According to experts on this week’s Third Quarter 2023 TrendWatch webinar, the U.S. credit union industry has “entered a new era” as loan growth continues downshifting, loan loss provisions climb higher, deposit growth limps along, and the cost and dynamics surrounding liquidity borrowings get tighter and more expensive.
From September 30, 2022 – September 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 third quarter of 2023:
- Deposits reached $1.9 trillion (down from a record high in early 2023), rising 0.9 percent (compared to 6.3 percent in the year-ago period prior).
- Assets reached $2.25 trillion, rising 3.7 percent (compared to 6.5 percent in the year-ago period prior).
- Loans reached $1.61 trillion (a new record), rising 9.1 percent (compared to 19.1 percent in the year-ago period prior).
- Investments dropped to $555 billion, declining -8.6 percent (compared to -14.5 percent in the year-ago period prior).
- Capital (retained earnings for net-worth purposes) rose to $219 billion, increasing 9.4 percent (compared to -8 percent in the year-ago period prior).
- Membership reached 140.2 million (a new record), rising 3.4 percent (compared to 4.3 percent in the year-ago period prior). Approximately 4.5 million consumers joined a credit union over the past 12 months.
Deposit Trends (Annualized)
U.S. credit union deposits reached $1.9 trillion (down from a record high in early 2023), rising 0.9 percent (compared to 6.3 percent in the year-ago period prior). By the third quarter of 2023:
- In third-quarter 2023 versus third-quarter 2022: 8 percent versus 2.5 percent (certificates of deposit); 1.4 percent versus -1.1 percent (IRA/Keogh); -18.2 percent versus 6.1 percent (money market); -2.9 percent versus 9.6 percent (checking); -11.7 percent versus 7 percent (savings) — and 0.9 percent versus 6.3 percent (total annualized deposit change).
- The national savings rate declined again, with competitors fighting over fewer deposits.
- Certificates of deposits (CDs) are being used for both attracting new deposits and retaining existing-member deposits.
- “Core deposits” declined $42.3 billion from June – September 2023 (a quickly compressed period).
- Checking accounts and checking penetration climbed steadily.
Liquidity Trends (Annualized)
By the third quarter of 2023:
- Borrowed funds (for liquidity purposes) tripled over the past two years. Credit unions are still increasingly turning to borrowing to support liquidity.
- Tighter consumer budgets and competition are making deposits harder to attract.
- Overall, credit unions’ cost of liquidity only continues to increase — for now.
Loan Trends (Annualized)
U.S. credit union loans reached $1.61 trillion (a new record), rising 9.1 percent (compared to 19.1 percent in the year-ago period prior). By the third quarter of 2023:
- In third-quarter 2023 versus third-quarter 2022: 27 percent versus 29.8 percent (combined HELOCs/home equity loans); 5 percent versus 24.7 percent (business/commercial loans); 6 percent versus 17.9 percent (new autos); 6.4 percent versus 18.9 percent (used autos); 12.5 percent versus 14.1 percent (credit cards); 6.2 percent versus 17.2 percent (first mortgages) — and 9.1 percent versus 19.1 percent (total annualized loan change).
- All loan categories slowed year-over-year, but revolving credit usage remained elevated.
- The industry’s total loan originations slowed year-over-year (especially mortgages — down 40 percent).
- Given where the industry’s mortgage loan portfolio stands, it’s likely that a buyer’s “purchase” market in housing will remain for several years.
- Total loan growth slowed from a record pace, but it still remained historically high (loan paydowns slowed as interest rates rose — offsetting lower loan originations).
- Total member relationships grew (in part) by larger loan balances.
- Still, total industry quarterly originations remain on par with pre-pandemic levels.
- As expected, higher interest rates reduced overall loan demand.
- With tighter liquidity, credit unions are reducing indirect lending and pivoting loan-origination resources to “core members.”
- Loan delinquencies continued rising, but they’re still not too much above the industry’s pre-pandemic average. Credit card and used-auto loan delinquencies drove this increase.
- The industry’s loan-to-deposit ratio climbed back to near pre-pandemic highs (although higher interest rates still drove down overall loan demand).
- Credit unions’ financial services market share grew in several key lending areas.
Asset Quality Trends (Annualized)
Assets reached $2.25 trillion, rising 3.7 percent (compared to 6.5 percent in the year-ago period prior). By the third quarter of 2023:
- Repriced interest-earning investment portfolios drove a record increase in total revenue.
- Both asset yields and funding costs are rising.
- Many investment portfolios are holding unrealized losses (although the maturity profile is slowly shortening).
Earnings, Capital Trends, and Expenses (Annualized)
U.S. credit union investments dropped to $555 billion, declining -8.6 percent (compared to -14.5 percent in the year-ago period prior). Credit union capital (retained earnings for net-worth purposes) rose to $219 billion, increasing 9.4 percent (compared to -8 percent in the year-ago period prior). By the third quarter of 2023:
- Net interest margins (NIM) remained above operating costs, although the gap is closing.
- Credit unions continued to set aside reserves for potential loan losses. However, delinquent loan growth outpaced money (reserves) set aside.
- Return on assets (ROA) remained healthy, especially given the balance-sheet slowdown.
- Capital ratios improved from slower asset growth, and operational efficiency improved as “core revenue” grew.
- There was an increased focus on member service, impacting all areas of operating expenses.
- Credit unions’ employee count expanded 3 percent annually, and credit unions’ total investment in people continued to increase.
- Credit unions earned $3.55 in gross revenue per-dollar spent on employee compensation (the highest rate since 2010).
All trends were obtained from the Third Quarter 2023 TrendWatch webinar hosted this past week (view the slide presentation here) by Washington, D.C.-based Callahan & Associates.
