State-chartered credit unions make gains despite pandemic

State-chartered credit unions continue to make gains despite the pandemic, with roughly half of total industry assets now held at state-chartered credit unions.

New analysis from the National Association of State Credit Union Supervisors, based on recent data from the National Credit Union Administration and private insurer American Share Insurance, found that state charters held $880 billion out of a total of $1.8 trillion in industry assets at the end of the second quarter.

NASCUS noted that state charters were nearing the 50% mark since at least the end of 2018, but the flood of deposits since the pandemic broke have helped state charters grow their assets. NASCUS reported those institutions surpassed asset growth at federal charters by a three-to-two margin during the second quarter, with state charters adding $64.1 billion. That's compared with $46.7 billion at FCUs.

State charters have grown assets by 12.6% so far this year compared to 10.9% at federal charters, said NASCUS, noting that most gains came during the second quarter.

Federal charters still have a slight edge in membership, with FCUs serving 63.9 million members compared to 59.7 million at state charters. However, NASCUS said, despite membership growth slowing during the second quarter, state charters are seeing their rosters increase at a slightly faster pace.

Still, FCUs continue to dominate the landscape, with about 61% of institutions carrying federal charters, according to NASCUS. However, the trade group said about 71% of the 73 credit unions that closed their doors since year-end 2019 were federal charters.

“Clearly members see their [state-chartered credit unions] as sources of strength and safety during the pandemic, as they funnel their excess funds there,” NASCUS President and CEO Lucy Ito said in an email. “Safety and soundness of [state charters] no doubt play[s] a critical role in savers’ minds. But flexible regulation state-by-state must also be a factor as members recognize their credit unions can effectively meet their needs.”

The NASCUS data differs slightly from NCUA’s second-quarter data in some areas because it includes analysis of privately insured credit unions, which the regulator’s reporting does not.

Some of the gains state charters have made are a result of changes to state credit union statutes to allow for greater flexibility than the federal charter, including in some cases more easily granting a statewide field of membership. Additionally, charter conversions in the last decade have primarily favored state-chartered credit unions. Conversions from federal to state charters have outnumbered the opposite in only two years out of the last decade.