New data shows credit unions were able to increase their earnings slightly in the fourth quarter of 2022, even as originations fell.
The results were similar to those reported on Feb. 1 for the Top 10 credit unions, which represent about 20% of the movement’s assets and members. Return on assets (ROA) at smaller credit unions is typically less, and that held true in the fourth quarter.
The data from Callahan & Associates, a Washington, D.C., credit union company, showed that credit unions’ net income was 0.89% of their average assets for the 12 months ending Dec. 31. That number implied an ROA of 0.92% for the three months ending Dec. 31 based on data from Callahan for the year and the NCUA for January through September.
Credit union ROA was up from 0.91% for 2021’s fourth quarter and 0.88% for 2022’s third quarter. Top 10 ROA was 1.08% in the fourth quarter, unchanged from a year earlier and up from 0.95% in the third quarter.
Callahan data also showed total loan originations were about $160 billion in the fourth quarter, down 21% from a year earlier and down 19% from the third quarter.
For the full year, Callahan reported $768.3 billion in originations, down 3.5% from 2021.
While the volume of loans coming onto the books fell, the balance of loans ended the year at $1.52 trillion, up a record 20% from a year earlier.
If originations are falling, why are loan balances growing at a record pace? Callahan execs attributed it to slower runoff: Both from lower sales of loans and lesser pre-payments by borrowers.
The loan gains have been accompanied by a slowdown in savings, pushing the loan-to-share ratio to 81.3% at year’s end. That was up from 70.1% at the end of 2021, but still below the recent fourth quarter high of 85.5% at the end of 2018.
The trend showed a tightening of liquidity. Credit unions need more savings to make more loans.
Presumably, credit unions could change the ratio by raising rates on loans, which they appear to have been slower to do than banks. They could borrow more, which some are doing. Or they could try to lower the ratio by raising rates for savings, which they appear to be doing through frequent promotions of higher-rate certificates. And Callahan said share certificates grew 20% last year, while other forms of savings fell or showed tepid growth.
Total shares ended the year at $1.87 trillion, down 0.4% from Sept. 30 and up only 3.4% from Dec. 31, 2021. Callahan said it was the weakest 12-month gain in savings since 2014, but close to the 6.1% gain for the 12 months ending Dec. 31, 2018. It followed two years of record gains: 20.3% in 2020 and 12.7% in 2021.
One benefit of running at a high loan-to-share ratio is that it has allowed credit unions to maximize the benefit from rising net interest income, especially compared with rates for investments.
Loan demand might also be lessened by the economy. Many economists said they expect weak growth this year if not an outright recession, hurting members and worsening loan quality.
Callahan found credit unions’ 60-day-plus delinquency rate was 0.61% as of Dec. 31, and their net charge-off ratio was 0.34%. Credit cards and auto loans have been driving the increase in delinquencies. The rate for auto loans stood at 0.67% on Dec. 31, up 14 basis points, and 1.48% for credit cards, up 19 bps.
Callahan’s data showed the delinquency rates, while up, are returning from the abnormally low rates of the pandemic era when consumers were flush with cash, to rates that are still lower than those prevailing at the end of 2019. Charge-off rates remained well below rates going back to the end of 2017.