The American economy shrank slightly in the first quarter, providing a complicated backdrop for assessing credit union performance data. To prepare for economic uncertainty, members are saving more, moving money into lower-term deposits, and paying down debt. Notably, delinquency bucked recent trends and improved slightly. This could be a positive sign of better financial habit-building; or it could be a temporary reorientation in advance of expected headwinds.
How members’ current behavior might impact future earnings also remains uncertain. One operational positive: The increase in lower dividend-bearing shares brought on a spike in net interest margins that outpaced operating expenses, suggesting that credit unions have wiggle room with respect to earnings.
Takeaway 1: Share Growth Continued To Outpace The Personal Savings Rate
SHARE GROWTH AND THE PERSONAL SAVINGS RATE
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates
- Shares at U.S. credit union grew 4.6% annually in the first quarter. This is the highest growth rate in more than two years and is a positive sign for credit union liquidity.
- More strikingly, this is the second quarter in a row where share growth outpaced the national personal savings rate, which was 4.0% in the first quarter.
- What does this mean? Credit union members appear to be saving more than the typical American, which could mean credit unions are helping members improve their financial wellness. It could also mean credit union members, who tend to be on the lower rung of the economic ladder, are stashing away more money than usual in preparation of an economic downturn.
Takeaway 2: Every Share Product Grew In the First Quarter
3-MONTH SHARE CHANGE BY PRODUCT
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates
- Although credit unions traditionally report a seasonal first quarter bump in shares resulting from tax returns, the $64.7 billion increase in the first quarter of 2025 exceeded 2024’s increase by nearly $11 billion.
- Unlike in quarters past, members aren’t just funneling money into certificates. Every share product increased in the first quarter. In total, the share portfolio grew by $64.7 billion. Regular shares grew the most, at more than $20 billion, but share drafts were not far behind.
- What does this imply? The share certificate value proposition is changing for members. Interest rate and liquidity dynamics might make rate offerings less attractive, but keeping rainy day funds accessible is a growing priority in the face of the unknown.
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Takeaway 3: Loan Demand, Particularly Real Estate, Increased From A Year Ago
YEAR-TO-DATE LOAN ORIGINATIONS
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates
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- Both non-real estate and real estate originations increased from the first quarter of 2024. First quarters are often a slower period for lending, and quarterly total originations did decline 2.5% from year-end; however, this is less of a decline than in prior years.
- Although total loans also grew, the 3.4% annual growth was weaker than 4.6% one year ago. Notably, the gap between mean and median performance widened, with median loan growth dropping to 0.34%. Larger credit unions seem to be driving industry lending.
- The slowdown in loan growth was largely due to year-over-year declines in credit card, used and new auto, and other residential real estate lending. Lending is always a crucial resource for those in need of it; however, members worried about the future might be cutting back on more “optional” financing.
Takeaway 4: Net Interest Margin Outpaced Operating Expense Ratio
OPERATING EXPENSE RATIO VS. NET INTEREST MARGIN
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates
- The net interest margin hit 3.23% in the first quarter — the highest it’s been since 2010. Interest income grew 7.4% whereas interest expense grew just 2.0%.
- The operating expense ratio rose, too, to 3.06%. Operating expenses continue to climb as credit unions invest in employees, travel, and professional services.
- The rise in net interest margin did not translate into higher ROA for credit unions, however, as one-time investment losses resulted in less non-interest income.
Takeaway 5: Asset Quality Dipped As Members Paid Down Debt
ASSET QUALITY RATIO
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates
- The asset quality ratio — the delinquency ratio plus the net charge-off ratio — dipped in the first quarter to the lowest point in a year. At 1.61%, it came in slightly higher than the first quarter of 2024, when it was 1.57%, but was still lower in the first quarter of 2025 than it was in the second through the fourth quarters of 2024. Notably, the delinquency ratio declined to 0.79%, the lowest it’s been in a year and a half.
- Delinquency decreased in all loan categories except commercial, a sign of the effort members are making to stay current on debt payments.
- Loss allowances held steady quarter-over-quarter. Steady allowances coupled with falling delinquency pushed up the coverage ratio quarter-over-quarter and kept it steady year-over-year. It was 164.3% as of March 31, 2025, versus 135.3% last quarter and 164.2% this time last year.
Tony Waltrich contributed to this article.
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