U.S. credit union loan growth moderated, loan loss provisions kept ramping up, and investments continued declining as of June 30, 2023. But more importantly, deposit growth plummeted as it clocked in one of the lowest yearly growth rates on record.
This picture was reveled during this week’s Second Quarter 2023 TrendWatch webinar hosted by Callahan and Associates, as it compared second-quarter 2023 industry trends with the year-ago period.
From June 30, 2022 – June 30, 2023 (year-over-year unless otherwise noted), U.S. credit unions experienced the following industry trends according to recent quarterly data made public by the National Credit Union Administration (NCUA):
Highlights (Annualized)
By the second quarter of 2023:
- Membership reached 139.3 million (a new record), rising 4 percent (compared to 4.2 percent in the year-ago period prior). Approximately 5.4 million consumers joined a credit union over the past 12 months.
- Loans reached $1.58 trillion (a new record), rising 12.8 percent (compared to 16.1 percent in the year-ago period prior).
- Deposits reached $1.9 trillion (down from its most recent record), rising 1.4 percent (compared to 8.1 percent in the year-ago period prior).
- Assets reached $2.25 trillion, rising 4 percent (compared to 8 percent in the year-ago period prior).
- Investments dropped to $574 billion, declining -12.6 percent (compared to -6.2 percent in the year-ago period prior).
- Capital (retained earnings for net-worth purposes) rose to $219 billion, increasing 6.5 percent (compared to -3.7 percent in the year-ago period prior).
Loan Trends (Annualized)
U.S. credit union loans reached $1.58 trillion (a new record), rising 12.8 percent (compared to 16.1 percent in the year-ago period prior). By the second quarter of 2023:
- In second-quarter 2023 versus second-quarter 2022: 8 percent versus 17.2 percent (combined HELOCs/home equity loans); 18.1 percent versus 23.6 percent (business/commercial loans); 13.1 percent versus 10.9 percent (new autos); 10.6 percent versus 17.3 percent (used autos); 14 percent versus 12.3 percent (credit cards); 8.8 percent versus 16.3 percent (first mortgages) — and 12.8 percent versus 16.1 percent (total annualized loan change).
- Loan originations declined as consumer demand slowed amid rising interest rates.
- Balance sheet loan growth remained strong as the pace of member paydowns slowed.
- The loan-to-share ratio is at its highest level in four years (but not the highest experienced of all time).
- The Federal Reserve’s interest-rate tightening campaign is evident in member loan demand.
- However, lending still followed seasonal patterns and beat 2019’s pace.
- Auto and mortgage market share fell slightly below peak levels, but they remain strong.
- Loan balances are growing at a strong pace in all categories, with home equity lines of credit (HELOCs)/home equity loans and commercial loans leading the way.
- The profile of new loans is changing from prior years.
- Home equity lines of credit (HELOC)/home equity loan utilization has returned as members tap into higher home values.
- As interest rates have stabilized, fixed mortgage originations rebounded.
- Indirect loan growth slowed for second straight quarter, likely with intention.
Deposit Trends (Annualized)
U.S. credit union deposits reached $1.9 trillion, rising 1.4 percent (compared to 8.1 percent in the year-ago period prior). By the second quarter of 2023:
- In second-quarter 2023 versus second-quarter 2022: 69 percent versus -7.4 percent (certificates of deposit); 5 percent versus -1.2 percent (IRA/Keogh); -17.5 percent versus 13.8 percent (money market); 0.3 percent versus 11.6 percent (checking); –9.1 percent versus 10.2 percent (savings) — and 1.4 percent versus 8.1 percent (total annualized deposit change).
- Deposits are growing at the slowest annual pace this millennium, but there are signs of optimism looking ahead.
- Certificates of deposits (CDs) continue to fuel share growth as members take advantage of higher savings yields.
- Members have directed over $166 billion to CDs over the past 12 months.
Liquidity Trends (Annualized)
By the second quarter of 2023:
- With liquidity borrowing costs for credit unions rising, credit unions still chose to reward savers via certificates of deposits (CDs) and other savings programs.
- Liquidity followed seasonal trends and declined slightly in the second quarter.
- Credit union mortgage sales picked up, supporting liquidity management.
- Cash balances matched 2018 level as a percentage of assets.
- Credit unions have utilized borrowings to diversify funding channels and provide liquidity for member lending.
Asset Quality Trends (Annualized)
Assets reached $2.25 trillion, rising 4 percent (compared to 8 percent in the year-ago period prior). By the second quarter of 2023:
- Asset quality is returning to historical norms.
- Delinquency was centralized in consumer loan types.
- Credit unions are well-reserved for potential loan losses.
- Consumers will resume student loan payments in October of 2023.
Earnings & Capital Trends (Annualized)
U.S. credit union investments dropped to $574 billion, declining -12.6 percent (compared to -6.2 percent in the year-ago period prior). Credit union capital (retained earnings for net-worth purposes) rose to $219 billion, increasing 6.5 percent (compared to -3.7 percent in the year-ago period prior). By the second quarter of 2023:
- Loan yields moved up, in line with cost of funds.
- The net interest margin continued trending up, allowing credit unions to continue to invest in talent and technology.
- Non-interest income increased 3.3 percent.
- Provision expenses rose as credit union leaders remain prepared to serve members.
- Return on Assets (ROA) dipped — mainly due to careful provisioning — but remained stable.
- Net worth and capital ratios
- Higher interest income drove a 34-percent jump in total revenue.
- Credit unions are growing their employee base to serve a growing membership.
- Employee compensation expands as credit unions compete for, and reward, talent.
All trends were obtained from the Second Quarter 2023 TrendWatch webinar hosted this past week (view the slide presentation here) by Washington, D.C.-based Callahan & Associates.
