Credit union earnings have remained strong this year even though loan growth has slowed according to Steven Houle, Vice President of Catalyst’s Asset Management 
Group. Houle spoke to an audience of credit union leaders and board members in October at Catalyst’s Strategic Summit and highlighted that loan growth, annualized through the second quarter, was below 2%, but it hasn’t had a detrimental impact on earnings. Weak loan growth has been a result of members showing less appetite for spending and credit unions maintaining higher loan rates as they assess their overall risk profiles for credit, liquidity and interest rate risk.
Houle emphasized that credit unions should recognize their strong performance despite higher delinquencies, charge-offs, interest rate volatility and evolving liquidity profiles. Delinquencies and charge-offs are higher now compared to unusually low rates in the past, when consumers had extra liquidity and didn’t miss making payments, according to Houle.
Understanding loan portfolios: A key to success
Houle also stressed that it’s equally important for credit unions to have a thorough understanding of their loan portfolio, especially credit and loan-to-value migration. These are the evolving areas of risk, specifically within vehicle loans. Credit unions need to have those key details at their fingertips. For example, on a year-over-year basis, negative equity in vehicle loans has increased 4.2% according to a Cox Automotive report.
Houle encouraged attendees to evaluate their own experiences: “Are we above, below or the same?” Despite weak loan growth, Houle advised, it’s not yet time to lower interest rates on loans.
Credit spreads on consumer loans remain wide because of economic uncertainty, treasury yields rebounding higher over the last month and tightening loan standards. On that note, Houle reminded the audience to proactively adjust loan pricing as key inputs change.
Balancing loan growth and deposit pricing
On the liability side, credit unions have experienced continued growth in term certificates, but non-term shares have remained flat. The main factor driving 18% annualized growth in certificates has been competitive pricing, especially for maturities within one year. As a result, cost-of-funds has increased close to 2%. Houle noted that the higher cost-of-funds has been an outlier compared to the past decade, yet it’s not surprising given the tightening liquidity environment, higher short-term yields and a focus on growing certificates.
Despite these challenges, credit unions have effectively managed their loan and deposit pricing, with net interest margins remaining around 3%.
Preparing for 2025
Houle highlighted credit union performance trends and balance sheet recommendations for 2025. To see how Catalyst’s Asset Management Group can assist with your balance sheet, contact us today.