As slowing credit union deposit growth continued during third-quarter 2022 and lending growth finally joined in that trend, the industry’s rapid quarter-over-quarter loan origination throughout 2022 is showing clear signs of a slowdown in the upcoming months ahead according to the latest U.S. industry analysis.

“Yearly loan growth at several financial institutions — many credit unions and banks alike — should start noticeably slowing down as we transition into late 2022 and early 2023,” said Robert Eyler, economist for the California and Nevada Credit Union Leagues. “2022’s hot loan growth for much of the year was probably a sign of consumers trying to borrow before interest rates go even higher. Many consumers had rising-rate expectations throughout 2022 and attempted to lock-in rates on loans while they were relatively low. That’s changing.”

From Sept. 30, 2021 – Sept. 30, 2022 (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)
U.S. credit unions’ average member relationship grew by nearly $1,382 year-over-year, driven by an uptick in lending relationships and higher individual loan balances. This metric continues to sit at a record $23,571 ($13,716 in deposits per member and $9,855 in loans per member). By the third quarter of 2022:

• Membership reached 136 million (a new record), rising 5 percent (compared to 4 percent in the year-ago period prior). A record 6 million consumers joined a credit union over the past 12 months.
• Loans reached $1.48 trillion (a new record), rising 19 percent (compared to 6 percent in the year-ago period prior).
• Deposits remained at $1.88 trillion (a continued record from the recent quarter), rising 7 percent (compared to 14 percent in the year-ago period prior).
• Assets reached $2.18 trillion, rising 7 percent (compared to 13 percent in the year-ago period prior).
• Investments dropped to $608 billion, declining -14 percent (compared to 29 percent in the year-ago period prior).
• Capital (retained earnings for net-worth purposes) declined to $201 billion, falling -8 percent (compared to 7 percent in the year-ago period prior).
  
  

Loan Trends (Annualized)
U.S. credit union loans reached $1.48 trillion (a new record), rising 19 percent (compared to 6 percent in the year-ago period prior). By the third quarter of 2022:

• Loan originations were on a record pace year-to-date in 2022 compared to any other year so far (although the upcoming fourth-quarter 2022 data might change this trend).
• Loan growth more than tripled from a year ago and has also been steadily ramping up each quarter for nine consecutive quarters. All lending categories were posting double-digit annualized growth.
• In 2022 versus 2021: 25 percent versus 16 percent (business/commercial loans); 19 percent versus 8 percent (used autos); 30 percent versus -5 percent (combined HELOCs/home equity loans); 18 percent versus 7 percent (first mortgages); 14 percent versus 1 percent (credit cards); and 18 percent versus zero percent (new autos).
• Total lending growth (all loans combined) was 19 percent (2022) versus 5 percent (2021).
• Consumer lending remained strong, while real estate loan originations declined (year over year).
• Total loan originations in third-quarter 2022 ($610 billion) remained high (it was $365 billion in third-quarter 2017). However, these third-quarter originations were lower than the prior year for the first time since first-quarter 2019.
• Credit unions increased consumer market share in both auto loans and first-mortgage loans.
• Adjustable-interest rate and balloon mortgages grew in popularity as long-term interest rates continued rising.
• Loan asset quality remains strong, but delinquency is rising.
• Credit cards and auto loans are driving the increase in total delinquency.
  
  

Liquidity Trends
By the third quarter of 2022:

• The industry’s loan-to-deposit ratio (loan to share) is up 8 percentage points over the past two quarters. It stood at 78.3 percent in third-quarter 2022 (up from 69.9 percent in third-quarter 2021). However, over the long term it is lower (down from 84.8 percent in third-quarter 2018).
• Fewer mortgages were being sold to the secondary mortgage market.
• Purchases of participation loans dropped to the lowest amount since the first-half of 2020.
• Strong lending mixed with slower deposit growth led to lower cash balances.
• Certificate-of-deposit balances jumped by $19 billion in the third quarter of 2022.
• Credit unions were borrowing funds to help meet loan demand, as well as to avoid selling investments at a loss. However, borrowings were in line with historical norms (as a percentage of the industry’s aggregate balance sheet).
• Subordinated debt (also known for many credit unions as supplemental capital) is providing additional significant capital to certain areas of the industry.
  
  

Deposit Trends (Annualized)
U.S. credit union deposits remained at $1.88 trillion (a new record), rising 7 percent (compared to 14 percent in the year-ago period prior). By the third quarter of 2022:

• Deposit growth has finally slowed to a point where it’s completely normalized back to the pre-pandemic annualized growth rate.
• In 2022 versus 2021: 6 percent versus 21 percent (money market); 10 percent versus 33 percent (checking); 7 percent versus 17 percent (savings); -1 percent versus 0.5 percent (IRA/Keogh); and 3 percent versus -11 percent (certificates of deposit).
• Total deposit growth (all deposits combined) was 7 percent (2022) versus 24 percent (2021).
• Annual deposit growth is slower in every category except certificates of deposit.
• Checking account (share draft) product usage continues to increase among members, with share-draft penetration hitting nearly 62 percent (was 57 percent in third-quarter 2017).
  
  

Earnings & Capital Trends (Annualized)
U.S. credit union investments dropped to $608 billion, declining -14 percent (compared to 29 percent in the year-ago period prior). Credit union capital (retained earnings for net-worth purposes) declined to $201 billion, falling -8 percent (compared to 7 percent in the year-ago period prior). By the third quarter of 2022:

• Rising short-term interest rates were boosting income from both loans and investments.
• Loan yield and cost-of-funds rose at single-digit paces.
• Loan income was up 19 percent quarter-over-quarter, and investment income had nearly doubled in third-quarter 2022 versus third-quarter 2021.
• Led by compensation growth, operating expenses were rising at a slightly faster pace than income.
• A widening net interest margin (NIM) was close to covering operating expenses (OpEx).
• Non-interest income declined after a record year in 2021.
• Non-interest income as a percentage of average assets was at its lowest point in a decade.
• Quarterly provision for loan loss expenses returned to historical norms.
• Return on assets (ROA) was in line with the pre-pandemic years.
• The industry’s net worth ratio (for retained capital purposes) rose to its highest level since 2019, even as total capital declined.
• As long-term and short-term interest rates continued rising, unrealized losses on investment securities increased.
• Credit union hiring growth has slowed quarter-over-quarter, but it was still relatively strong to meet loan demand and member service needs. However, annualized industry hiring growth was 5.3 percent as outstanding employees (both full-time and part-time combined) reached just over 350,000 (a new record).
  
  

All trends were obtained from the Third Quarter 2022 Trendwatch webinar hosted this past week (view the slide presentation here) by Washington, D.C.-based Callahan & Associates.

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