After more than tripling its asset base since the end of 2007, the US credit union industry is experiencing slower growth.

Total assets increased just 0.6% from June 30 to Sept. 30, which was the fourth-weakest growth rate in the last 40 quarters. In the second quarter, the industry recorded the first linked-quarter asset-decline in a decade.

Bank acquisitions could be a catalyst for accelerated growth. The number of credit union-bank deals reached an all-time high this year, and those deals are bigger in terms of assets sold compared to prior years.

Consolidation between credit unions could also impact growth. On Sept. 30, the 12th-largest credit union by total assets, San Jose, California-based First Technology FCU, and the 17th-largest credit union, Marlborough, Massachusetts-based Digital FCU, announced a merger of equals. The deal is by far the largest in the industry in the last decade based on the assets of the merging credit union.

Loan and deposit trends

Total loans and leases increased $12.75 billion, or 0.8%, from June 30. That growth rate was down from the second-quarter level of 1.0% but up from a 0.1% decrease in the first quarter.

Vehicle lending previously was one of the industry's growth engines, but that sector has stalled out in the last year. Used vehicle loans, comprising 19.6% of total loans and leases, have gone down for three of the last four quarters, including a 0.5% drop in the third quarter. New vehicle loan balances, which account for 10.2% of the lending aggregate, were down 1.6% in the third quarter and have declined for four consecutive quarters.

"[The third quarter] was unfortunately the same old story as the first half of 2024 in terms of auto financing conditions: Car shoppers found little relief from the elevated interest rates and high prices, which in turn hindered new-vehicle sales growth," Jessica Caldwell, head of insights at CarMax Inc. subsidiary Edmunds.com Inc., said in an Oct. 1 news release. "The Fed's decision to cut rates was a welcome update at the end of the quarter but, on its own, is unlikely to dramatically change the financial landscape for car buyers."

Credit unions are increasingly relying on the one-to-four-family segment for growth. First-lien one-to-four-family loans were up $4.40 billion in the third quarter and have grown $46.40 billion during the last two years. The junior-lien space is on an even higher growth trajectory, with balances up $6.96 billion, or 4.9%, in the third quarter and $51.61 billion, or 52.5%, since Sept. 30, 2022.

Member business loans represent another lending bright spot. The segment grew 2.4% in the third quarter and 25.5% in the last two years.

Most of the largest credit unions reported a higher balance for total loans and leases as of Sept. 30, with several above a 2% linked-quarter growth rate. Navy FCU, the nation's biggest credit union by total assets, logged a 2.4% increase.

Bethpage, New York-based Bethpage FCU led the top 20 group with loan growth of 3.2%. Tysons, Virginia-based Pentagon FCU was an outlier in the opposite direction, shrinking its loan base 4.6% with a substantial pullback in the vehicle sector. Bethpage FCU and Pentagon FCU also were outliers for quarterly change in total shares and deposits, at 4.6% and negative 3.0%, respectively.

For the industry, shares and deposits increased 0.4% relative to June 30. Credit unions reported a negative change in the second quarter of 2024, the second and third quarters of 2023, and the fourth quarter of 2022.

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Credit quality trends

Nonperforming assets (NPAs) as a percentage of total assets for the industry jumped to 0.68% as of Sept. 30, up from 0.62% at June 30 and representing the highest level since the end of 2013. Despite the recent surge, the NPA ratio is just half of the 15-year peak at year-end 2009.

Bethpage FCU was the only one among the top 20 credit unions with a quarterly decline in its NPA ratio. Even with that improvement, Bethpage FCU's NPA ratio of 1.38% was the fourth-highest in the group.

On the plus side, the industry's early-stage delinquency ratio was down 1 basis point from June 30 and 24 bps from the end of 2023. Early-stage delinquencies, which are loans delinquent for between one to two months, are not part of the NPA calculation but can provide insight into future NPA inflows.

The trend in net charge-offs (NCOs) was another encouraging sign for credit quality. The NCO ratio improved 2 bps from the second quarter and 4 bps from the first quarter.

Pentagon FCU and Navy FCU recorded the biggest improvements in NCO ratio among the top 20 credit unions at 40 bps and 36 bps, respectively. But similar to the second quarter, they were the credit unions with the highest NCO ratios in the group.