Lending and membership growth have slowed. Liquidity borrowings are expensive, but they’re finally starting to plateau. Loan delinquencies have flatlined due to net charge-offs rising. Overall, credit unions remain agile and prepared as they continue serving existing and new members in 2024.
This week, some intriguing industry trends were published as first-quarter 2024 data was released amid the Federal Reserve continuing to shrink the economy’s money supply over the past several months. Callahan and Associates’ First Quarter 2024 TrendWatch webinar revealed deposit, loan, investment, asset, liquidity, capital, and earnings activity as credit union leaders peer over the summer-and-autumn horizon.
Additionally, America’s Credit Unions published its May 2024 Monthly Credit Union Estimates. It shows that U.S. credit union loan growth outstanding (nationally) decreased 0.02 percent quarter-over-quarter in March 2024, on top of a 0.06 percent quarterly decline in February.
Meanwhile, from March 31, 2023 – March 31, 2024 (year-over-year unless otherwise noted), U.S. credit unions experienced the following industry trends according to quarterly call-report data made public by the National Credit Union Administration (NCUA). Please note: 21 large credit unions — out of more than 4,600 nationwide — account for 25 percent of the industry’s assets and affect these trends:
Highlights (Annualized)
By the first quarter of 2024:
- Deposits reached $1.96 trillion (a new record), rising 2.5 percent (compared to 2 percent in the year-ago period prior).
- Assets reached $2.35 trillion (a new record), rising 4.5 percent (compared to 4.4 percent in the year-ago period prior).
- Loans remained at a record $1.62 trillion, rising 4.8 percent (compared to 17.6 percent in the year-ago period prior).
- Investments reached $614 billion, rising 2.7 percent (compared to -17.4 percent in the year-ago period prior).
- Capital (retained earnings for net-worth purposes) rose to $235 billion, increasing 8.7 percent (compared to 3.4 percent in the year-ago period prior).
- Membership reached 142 million (a new record), rising 2.9 percent (compared to 4.3 percent in the year-ago period prior).
Deposit Trends (Annualized)
U.S. credit union deposits reached $1.96 trillion (a new record), rising 2.5 percent (compared to 2 percent in the year-ago period prior). By the first quarter of 2024:
- In first-quarter 2024 versus first-quarter 2023: 43 percent versus 49.9 percent (certificates of deposit); 9 percent versus -0.7 percent (IRA/Keogh); -9.8 percent versus -12.7 percent (money market); -2.8 percent versus 1.3 percent (checking); -9.4 percent versus -4.7 percent (savings) — and 2.5 percent versus 2 percent (total annualized deposit change).
- With greater liquidity needs, larger credit unions are outpacing the median cohort in deposit growth.
- Certificates of deposit (CDs) continue driving deposit growth as members are drawn to higher interest rates.
- Deposit balances in all categories increased.
- Short-term CDs made up 81 percent of CD balances.
Liquidity Trends (Annualized)
By the first quarter of 2024:
- Quarterly deposit growth exceeded quarterly loan growth.
- The industry’s loan-to-deposit ratio dipped
- The average life of the industry’s investment portfolio continues to shorten.
- Unrealized investment losses are constraining investment portfolios in larger credit unions.
- However, new deposits and maturing investments provided cash.
- Additionally, credit unions reduced their borrowings.
- Both borrowing and deposit costs are rising.
Loan Trends (Annualized)
U.S. credit union loans remained at a record $1.62 trillion, rising 4.8 percent (compared to 17.6 percent in the year-ago period prior). By the first quarter of 2024:
- In first-quarter 2024 versus first-quarter 2023: 3 percent versus 39.6 percent (combined HELOCs/home equity loans); 19.6 percent versus 22.4 percent (business/commercial loans); -2.5 percent versus 21.2 percent (new autos); 1.3 percent versus 16.4 percent (used autos); 9.1 percent versus 15.1 percent (credit cards); 3.4 percent versus 12.7 percent (first mortgages) — and 4.8 percent versus 17.6 percent (total annualized loan change).
- Loan originations declined 15 percent one year ago.
- The industry’s share of auto and mortgage loans
- Indirect lending continued to slow.
- Both large and small credit unions are finally growing loans at nearly the same pace compared to the past few years (when larger credit unions outdid smaller ones in this category).
- Growth slowed across the loan portfolio, but HELOCs (home equity lines of credit) and commercial loan balances grew at a double-digit pace.
- Putting aside commercial loans, loan delinquencies improved across the board. However, this latest delinquency improvement trend is mostly due to rising net charge-offs (re-classification/re-categorization).
- The Current Expected Credit Loss (CECL) rule’s impact is being seen in higher allowances for loan losses (ALL).
- The industry’s coverage ratio remains strong — the dollar(s) amount in reserves for every $1 of potential dollar(s) in loan losses/charge-offs and resulting impact to the bottom line/retained earnings.
- New credit union members joined at the slowest pace since 2015.
Asset Quality Trends (Annualized)
Assets reached $2.35 trillion (a new record), rising 4.5 percent (compared to 4.4 percent in the year-ago period prior). By the first quarter of 2024:
- Non-interest income is up slightly over the past year.
- Non-interest income exceeds net income at the average credit union.
- Both asset yields and funding costs are rising.
Earnings, Capital Trends, and Expenses (Annualized)
U.S. credit union investments reached $614 billion, rising 2.7 percent (compared to -17.4 percent in the year-ago period prior). Credit union capital (retained earnings for net-worth purposes) rose to $235 billion, increasing 8.7 percent (compared to 3.4 percent in the year-ago period prior). By the first quarter of 2024:
- Revenue is up 20 percent annually, fueled by higher interest income.
- Net interest margins (NIM) have tightened slightly downward over the past year.
- Fee income has trended down across credit unions, especially since 2019.
- Operating expenses rose 6.2 percent, faster than asset growth.
- Operating expenses increased 6.2 percent, faster than asset growth.
- Provision expenses declined from the quarter before, but it’s up 45 percent versus one year ago.
- Higher operating and provision expenses are resulting in lower return on assets (ROA).
- ROA is lower for the average credit union versus one year ago.
- Net worth and capital ratios
Quarter-Over-Quarter Trends
- Quarterly interest income increased 9 basis points since last quarter.
- Quarterly interest expense rose alongside interest income.
- Quarterly net interest margin (NIM) remains flat for the seventh consecutive quarter.
- The cost of borrowing for credit unions should plateau now that interest rates are steady.
- Net interest income (NII) dropped 6 basis points quarterly, the lowest it’s been in 20 years since first-quarter 2004.
- Operating expenses are up 5 basis points annually, but down 6 basis points quarterly.
- Loan loss provisions dipped 14 basis points
- Return on assets (ROA) increased 21 basis points quarterly, but it’s down 14 basis points annually.
Takeaways and Closing Thoughts
- 2024 is a year of uncertainty for credit unions regarding the economy, interest rates, regulation, and growth opportunities.
- While navigating near-term pressures will be top-of-mind for many, credit unions need to continue to look for opportunities to evolve their business models and create long-term member value.
- The credit union difference comes through most during uncertain times. American households are looking for the help, guidance, and hope that credit unions are designed to deliver. Being there for them now will pay dividends over time.
All trends were obtained from the First Quarter 2024 TrendWatch webinar hosted this past week (view the slide presentation here) by Washington, D.C.-based Callahan & Associates.
