While real estate originations rose 30.8% compared to 1Q24, a seemingly impressive year-over-year gain, they dropped by 13.6% compared to the final three months of 2024. That decline was largely due to first mortgage and commercial originations, as other real estate originations — mainly HELOCs — grew 2.1%.

What drove these shifts in lending? First quarter data suggests it may be the result of changing member behaviors in the face of new market dynamics and economic headwinds.

Quarterly Loan Originations
For U.S. Credit Unions | Data as of 3.31.2025

1. Consumer Lending Gets A Boost

Consumer loan originations jumped 4.4% quarter-over-quarter, reflecting the needs of members and their relationship with their credit union.

While members increased total credit card balances by 3.7% year-over-year, utilization declined by almost a full percentage point since the fourth quarter of 2024. However, this is somewhat typical of the first quarter, as spending is usually lower after the frenzy of the holiday season, and more members spend cash as tax returns are deposited into their accounts.

Vehicle purchases also played a role boosting consumer loan originations. U.S. car sales saw a bump in March from consumers rushing to dealerships to get ahead of tariffs, but credit unions were not the only lender to benefit. Auto manufacturers’ lending departments and other finance companies linked to the dealership gained market share in the first quarter. These companies — eager to move inventory quickly — offer low-cost financing that many consumers can’t pass up.

Auto loan balances held by credit unions declined slightly year-over-year, meaning the industry is not quite originating enough auto loans to replace the amount of paydowns on existing loans.

YTD Auto Origination Market Share by Lender Type
Data as of 3.31.2025 | Source: Experian

2.Real Estate Loans Reflect Changing Market Dynamics

In the first quarter, credit unions increased HELOC balances, while first mortgages were stagnant. On the commercial side, real estate lending is up significantly year-over-year, driven by new approaches to commercial lending.

Members continued to pursue more HELOCs, as they’ve come to rely on recent increases in home equity to take out credit. The home purchase market remained quiet in the first quarter, and refinances were rare, due in part to the Federal Reserve’s “higher for longer” approach to interest rates. In light of this, credit unions originated more adjustable rate and balloon/hybrid mortgages compared to the first quarter of 2024, as more members might be expecting mortgage rates to drop.

On the commercial side, real estate loans are still a specialized loan product for credit unions. Commercial originations cooled off in the first quarter after an active end to 2024, but are still up 62.4% year-over-year.

Members are increasingly considering credit unions when looking for a lender for a large commercial loan. This growth reflects how credit unions are building out their commercial lending teams, and some are acquiring banks to capture the talent and expertise of proven commercial lenders.

Total HELOC Balances and Utilization
For U.S. Credit Unions | Data as of 3.31.2025

3.Earnings On The Upswing

How do these changes influence the income statement? Advantageously, it appears.

The 30-year fixed rate mortgage averaged 6.83% during the first quarter, 20 basis points higher than the fourth quarter. More pandemic-era loans are being paid down and replaced by higher-yielding loans on credit union balance sheets. This caused the average loan yield for credit unions to reach 5.97% in 1Q25, up 14 basis points from year-end.

Further, consumer loans typically carry a higher interest rate than those backed by real estate, and consumer originations reported the most growth in 1Q25.

Member borrowing behavior is in transition, shaped by economic constraints and shifting priorities. The modest rebound in real estate originations — driven primarily by home equity loans — signals that members are still leveraging their homes, but not necessarily moving or refinancing. Meanwhile, consumer loan originations have taken the spotlight despite credit unions struggling to maintain market share in auto lending. The growth in commercial lending suggests new opportunities to meet members’ needs but also increased complexity. For credit unions, understanding and adapting to these changing borrowing patterns will be essential for staying relevant in a shifting economic environment.

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Since September 2024, however, the inflow of higher-yielding assets has slowed. Consequently, revenue growth has also slowed. Credit union revenue grew 14.6% in 2024, nearly half the rate reported in 2023.

Interest on loans — the primary driver of growth — increased 16.1% in 2024 versus 33.0% growth in 2023. Interest rates on loans have plateaued, liquidity is tight, and consumer demand for loans is soft, creating a difficult lending environment for credit unions. As such, loan balances were up only 2.6% in 2024.

At the same time, growth in investment income slowed from 63.1% in 2023 to 23.7% in 2024 as credit unions reduced their investment portfolios as part of a larger balance sheet management strategy.

ANNUAL GROWTH OF REVENUE AND LOAN INTEREST INCOME
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

Where’s The Bang For The Buck

That fact that revenue is still growing is a good sign. However, expenses are growing, too, albeit at a slower pace since 2022.

Operating expenses grew 6.2% in 2024, expanding to 3.04% of average assets. That increase did not come from one single area; all major categories of operating expenses grew at least 2.8%. Compensation per employee expanded 6.2% in 2024 despite employee counts remaining relatively stable. Average compensation closed out 2024 at $102,855 per employee.

Spending on professional and outside services also increased in 2024, a sign that credit unions might be trying to outsource tasks rather than hire in-house. Such investments can prove to be beneficial down the line but are often expensive up front.

ANNUAL OPERATING EXPENSE GROWTH BY TYPE
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

Credit unions generated $3.86 in revenue for every dollar spent on employee compensation — a stable but unchanged figure from the third quarter. This ratio levelled off similarly at the end of 2024 for banks with less than $10 billion in assets, although at a higher $4.37 per dollar of compensation expense. If future revenue growth struggles to keep pace with rising compensation costs, this metric will decline across all financial institutions.

REVENUE PER SALARY AND BENEFITS EXPENSE
FOR U.S. CREDIT UNIONS AND BANKS <$10B
SOURCE: Callahan & Associates

Cautious Support

Provision expenses represented another area of increased growth. They jumped 25.6% year-over-year in 2024 and comprised 0.62% of average assets at year-end 2024 versus 0.51% one year earlier.
Members have depleted their savings and have little excess to cover debt obligations. Consequently, asset quality has worsened. The net charge-off ratio increased 19 basis points in 2024, and the delinquency ratio increased 14 basis points. This erosion of asset quality plus new CECL accounting standards have pushed credit unions to allocate substantially more to cover potential losses.

However, it’s important to note credit unions should be concerned about more than their financial statements when evidence arises that members are struggling. Although provisions do impact earnings, credit unions exist to support members in need. Hard times necessitate special measures.

Cause For Optimism

As operating expenses and provisions grow, credit unions look to support earnings through margin management and non-interest income.

Falling rates can boost margins because they generally make funding sources less expensive, too. Although competition might support prolonged elevated deposits, borrowing costs should drop for those in need of funds.

On the lending side, high rates have pushed many members to the sidelines; however, real estate offers an avenue for optimism. The mortgage market — both purchases and refinances — flashed life in the fourth quarter. First mortgage loan originations rose 40.5% in the fourth quarter of 2024 versus the fourth quarter of 2023. Real estate lending has been in decline the past several years, but if interest rates continue to drop in 2025 and originations continue to rise, it could be a saving grace for credit union revenue.

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Credit unions could benefit from reduced funding costs and new repricing opportunities. Those will most likely impact borrowings, loans, and investments, and many institutions will be looking to regain balance sheet flexibility as these shifts continue.

The New Normal — Now What?

Liquidity needs drove many balance sheet decisions in recent years, including lending and deposit strategies, investment portfolio management, and capital generation.

After rapid rate increases in 2022 and 2023, credit unions have adjusted to the new normal just in time for a rate cut cycle. Many shops are preparing for this shift by maximizing balance sheet flexibility.

• Borrowings now fund 5.2% of industry assets, down from a peak of 6.0% at the start of 2024, as managers started to pay down these costly funding sources. Loan and share growth continue to move at the same slow pace, lessening the need to lean on borrowings to meet loan demand.
• During the past 12 months, credit unions attracted $61 billion in shares — primarily through certificate promotions — while loan balances increased just $42 billion. This is a stark contrast from 2022 and much of 2023, when loans on the balance sheet often outpaced incoming shares by more than $100 billion over any given 12-month

After a dramatic two-year increase, the loan-to-share ratio has flattened, hitting 84.2% at the end of the third quarter. Even with the worst of the liquidity crunch behind them, many credit unions are sitting on the sidelines, reducing certificate promotions, paying down borrowings, and slowing their lending. The goal is to wait for rate cuts, which should bring cheaper funding opportunities.

Your Performance Packet Is Ready. It’s Time To Take Your Credit Union To The Next Level. Sit down with a Callahan advisor to review your tailored performance packet, and we’ll show you how your credit union measures up against peers in cost of funds, investment and loan yields, loans to shares, and more. Armed with this knowledge, your leadership team can make better plans and set stronger goals. What are you waiting for? Request your session today.

LOAN-TO-SHARE RATIO
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

Rates And Repricing Opportunities

With inflation seemingly under control, the Fed has shifted its goals toward economic stimulation. Core inflation hit 3.2% in August, a number the Fed seems to be more comfortable with. Along with that, the Fed has cut its benchmark rate by 75 basis points since September.

However, economic data released after the Fed’s November meeting generated mixed reactions. Stronger-than-expected retail sales in October led some Fed officials to suggest the economy still has some cooling off to do and advised that the Fed should pause further rate cuts until inflation nears the traditional 2% target.

Once more rate cuts come, credit unions will have an opportunity to reprice some deposits and borrowings at lower rates.

• More than 80% of current share certificate balances are set to mature by the end of September 2025. That represents 23.4% of total shares. Credit unions will likely wish to keep these funds around after the certificates mature, ideally at a lower cost. Members could reinvest in another certificate, move the funds into another account, or into a brokerage account to invest in the stock market.
• Keeping funds in-house could provide some relief. Credit unions’ cost of funds increased 67 bps year-over-year to 2.13% in the third quarter of 2024.

YIELD ANALYSIS (ANNUALIZED)
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

Borrowings represent a less-prominent repricing opportunity.

• 3% of current borrowings are set to mature by September 2025.
• The average cost of borrowings settled at 5.17% in the third quarter. That gives the 1,064 U.S. credit unions that borrow real opportunity to reduce costs if interest rates fall.

More Borrowing Ahead?

Borrowing can be a cost-effective option should members move their funds elsewhere as certificates mature. Although the prevailing rate environment does impact deposit prices, cash availability and competition play a significant role. Borrowings, on the other hand, should be available at cheaper costs following rate cuts and can be used if member shares remain hard to come by. Borrowed money only comprises 5.2% of industry assets today but could grow as rates decline.

Lower benchmark rates won’t only be felt in funding costs, but in loans and investments too.

• 8% of real estate loan dollars outstanding are set to contractually reprice, mature, or refinance in the next five years — up from 26.4% one year ago. However, some of these maturing and repricing loans are pandemic-era loans originated at even lower interest rates than today’s environment, so even with rate cuts coming, we could see some repricing to the upside.
• 7% of the industry’s investment securities will mature in the next 12 months, offering little time to reinvest these funds into higher investment yields before rates move lower.
• Similar to loans, many of these maturing investments were purchased when yields were ultra-low during 2020 and 2021, so most credit unions hope to move these assets off the books as soon as possible. For credit unions with spare liquidity to invest today, locking in termed securities pre-rate cuts could provide an added boost to the earnings in the years to come, and could even generate some portfolio gains — a welcome concept after the past few years of handcuffing unrealized losses.

Recent rate cuts reduced the industry’s total unrealized loss on available-for-sale securities by $8.4 billion in the third quarter. That boosted capital and provided some relief for portfolio managers locked into these losing securities for the past few years. These securities haven’t yet reached their break-even price, but the smaller the unrealized loss, the easier it is to sell the security. That will free up liquidity to lend to members or reinvest at today’s higher rates.

ACCUMULATED UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

Ultimately, rate cuts should give credit unions something they haven’t had for the past couple years — flexibility. Just over 25% of combined termed shares and borrowings will mature in the next year, and credit unions will look to reduce the interest rates paid on existing deposits should rate cuts materialize. This will lower the cost of funds, which has more than quadrupled during the past two years. Funds from maturing investments will either be reinvested at lower yields or loaned to the community should demand rebound. Credit unions have learned from the past and  are positioned to adapt their balance sheets to whatever comes in 2025.

Higher interest rates have forced members to pick and choose which debts to repay and which to postpone, which doesn’t are well for revolving products. Read more in “Asset Quality Is Worsening. Is There Light On The Horizon?”

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Your Midyear Board Packet Is Ready. Sit down with a Callahan advisor to review your tailored performance packet, and we’ll show you how your credit union measures up against others. Armed with this knowledge, your leadership team can make better plans and set stronger goals for 2025 and beyond. What are you waiting for? Request Your Packet Today.

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The Federal Reserve is projected to cut rates several times in 2024; however, even if it does, soaring prices and dwindling savings leave Americans with little incentive to make a big purchase.

YTD LOAN ORIGINATIONS
FOR U.S. CREDIT UNIONS | DATA AS OF 3.31.2024
© CALLAHAN & ASSOCIATES | CREDITUNIONS.COM

• Total loan originations for U.S. credit unions declined 15.6% year-over-year to the lowest first quarter total since 2019. Non-real estate loan originations declined 18.3%; real estate fell 9.9%.
• A HELOC boom cushioned the decline in real estate originations. That origination category — other residential real estate — increased 6.7% year-over-year. Members are using the equity derived from higher home values to make home improvements, consolidate debt, and fund major purchases.
• Commercial real estate originations fell 25.8% year-over-year, a milder decline than in the first quarter of 2023. Commercial originations comprised 14.7% of total real estate originations, down 3.1 percentage points from a year ago.
• Non-real estate originations declined 18.3% year-over-year, largely driven by credit unions tapping the breaks on indirect lending. The active origination years of the pandemic are over; fortunately, the rates of June 2024 rates offered stronger loan yield and revenue for lenders.

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CREDIT UNION MARKET SHARE OF ORIGINATIONS BY PRODUCT
FOR U.S. CREDIT UNIONS | DATA AS OF 3.31.2024
© CALLAHAN & ASSOCIATES | CREDITUNIONS.COM

• Credit unions surrendered market share in both auto and first mortgage in the first quarter of 2024; revolving consumer loan market share was unchanged. The fall in auto represents a return to the industry’s historical norm.
• Credit unions might be shying away from used autos in particular because of declining asset quality — used auto loan net charge-offs spiked to 1.03% in the first quarter of 2024. Autos sourced through indirect channels are also suffering from worsened asset quality, further exacerbating the credit union pull-away from indirect partnerships.
• Suppressed production of new cars in 2020 and 2021 has trickled down to create a low supply of used cars in today’s market. Meanwhile, the supply of new cars has recovered, but consumers are struggling to afford the higher borrowing costs. This dynamic is pushing dealers to offer better incentives for new cars, making them the most affordable — based on how many weeks of income it takes to purchase the average new vehicle — since July 2021, according to Cox Automotive.

RESIDENTIAL FIRST MORTGAGE ORIGINATION COMPOSITION
FOR U.S. CREDIT UNIONS | DATA AS OF 3.31.2024
© CALLAHAN & ASSOCIATES | CREDITUNIONS.COM

• From December 2023 to June 2024, high rates and home prices have created a lethal combination of affordability in the mortgage market. Financial institutions would readily lock in 30-year mortgages at today’s high rates, but prospective homebuyers are less inclined. Those interested in homeownership are adopting a wait-and-see mentality, hoping affordability improves.
• Current trends in first mortgage originations show a strong borrower preference for adjustable rate and balloon/hybrid mortgages. Two years ago, when interest rates were only beginning to rise, fixed-rate mortgages comprised 80.2% of originations. Today, they comprise 58.9%, which is on par with the years prior to 2020. Higher rates have also dampened refinance activity, as the majority of mortgages are locked into low rates.

The post Originations Slide As Lenders Tighten Underwriting appeared first on CreditUnions.com.

Projected 2025 AI Adoption By Business Function
DATA AS OF 2022
© Callahan & Associates | CreditUnions.com

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WEIGHTED AVERAGE LIFE OF INVESTMENT PORTFOLIO (INCL. CASH)
FOR U.S. CREDIT UNIONS | DATA AS OF 06.30.23
© Callahan & Associates | CreditUnions.com

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QUARTERLY NSF AND OVERDRAFT FEES PER SHARE DRAFT ACCOUNT
FOR U.S. CREDIT UNIONS | DATA AS OF 06.30.23
© Callahan & Associates | CreditUnions.com

The 5300 Call Report breaks non-interest income into two major categories — fee income and other operating income. These broad categories are composed of many separate, important subcategories that, in many ways, can be more enlightening than the overall category totals. Tracking non-interest income subcategories, for example, allows credit unions to better monitor income streams, evaluate how revenue has changed over time, compare results against peers, and develop new, informed strategies to improve overall performance.

Callahan & Associates sponsors a non-interest income study to gauge the state of non-interest income among credit unions. Read the results below and learn how you can participate today.

• For all credit unions, total fee income increased 1.0% year-over-year, whereas total non-interest income increased 3.7%. For credit unions that participated in the Callahan study, that growth was 6.2% and 18.2%, respectively.
• Non-sufficient funds (NSF) and overdraft fees accounted for 47.7% of total fees collected year-to-date in 2023 for credit unions that participated in the Callahan study. On average, each member paid $9.10 in NSF and overdraft fees in the second quarter, a slight increase from one year ago.
• In the second quarter, credit unions in the Callahan study collected $14.30 in NSF and overdraft fees per share draft account. Participating credit unions in the Eastern region collected $9.30 per account, compared with $16.00 for Western region cooperatives.
• Increased inflation pushes members to tighten budgets and draw down savings balances to pay for rising expenses, such as food and gas. Consequently, NSF and overdraft fee income also increases — but at the expense of the member.

 

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Despite the strong top-level growth, economists pointed to a reduction in consumer spending as a point of concern. However, the slowdown in spending was not as drastic as many feared and is the expected response to the actions taken by the Federal Reserve as it works to tame inflation. Speaking of, inflation slowed in the quarter, fueling optimism for a soft landing as GDP and inflation continue to trend in opposite directions.

Don’t Miss Out! Callahan’s quarterly Credit Union Strategy & Performance is available for download in the Callahan Client portal today. Not a client? Learn how you can gain access to our award-winning publications, intuitive benchmarking tools, collaborative networks, and more.

Key Points

• Total assets at U.S. credit unions increased 3.8% year-over-year but only 0.3% since March 31 — the slowest quarterly expansion in almost a decade.
• Credit unions added 5.1 million members during the past 12 months. Membership reached 139.1 million at midyear, representing 3.8% growth.
• Share balances outstanding increased 1.2% annually, hovering near historic lows. Loan balances rose 12.6% over the same period, pushing up the loan-to-share ratio 8.4 percentage points. Credit unions lent 83.1 cents for every dollar on deposit.
• Revenue for the industry grew 33.4% year-over-year as margins repriced to higher rates, but an increase in expenses across the board reduced industry ROA 7 basis points to 0.79%.

Performance At-A-Glance

CPI inflation slowed to 3.0% in June, a welcome sign for consumers worn down by higher prices.

U.S. REAL GDP
FOR U.S. CREDIT UNIONS | DATA AS OF 06.30.23
© Callahan & Associates | CreditUnions.com

Real GDP increased 2.1% (annualized) quarter-over-quarter, aided by higher government spending.

CREDIT UNION INDUSTRY OVERVIEW
FOR U.S. CREDIT UNIONS | DATA AS OF 06.30.23
© Callahan & Associates | CreditUnions.com

Loan balances rapidly expanded as early paydown rates slowed. Relatedly, inflation strained member budgets, making deposit funding hard to come by.

The Bottom Line

Credit union earnings benefitted from rate increases by adding high-yielding loans to their balance sheets, which expanded top-line revenue. However, correspondingly higher funding costs offset some of these gains on the margins.
Credit unions also set more money aside for future losses, leaving themselves well-covered in the event of an economic downturn. For institutions with sufficient liquidity, booking loans at these rates should benefit their bottom line and allow them to build necessary capital. That is easier said than done in a low-savings environment, but cooperatives have reason to be optimistic. Members are joining at record rates even amid a cooling economy, and members’ financial health is normalizing after a few rocky years.

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EXPECTED STUDENT LOAN PAYMENT AMOUNTS
FOR U.S. CONSUMERS RESUMING PAYMENTS| DATA AS OF JULY 2023
© Callahan & Associates | CreditUnions.com

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