Drilling down, nearly 26 million credit union members, or 17.7%, have a credit union credit card, and credit unions hold $86.4 billion in credit card loans on their balance sheets. Credit card borrowing at U.S. credit unions has steadily increased since the COVID-19 pandemic as households struggle to keep up with inflation.

In early 2026, the Trump Administration, in conjunction with bipartisan allies in Congress, announced a plan for a 10% cap on credit card rates. The proposal is intended to lighten the load for households and approve affordability in the United States. Many financial services organizations have spoken out about the policy, meriting a closer look at the data for the credit union industry.

CREDIT CARD LOANS OUTSTANDING
FOR U.S. CREDIT UNIONS
SOURCE: CALLAHAN & ASSOCIATES

A Credit Card Cap And The Credit Union Balance Sheet

The credit union earnings model rests on a cooperative’s ability to earn more from its lending than it spends on interest expenses, delinquency, and net charge-offs. Adding a wedge like an interest rate cap forces institutions to make tough decisions about where and how to apply credit. A 10% cap on credit cards, for example, would tighten margins and could limit the ability of credit unions to issue a credit card to certain members.

Although credit unions don’t report the interest they receive on individual loan products, Bankrate reports the nationwide average credit card rate was 20.1% at the end of September. The cost of funds for credit union’s entire loan portfolio is 2.06%. A hypothetical rate cap at 10% would mean the asset quality ratio would need to be less than 7.94% for credit unions to not lose money.

The delinquency rate for credit cards at U.S. credit unions was 2.03% as of Sept. 30, 2025; the charge-off rate was 5.00%. Add this to the cost of funds, and a hypothetical credit card lending program would need to earn a yield of 9.09% to break even — and that’s before taking into account the costs to service the loan. If they can’t charge more than 10%, they’ll need to be more selective in issuing cards.

CREDIT UNION EARNINGS
FOR U.S. CREDIT UNIONS
SOURCE: CALLAHAN & ASSOCIATES

In cases like this, borrowers who have poor credit, no credit, or otherwise risky credit lose out. For credit unions, it’s likely many would simply drop their credit card programs altogether, especially if their asset quality ratio plus cost of funds exceeds 10.0%. If members are regulated out of credit access, they’ll be more likely to turn to Buy Now, Pay Later; payday lenders; loan sharks; and other, less reputable lenders that do not embrace the same fiduciary or financial wellbeing standards as a credit union.

On the surface, capping credit card rates at 10% looks like a win for members and affordability, but dig a little deeper, and it becomes clear that financial institutions will  have to make tough decisions to remain operational. Issuers will have to choose between cutting program perks or even leaving some deserving borrowers out in the cold. If the White House wants to make a difference here, there might be other rate-cap levels that would disenfranchise fewer members, deliver savings to U.S. households, and preserve profitability for many card programs. However, credit unions need to keep the lights on. At 10%, the margin might be too thin to navigate at scale.

The post What Would A 10% Credit Card Rate Cap Mean For Credit Unions And Members? appeared first on CreditUnions.com.

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.

Trendwatch 1Q25: Watch It Today. Did you miss Trendwatch this quarter? Don’t fret — catch it on-demand. Find out what’s behind first quarter performance trends, explore credit union success, uncover hidden opportunities, and more. Watch it today.

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

• • 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.

Let’s Review Your Credit Union Performance Data Together. Join a Callahan consultant for a complimentary 1:1 session to analyze your performance reports. We’ll benchmark your credit union against two to three peer groups of your choice and provide a detailed report of our findings at the end of the session to help your team make informed strategic decisions. Request your free session today.

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Credit unions have now pulled back on efforts to draw in new members through channels such as indirect lending and are instead focusing on core members. This has had a knock-on effect on auto lending and loan growth.

Fortunately for credit union members, share growth has risen. That bump could have positive ramifications for personal finance moving forward. Read on to see what other trends appeared in the fourth quarter credit union performance data.

Takeaway 1: Higher Delinquency Has Arrived

DELINQUENCY BY PRODUCT
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• Credit union leaders have worried about rising delinquency across products for the past several quarters. However, the fact that delinquency was normal in the context of pre-pandemic performance allayed many fears. That is no longer the case. Total industry delinquency climbed to 0.97% in the fourth quarter, surpassing pre-pandemic norms.
• Delinquency in all but one lending product rose in the fourth quarter. Commercial lending was the lone exception in the credit union portfolio. Most worrying perhaps is the rise in residential real estate. Delinquency in this product has traditionally been low; however, it reached 0.78% in the fourth quarter.

Takeaway 2: Credit Unions Double Down On Members

MEMBERSHIP AND ANNUAL GROWTH
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• Credit unions had 2.3% more members in the fourth quarter of 2024 than they did one year earlier. Despite the fact year-over-year growth has decreased, total membership still reached an all-time high of 143.9 million at year-end.
• The dip in growth is the result of credit unions pulling back on certificate specials and indirect lending, which are typically reliable sources of membership growth. Credit unions are reorienting products to capture the favor of members with whom they already have a primary relationship versus attracting new members who might favor rate over relationship.
• Meanwhile, the total number of credit union branches increased by 31 year-over-year. Banks, on the other hand, shed nearly 1,000 locations. As banking deserts become an issue nationwide, credit unions have stepped up to serve communities rejected for their profit potential.

Trendwatch On-Demand Is Available. Want to know what year-end data reveals about strengths and opportunities in the year ahead? Check out Callahan & Associates’ Trendwatch On-Demand to learn how today’s economic environment has impacted credit unions, what industrywide benchmarks say about performance at your shop, and more. Watch today.

Takeaway 3: Yields Outpace The Cost Of Funds

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

• Credit unions widened the gap between the cost of funds and the yield on investments and loans in the fourth quarter. Yield on loans moved up 5 basis points, yield on investments moved up 6 basis points, and the cost of funds moved up 3 basis points.
• Total borrowing fell to 4.2% of assets. Total borrowing balances fell more than $25 billion to $96.9 billion.
• Meanwhile, core deposit growth was stronger in the fourth quarter than in quarters past. All this means a lower cost of funds and better margins.

Takeaway 4: Auto Lending Reflects Credit Union Strategy

ANNUAL GROWTH IN LOANS OUTSTANDING
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• The loan portfolio at U.S. credit unions grew 2.8% annually in the fourth quarter. At the same time, new auto lending fell by 6.1% and used auto lending fell by 1.6%, highlighting a change in strategy that is seeing credit unions pull back from indirect lending.
• Given that change in strategy, indirect lending fell 3.6%. The tightened liquidity environment has prompted credit unions to refocus their efforts toward core members rather than sourcing loans to a potentially fickle member.
• The opportunity cost of this new direction means credit unions missed out on the recent bump in U.S. vehicle sales and subsequently lost market share. Credit union auto market share fell to 17.6% of all cars financed in 2024. They were the lowest by far of any lender type.

Takeaway 5: Quarterly Share Growth Outpaces Quarterly Loan Growth

QUARTERLY LOAN GROWTH VS. QUARTERLY SHARE GROWTH
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• If quarterly share growth surpasses quarterly loan growth, it’s typically in the first quarter when members receive tax returns. However, share growth in the fourth quarter of 2024 was greater than loan growth — 1.42% versus 1.04%, respectively.
• Although slight, this is a positive development for credit union liquidity, which has been tight in recent quarters. It’s also a positive sign for members. Annual share growth that surpasses the national personal savings rate suggests credit union members are saving more than their non-credit union counterparts.

Let’s Review Your Year-End Performance Together. Join a Callahan consultant for a complimentary 1:1 session to analyze your performance reports. We’ll benchmark your credit union against two to three peer groups of your choice and provide a detailed report of our findings at the end of the session to help your team make informed strategic decisions. Request your free session today.

The post 5 Takeaways From Trendwatch 4Q 2024 appeared first on CreditUnions.com.

It’s more expensive for members to take out loans. It’s more expensive for credit unions to acquire the funds to support lending, too. And as members struggle to balance budgets amid higher expenses, credit unions must respond by setting aside more money to cover potential defaults on the loans they do make.

Unfortunately, it’s not just higher rates that are wreaking havoc. Operating costs — including staff compensation and professional service costs — are on the rise. Thanks to all these expenses, the industry has generated less net income in 2024 than in years prior, even with greater loan income.

The look back isn’t so great. But with the Federal Reserve poised to cut interest rates in the coming year, the near-term outlook for the earnings model is much more promising.

INTEREST INCOME VS. INTEREST EXPENSE
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• Interest Income: Credit union interest income has increased alongside the Federal Reserve’s recent interest rate hikes. Credit unions have repriced loan and investment portfolios as members have paid off old, low-rate loans. As a result, interest income as a percentage of average assets has climbed — 66 basis points year-over-year to 4.99% — primarily from interest on loans. During the same period, the average loan yield increased 54 basis points to 5.78%.
• Interest Expense: Interest expense has increased in nearly equal measure with interest income the past two years as loans have hung on the balance sheet and core deposit growth has slowed. But things changed in 2024. Loan growth decelerated, matching sluggish share growth and reducing the need for costly funds. Consequently, the cost of funds flattened as credit unions paid down borrowings and slowed certificate promotions. For now, credit unions are not taking on any new, expensive funding, opting instead to maintain operations using existing liquidity. When the Fed cuts rates, acquiring funds will be cheaper, which will help credit unions manage their margins.

OPERATING EXPENSE RATIO VS. NET INTEREST MARGIN
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• Net Interest Margin: The net interest margin expanded modestly year-over-year. However, in the third quarter alone it increased 9 basis points to 3.09% thanks to higher yields and a flat cost of funds.
• Operating Expense: Unfortunately, inflation and business costs also ticked up, and the 9-basis-point gap between the net interest margin and the operating expense ratio remained unchanged year-over-year.
• Culture And Member Service: Credit unions can cover primary operations purely through core interest channels, but doing so could prove detrimental to culture and member service. Consider:
  • Annual growth in new hiring slowed to just 0.7% in the third quarter.
  • The average full-time equivalent employee handled 405 members and $6.6 million in assets. That workload might be working for the time being, especially as membership growth as well as loan growth has slowed, but leaders should carefully weigh efficiency against member service and staff burnout.
  • It is historically rare for the net interest margin to exceed the operating expense ratio. Operational efficiency is important, but it’s also important to ensure cuts are made in the appropriate places.

NON-INTEREST INCOME AS A PERCENTAGE OF AVERAGE ASSETS
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• Non-Interest Income: If interest channels cannot adequately cover operating expenses, credit unions will need to increase their reliance on non-interest income channels. While the net interest margin and operating expense ratio have moved in lockstep, NII streams have improved slightly. That said, NII is way down from pandemic peaks mainly because credit unions are selling fewer mortgages to the secondary market.
• Fee Income: Fee income comprises slightly more than one-third of NII. Despite being a hot button issue, fee income has been on the decline for decades. The average credit union member can expect to pay approximately $70 in fees in 2024.

CREDIT UNION EARNINGS MODEL
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• Provision For Loan Losses: Provisions for loan losses — the money set aside for future defaults — has been ticking up on a quarterly basis. CECL is partially to blame, but asset quality also has been worsening. Thanks to this provisioning, however, the coverage ratio sits at a comfortable 140.9%. This is important because it helps credit unions hold off on charging off delinquent loans, which, in turn, helps members in need.
• Return On Assets (ROA): All told, operating expenses and provisions have suppressed net income growth. Consequently, ROA has declined 6 basis points year-over-year to 0.69%. Paying down borrowings and pulling back on certificate offerings improved the net interest margin and helped offset rising operating expenses and provisions, but ROA is still lower than historical norms, which have hovered around 0.75%.
• Interest Rates And ROA: Changes in the interest rate environment will affect ROA, and many credit unions are managing balance sheets with the explicit goal of maximizing flexibility, staying nimble enough to adjust to whatever the future might bring.

BANK VS. CREDIT UNIN COMPARISON
FOR U.S. BANKS AND CREDIT UNIONS
SOURCE: Callahan & Associates

• Loans: Banks are charging borrowers more for loans than credit unions; they’re also paying more for the funding to do so. Both metrics are beholden to rates set by the Federal Reserve, so banks are simply borrowing more to maintain a loan-to-deposit ratio in the low 70s, as they have done since the start of last year. Interest expenses topped $576 billion in the third quarter, up from $158 billion prior to the pandemic. These higher expenses have resulted in banks’ net interest margin dipping to 2.89%, lower than credit unions’ 3.09% margin in the third quarter.
• Net Interest Margin Versus Operating Expenses: At 45 basis points, the gap between the net interest margin and the operating expense ratio was much wider for banks than for credit unions. This is unsurprising given banks’ focus on efficiency and profitability versus credit unions’ focus on member service. That said, banks’ operating expense ratio is their biggest advantage when it comes to the earnings model. Scale certainly helps here, as does streamlined online and self-service products.
• Mission: Banks also don’t have the same mission to serve the underserved. That means they can work primarily with borrowers who have high credit scores and lower chances of defaulting. With less risk on the books, banks don’t need to set aside as much to cover credit losses, an expense that has severely impacted credit union earnings the past year.
• Taxation: Although banks pay income taxes, the industry still reported an annualized return on assets of 1.13% in the third quarter. That’s 44 basis points higher than the average credit union ROA and 2 basis points higher than the industry’s all-time record ROA. In sum, banks are making their profits even as credit unions serve more members.

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 revenue, expenses, ROA, 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.

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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?”

The post Balance Sheet Flexibility Is Top Of Mind For Credit Unions appeared first on CreditUnions.com.

Watch It On-Demand. Tune into Callahan’s Trendwatch 3Q24 webinar for an in-depth analysis of credit union performance trends from the second quarter. Learn about broader economic forces, explore key financial and operational metrics, hear best practices from credit union leaders, and more. Tune in today.

Takeaway 1: Asset Quality Continues To Worsen

ASSET QUALITY
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• Asset quality continued to decline, according to third quarter credit union data. Delinquency jumped to 0.91% from 0.72% one year ago. Meanwhile, net charge-offs as a percentage of assets rose 23 basis points to 0.78%.
• According to FirstLook data from Callahan & Associates, credit card delinquency ticked up substantially to 2.15% as of Sept. 30. Commercial lending aside, delinquency for all other loan products rose quarter-over-quarter. Delinquency in residential real estate alone rose 7 basis points to 0.68%.
• Year-over-year, delinquency in commercial lending was up 45 basis points to 0.89%.

Takeaway 2: Credit Card Spending Stabilizes

TOTAL CREDIT CARD LINES AND UTILIZATION
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• After multiple years of post-pandemic increases, the rise in credit card utilization has plateaued around 28.8%. The amount of outstanding credit card loan balances also has stabilized. It has grown just 1.2% since the fourth quarter of 2023.
• When inflation was outpacing wage growth, many Americans relied on credit cards and home equity to cover day-to-day expenses. Although many people are still struggling, the reliance on credit cards has stabilized for credit union members. Although higher credit utilization does result in higher outstanding credit card loans, the rate of growth has stabilized.

Let’s Review Your 3Q24 Performance Together. Join a Callahan consultant for a complimentary 1:1 session to analyze your performance reports. We’ll benchmark your credit union against two to three peer groups of your choice and provide a detailed report of our findings at the end of the session to help your team make informed strategic decisions. Request your free session today.

Takeaway 3: Total Revenue Reflects Higher Yields

TOTAL REVENUE YTD
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• Strong gains in loan and investment income underpinned a 16.6% annual increase in year-to-date revenue. Loan income, the largest source of income, accounted for $70.9 billion of the industry’s total $104.9 billion, whereas fee income contributed $11 billion. On a percentage of assets basis, they make up just 0.42%, down from a high of 0.87% in the third quarter of 2008.
• Net interest margins also have improved, with interest income rising 66 basis points year-over-year, outpacing the 59-basis-point rise in interest expense. However, higher provisioning and operating expense have offset these gains, leading to a 6-basis-point decline in ROA.

Takeaway 4: Capital And Net Worth Continue To Grow

NET WORTH AND OTHER CAPITAL
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• • Net worth and other capital both increased at credit unions in the third quarter. Consequently, the net worth ratio increased to 11.2% while the deficit of other capital dropped to -$7.5 billion, much less than one and two years ago.
  • Capital increased 9.2% annually as credit unions added to their allowances. Overall, this increase better prepares credit unions for bumpy waters.
  • Why the boost in capital? Namely, unrealized losses are not weighing down investment portfolios as much. Investments are repricing in the face of anticipated rate cuts. This time last year, unrealized losses were $41.1 billion. In the third quarter of 2024, they were $22.1 billion.

Takeaway 5: The Gap Between Loan Growth And Share Growth Narrows

QUARTERLY LOAN GOWTH VERSUS QUARTERLY SHARE GROWTH
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• Shares ticked up to 0.46% quarter-over-quarter even as loan growth slowed slightly to 0.83%. Year-over-year, share growth outpaced loan growth, growing by 3.2% compared to 2.6% for loans.
• Share certificates have underpinned share growth. Year-over-year, share certificates grew 24.1%. However, this is a sharp decline from one year ago, and declines have waned at other, lower-yielding share types such as share drafts.
• Meanwhile, loan originations were down 8.7%, a sign that credit unions are still feeling the pinch of higher interest rates. However, positive loan balance growth indicates credit unions are holding onto the loans they do make. They sold 31.5% of loans on the secondary market, a steady clip but down from pre-pandemic levels.

The post 5 Takeaways From Trendwatch 3Q 2024 appeared first on CreditUnions.com.

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Benchmarking against peers helps credit unions track their performance; however, credit unions do not operate in a vacuum. Even the most distinct, innovative institution is in many ways beholden to the environment in which it operates. That’s why Callahan & Associates has developed a dashboard in Peer Suite that allows users to evaluate credit union industry data using macroeconomic data.

The Federal Funds Rate And Loan And Investment Yield

With the federal funds rate climbing, yields on credit union loans and investments have ticked up, albeit at differing paces. That’s not surprising for investment yields because an increase in the federal funds rate impacts Treasury rates and boosts yields. What is interesting in today’s environment is that the federal funds rate has nearly converged with yield on loans. Despite large upswings in the federal funds rate, credit unions have seen little of that trickle down to boost the yield they make on their loan portfolio.

The sizeable increase in the yield on investments combined with the slight increase in yield on loans has underpinned a recent surge in the net interest margin, which has now surpassed operating expenses. This bump means credit unions can keep the lights on with only interest income, which gives them flexibility when it comes to other types of income. For example, credit unions can lower fees and improve the member experience. However, if the Fed lowers rates in the coming year, the net interest margin could contract again, which would leave credit unions with less flexibility.

Unemployment And Delinquency

Historically, delinquency and unemployment have moved together in the United States. When there’s a gap in income, it’s more difficult for people to keep up with their bills. This relationship was starkly illustrated during the 2008 global financial crisis and unemployment reached levels not recorded since the Great Depression. In December of 2009, the unemployment rate reached 9.9%; delinquency ticked up to 1.43%.

During the early months of the COVID-19 pandemic, unemployment jumped as many Americans suffered layoffs or furloughs. However, relief funds provided by the federal government helped many people keep up with loan payments. Some states also offered aid of their own, and expanded unemployment benefits were available to many. Consequently, delinquencies remained low during this period and the economy rebounded quickly.

Today, unemployment remains at near-historic lows, yet the delinquency rate has ticked higher in recent quarters. Economic theory states low unemployment pushes businesses to raise wages to remain competitive employers; consequently, inflation increases. Stretched budgets make it harder for borrowers to pay back loans, which has driven this recent uptick in delinquency.

Personal Savings And Share Balances

The personal savings rate — the portion of income Americans save — has remained relatively consistent during the past 15 years. But the pandemic altered consumers’ relationship with savings. Government-sponsored economic relief combined with fewer experiences on which to spend money helped people increase their personal savings rate and credit union members deposit more shares.

Unfortunately, when consumers save too much, businesses sag under lack of spending. But, when consumers save too little, financial institutions lose the liquidity necessary to make loans. This is what the economist John Maynard Keynes referred to as “the paradox of thrift.”

The U.S. personal savings rate has traditionally lagged other developed economies. For example, at midyear 2023, it was 4.6% versus 6.9% for the Eurozone. In 2021, the Swiss personal savings rate was a whopping 21.9%. Despite several theories, economists are not quite in agreement on why the U.S. savings rate is so low. Indisputable is the fact that softer savings means credit unions have less liquidity to lend.

As illustrated here, credit union performance data combined with macroeconomic data helps paint a more detailed picture of what is happening within the credit union industry. Credit unions as well as their members exist in a world of unemployment, fluctuating savings, moving interest rates, and more. Including macroeconomic data in performance analysis helps credit union leaders more accurately strategize and better prepare for what the future might hold.

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That’s thanks to a successful 2022 home equity loan campaign that put a spin on a popular — but NSFW — expression and helped boost loan volumes while bringing in young new members, too.

“We knew we wanted to be edgy; we know edgy gets noticed,” says Jacob Rose, marketing specialist at the Washington state cooperative. “We were brainstorming and looking at things with a home equity line and home improvement. The ‘BDE’ phrase came to mind. We tamed it down and got to ‘Big Deck Envy’ — you’re going to be envious of your neighbor’s big deck.”

To take things a step further, the marketing team paired the tagline with an action shot of a contractor building a deck. The campaign used billboards, social media postings, post cards, and radio ads with a popular Seattle-area on-air personality to help boost awareness.

HELOCs, Autos, And Diamonds

The results speak for themselves. In the two months the campaign ran — April and May of 2022 — TAPCO estimated it would reach nearly $1.6 million in total HELOC volume. Instead, the campaign helped bring in more than $5 million for that product. Similarly, the credit union estimated it would make around $565,000 in second mortgages but reached nearly $2.2 million by the time the campaign ended.

All that work had an impact beyond just home loans. According to Bill Peters, chief operating officer, Big Deck Envy also helped bring in a handful of new members along with two new auto loans and 10 new checking accounts. Even better, it helped flip member demographics to better attract consumers between the credit union’s target ages of 24 and 40.

Aside from the impact on the balance sheet, Big Deck Envy also earned multiple Diamond Awards from the Credit Union National Association.

Small But Mighty

Peters is quick to note the success of Big Deck Envy wasn’t solely from clever marketing. Although the COO offers effusive praise of his “small but mighty” marketing team, he also admits the credit union targeted nearly 1,000 members who either had the ability to take on a mortgage product or had inactive accounts. It also mailed postcards to 10,200 households located within a 1.5-mile radius of its six branches.

Since that campaign launched, second mortgages and HELOCs have risen to more than 16% of total loans, an increase of 4 percentage points in just one year. Mortgage lending of all types now makes up slightly more than 30% of TAPCO’s total loan volumes, and overall loan growth in the first quarter of 2023 was more than 18%. Real estate loans at TAPCO made up more than 36% of total assets at the close of the first quarter.

Despite the success of Big Deck Envy, TAPCO officials have no regrets giving the campaign such a brief run. Peters says it launched just in time for home equity season at a time when the credit union was trying to attract loans. TAPCO generally doesn’t recycle campaigns year after year, and this one “was never meant to be evergreen,” Rose says.

One-Two Punch

Although TAPCO is still focusing on home equity loans, the one-two punch of rising rates and higher home prices have resulted in a slowdown.

“These are my words, not Wall Street, but this rolling recession we’re in has a lot of people holding off and struggling to buy because of where rates and prices are,” Peters says. “We’re off target a little in terms of goals. This campaign helped us get a lot of loans on the books so we could continue getting some of that interest income year-over-year.”

Peters and Rose are tight-lipped about the future, but the pair indicates more edgy campaigns are just around the corner. One of the biggest lessons from last year is that turned heads can build brand awareness.

“If you can put out an ad that has some humor, people remember it more,” Peters says. “We had a few people in the community that thought we were a little too edgy, but it was a very small number who were upset about it. The overarching opinion was it was an incredible ad campaign and a lot of fun.”

Another lesson from the experience, according to Peters, came from simply allowing the marketing team the freedom to put the campaign in the right light to attract those 24- to 40-year-olds.

“Just showing up the way we need to show up in an area where they are helps drive in those young members,” the COO says.

Sticking with the “small but mighty” metaphor, Peters notes the total cost for the campaign was approximately $35,000. Interest income in the first year alone exceeded $60,000.

“We’re going to gain back twice our investment just by running our campaign,” he says. “But more than that, we’re creating brand awareness in our community.”

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At credit unions, surging loan growth and slowing share growth has put pressure on liquidity. The industry has leaned into loan demand, and the net interest margin exceeded the operating expense ratio for the first time since 2019. But despite healthy lending, earnings, and capitalization, asset quality is beginning to decline on the heels of historically low delinquency during the pandemic.

Indirect lending, specifically, has surged at credit unions. This is an effective way to add members — the industry added more members than ever in a single year — and presents the opportunity to serve potential members looking for a relationship deeper than money changing hands. Credit unions are stewards of financial wellbeing, and they must implement ways to build strong financial relationships with indirect members dissatisfied with their financial situation.

During its quarterly Trendwatch webinar, Callahan & Associates reported on key trends in the credit union industry and economy. Read on for five takeaways from fourth quarter performance data.

No. 1: Annual Share Growth Was The Lowest Since 2014

12-MONTH SHARE GROWTH BY SEGMENT
FOR U.S. CREDIT UNIONS | DATA AS OF 12.31.22
© CALLAHAN & ASSOCIATES | CREDITUNIONS.COM

• Deposits grew 3.4% year-over-year. Money market accounts, one of the fastest-growing share types during the pandemic, contracted annually. Share drafts and regular shares increased at sub-5.0% rates. Of note, growth is slower, but dollar balances remain at record levels.
• Share certificates were up 19.8% year-over-year. This is the highest YOY growth since the start of the pandemic, when share certificates contracted in most quarters. This growth is part of an effort to attract deposits to fund loan demand.

No. 2: Origination Balances Declined

YTD LOAN ORIGINATIONS
FOR U.S. CREDIT UNIONS | DATA AS OF 12.31.22
© CALLAHAN & ASSOCIATES | CREDITUNIONS.COM

• The dollar value of loans granted declined 3.5% annually thanks to a 15.8% decline in real estate originations. Although credit unions continued to lend in smaller, consumer loan products such as auto and credit cards, the overall number of originations declined 10.3%. The number of loans granted declined year-over-year throughout 2022.
• Younger members are struggling to enter the real estate arena. According to the National Association of Realtors, the average age of a first-time homebuyer has risen to 36, and those borrowers account for just 26% of homebuyers, down from 34% last year. The median homebuyer age — first time or not — reached 53, the oldest ever recorded.

No. 3: Credit Unions Borrowed More

TOTAL BORROWING & ANNUAL GROWTH
FOR U.S. CREDIT UNIONS | DATA AS OF 12.31.22
© CALLAHAN & ASSOCIATES | CREDITUNIONS.COM

• Credit unions funded 4.6% of their assets with borrowings — more than double the 2.1% from one year ago. However, rising interest rates are making this option more expensive. The cost of borrowing was up 98 basis points from year-end 2021 to 2.93% at year-end 2022.
• Draws from the Federal Home Loan Bank were up 318.2% year-over-year. As of Dec. 31, 434 credit unions had borrowed from the FHLB, up from 102 one year earlier. The number of credit unions with borrowings of any kind reached 1,217, up from 637 the previous year. The average loan-to-share ratio at credit unions with borrowings was 81.8%; it was 57.8% at cooperatives without borrowings.

No. 4: Delinquencies Ticked Up

ASSET QUALITY RATIO
FOR U.S. CREDIT UNIONS | DATA AS OF 12.31.22
© CALLAHAN & ASSOCIATES | CREDITUNIONS.COM

• The asset quality ratio — defined as the net charge-off ratio plus the delinquency ratio — worsened by 20 basis points during the year, settling at 0.95% at year-end. Although charge-offs were still well-below historic norms (0.34%), delinquency returned to its normal range (0.61%). This uptick comes after an era of historically low delinquency, and credit unions have added provisions back to their balance sheets to prepare for loan losses.
• Delinquency increased across all major non-commercial loan types. Credit card (1.18%) and auto (0.67%) loans had the sharpest increases, up 19 and 14 basis points, respectively. Commercial delinquency improved from December 2021, down 9 basis points to 0.33%.

No. 5: Interest Income Drove Revenue Growth

TOTAL REVENUE
FOR U.S. CREDIT UNIONS | DATA AS OF 12.31.22
© CALLAHAN & ASSOCIATES | CREDITUNIONS.COM

• Credit unions generated 15.2% more income from loans than last year, and investment income topped $10 billion for the first time ever. The yield on investments has been especially good for credit unions; it was up 73 basis points during the year while the loan yield crept up 5 basis points. These rate-sensitive income streams underpinned a 12.8% annual rise in revenue .
• On the non-interest side, a reduction in sales to the secondary market contributed to a 14.2% year-over-year decline in other operating income. Despite the rise in fee income, non-interest income declined 10.4% overall. Holding onto loans for their interest payments will help credit unions become less reliant on non-interest income; however, it will add pressure on liquidity.

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