Capital Planning: A Top Priority With a Resource Hidden in Plain Sight

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Cue the drumroll … historic deposit growth across all asset size groups since 2019 has rolled forward into 2022. The NCUA’s Quarterly Data Summary reported that total industry deposits at March 31 reached $1.85 trillion, up 9.3% year over year – and by a startling 40.3% since 2019. These funds have been deployed largely into loan portfolios just as net interest margins return to a more normal range. Member satisfaction metrics are off the charts.

So, what’s not to like? Well, the biggest challenge is that net worth positions are getting crushed. Earnings are good but not good enough to offset the capital impact of a deposit tsunami. The industry Net Worth/Assets position dropped to 10.22% at March 31, a decline of 115 basis points in 27 months. Since it is merely an industry average, we know that many credit unions have dropped to an even lower level. Depending on how your credit union allocates funds into loan types, concentration levels and the resulting risk-based capital tolerances could be pushed toward your policy limits.