While loan growth resumed at US credit unions in the second quarter, the industry reduced its asset base for the first time since mid-2014.

Total assets stood at $2.320 trillion at June 30, down 0.4% from March 31, according to data compiled by S&P Global Market Intelligence. That broke a streak of 39 consecutive quarters of credit union asset growth. US banks also reported smaller balance sheets, but their streak of asset growth had been just two quarters.

The contraction at credit unions came from liquid asset categories. The industry's cash-on-deposit balance declined $26.53 billion, or 13.6%, on a linked-quarter basis. Most of the decrease was from cash on deposit at Federal Reserve banks. Even with that recent decline, the industry held 9.6% of its asset base in cash and cash equivalents, which was the second-highest ratio in the last eight quarters.

Among the largest credit unions, San Diego County CU was an outlier, with quarterly asset contraction of 16.7%. Cutting back on held-to-maturity debt securities and cash on hand at Federal Reserve banks allowed the San Diego-based institution to decrease total borrowings by about 55%.

Loan and deposit trends

After reporting a smaller loan base for the first time in 13 years in the first quarter, total loans and leases at credit unions reached an all-time high of $1.633 trillion at June 30, up 1.0% sequentially. One- to four-family loans, both junior lien and first lien, were the primary growth driver. Member business and unsecured lending also increased, while used vehicle loans were essentially unchanged.

In contrast, new vehicle loans were down 1.2% from March 31, representing the third quarterly decrease in a row. Most of the largest credit unions have been lowering their exposure. Chicago-based Alliant CU reported a reduction of 7.4% sequentially and 33.8% year over year.

Growth remained strong at the nation's largest credit union by total assets at June 30, Navy FCU. Total loans and leases at the Vienna, Va.-based institution were up 2.6% sequentially, including gains in new and vehicle loans as well as first and junior lien one- to four-family loans.

Like their banking brethren, credit unions are struggling to hold onto cheaper funding sources. Total shares and deposits fell 0.4% from the end of March, representing the third decline in the last five quarters. Customers continued moving into share certificates with a maturity of less than one year and away from regular shares with a maturity under one year. Money market deposit accounts (MMDAs) may have stabilized, with the aggregate balance staying in a tight range during the last three quarters: from $334.85 billion to $335.80 billion.

Caledonia, Mich.-based Lake Michigan CU and Riverdale, Utah-based America First FCU bucked the industry trend, with a quarterly increase in shares and deposits over 2%. Both credit unions significantly boosted their MMDA balances during the quarter.

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Credit quality trends

Credit quality may be plateauing across the industry. In the current cycle, the high for the delinquent loan ratio was the end of 2023, and the net charge-off (NCO) ratio peaked in the first quarter of 2024. On a quarter-over-quarter basis, delinquent loans to total loans was up 2 basis points to 1.15%, and NCOs to average loans ticked down 2 basis points to 0.78%.

Two outliers among the large credit unions were Tampa, Fla.-based Suncoast CU and Bethpage, NY-based Bethpage FCU. Suncoast lowered its NCO ratio 70 basis points from the first quarter, while Bethpage experienced a 60-basis-point jump in its delinquent loan ratio.