and naïve we were! Now that we have financial data from the entire year, we can begin to analyze and take stock of how credit unions have been performing during the pandemic.

In the research brief, “Hidden Figures: Clearing the Financial Fog Brought About by The Pandemic,” Mike reviews call report data from 2020 and finds that net revenues for credit unions dropped by 48 basis points in the fourth quarter. Net revenue is the canary in the coal mine—an early indicator of trouble on the horizon.

Note: Data comes from credit unions in the $200 million to $5 billion asset size range. Top line net revenue includes interest income less interest expense plus non-interest income. Return on average assets using rolling four-quarters to eliminate seasonality.

Think about what your top line revenue was last year, shave 0.48% off that figure and see how it makes you feel.

  • Should credit unions be concerned?
  • How is the new excess liquidity from 2020 affecting net worth ratios?
  • Will those anticipated charge-offs ever materialize and if so, when?
  • How will credit union performance be affected?
  • If a response is called for, what form should it take?
  • Is that daylight we are beginning to see at the end of the tunnel, or the headlight from an oncoming freight train?

Credit unions have been resilient in the face of the pandemic, and they have taken important steps to protect member well-being. Looking back at our collective financials from 2020 provides insight into how well the system has weathered the storm and clues indicating the path forward.