Credit unions had stable earnings and increased their loan loss reserves during the 4th quarter, as reported by Callahan & Associates. Q4 earnings were $100 billion compared to Q3's $103 billion. First mortgage originations dropped slightly from $81 billion to $79 billion.
Compared to Q4 2019, it's an overall increase for earnings and first mortgages. Q4 2019 earnings were $92 billion and first mortgages were $58 billion.
Not knowing what to expect for 2020, credit unions continued increasing their loan loss provisions throughout the year. However, the wave of loan defaults never materialized. With an increase in home values, credit union members were able to pull equity from their homes. For those who lost their jobs, credit unions helped with loan modifications and forbearances. Member fees were also cut, dropping to an average of $66 per member, down from $75 in 2019.
Back in the spring of 2020, “we didn’t know what the recovery phase of the pandemic would look like,” Jon Jeffreys, President/CEO of Callahan & Associates, said to cutimes.com. “There’s not a playbook on how to navigate a financial institution in a pandemic.”
Jeffreys also mentioned that he believes late fees will make a comeback but perhaps not at the same level. Rather than a $20 fee, it might be $15, for example. He doesn't see them returning to zero through.
Credit unions took the conservative approach for loan loss provisions. You could say it was even overly conservative. Earnings didn't take a hit because credit unions didn't have to write off loans due to defaults. Some credit unions took back provisions, reducing their provision expense in the process.
In addition to taking equity out of their homes, credit union members were able to take advantage of low rates to refinance their mortgages. This added to members' ability to meet loan payments and increase their savings.