2023 Included Some Big Credit Union Layoffs

After years of adding employees, some credit unions began shedding them last year.

NCUA data showed that among all credit unions, hiring slowed by half in 2023. The largest net job cuts came from three credit unions that cut 16% of their workforce in the past year, wiping out previous expansions.

Overall, credit unions had 350,831 full-time equivalents on Sept. 30, 2023, an addition of 10,297 jobs from a year earlier, or a gain of 3%. In the previous 12 months ending September 2022, credit unions added 18,693 jobs for a 6% gain.

Three credit unions cut 1,139 jobs in the 12 months ending September 2023, after adding 1,041 jobs in the previous 12 months. Those cuts came from:

1. Pentagon Federal Credit Union, Tysons, Va. ($35.4 billion in assets, 2.9 million members), which has had the largest and continuing employee cutbacks and declined to comment for this story. CU Times first reported of layoffs at PenFed in November 2022, citing multiple sources that said 200 to 600 people were laid off in multiple states. NCUA data showed that from September 2022 to September 2023 it cut jobs by 21%, or 825 full-time equivalents. PenFed cut 571 jobs in the fourth quarter of 2022, but continued cutting in 2023, including 120 jobs in the third quarter.

2. Global Federal Credit Union (formerly Alaska USA), Anchorage, Alaska ($11.8 billion in assets, 753,791 members), which cut 460 jobs from April through September, including 227 jobs in the third quarter of 2023. In July 2023, Global announced it was cutting 185 jobs in five states, mostly in response to falling loan originations. Spokesman Tim Woolston said no further cuts were planned.

3. GreenState Credit Union, North Liberty, Iowa ($11.2 billion in assets, 447,703 members), which cut 94 jobs in the 12 months ending September 2023. Most of the cuts were in the fourth quarter of 2022.

On top of those, Kinecta Federal Credit Union of Los Angeles ($6.8 billion in assets, 262,869 members) laid off 84 workers Nov. 6, according to a WARN Act letter Kinecta sent that day by email to California’s Employment Development Office.

The letter said the employees, who worked at its operations center in El Segundo in Los Angeles County, would remain on the payroll through Jan. 5. The state agency previously listed a larger number of layoffs in error.

Kinecta said it had 792 full-time and 30 part-time employees as of Dec. 31, or the equivalent of 807 full-time employees. NCUA data showed its full-time equivalents were 813 as of Sept. 30, down by 22 full-time employees from a year earlier. More on this will be reported separately.

With PenFed’s layoffs, its January through September 2023 costs for pay and benefits fell 16% to $282.7 million, while other overhead fell 15% to $325.8 million.

Even with those cuts, NCUA data showed PenFed’s earnings have been squeezed with falling net interest margins, a 31% year-to-date drop in non-interest income, a 70% drop in loan originations and higher loan write-offs. Its year-to-date net charge-offs were $401.6 million, generating a net charge-off rate of 1.81%, up from 0.78% a year earlier.

As a result, PenFed’s net income from January through September fell 45% to $114.9 million, a 0.43% annualized return on average assets, down from 0.81% a year earlier.

GreenState COO Kathy Courtney said in an email response to CU Times that the late 2022 reductions “were primarily due to slowdown in sales particularly in our mortgage area as well as a few others, along with some rationalization and branch consolidation following completed acquisitions.”

“We expect sales production to increase slightly in 2024 and are not anticipating any additional reductions. Rather, in 2024, we are enhancing our staffing levels primarily in back-office and support areas as we continue to prepare for additional regulatory oversight that comes with crossing the $10 billion threshold.”

The Kroll Bond Rating Agency (KBRA) issued reports in November that affirmed the investment-grade ratings of GreenState, Global and VyStar Credit Union in Jacksonville, Fla. ($13.4 billion in assets, 915,857 members), but lowered their long-term outlooks to “negative.”

A Dec. 8 KBRA report said it lowered the outlooks “primarily based on weaker-than-expected earnings profiles with rising credit costs. While we expect these three credit unions to remain fundamentally sound, they have each faced more considerable earnings pressure when compared to industry medians.”

“Overall, KBRA expects the industry to meet the challenges of higher funding costs, weaker earnings, and the early onset of asset quality deterioration by way of slowing growth and further building on the industry’s strong capital positions,” the report said.

The Dec. 8 report also referred to the pressure at credit unions to cut overhead, noting that the median operating expenses to total assets for credit unions in 2023’s third quarter was 2.51%, which is 38 basis points above similarly sized banks.

“Operating expenses for the industry have been in a gradual upward trend since 1Q22, peaking in 2Q23 at 2.6%, whereas banks have been trending downward over the same period. Major CUs have announced reductions in staff throughout 2023, which most frequently included cuts to loan origination staff and mortgage banking operations,” it said.

At Global, a Dec. 4 KBRA report said operating expenses in 2022 was impacted by its August 2022 acquisition of Global Credit Union of Spokane, Wash., which had $624.6 million in assets and 46,323 members in June 2022. NCUA data showed year-to-date employee costs rose only 0.2% to $169.9 million, while its other overhead costs rose 9.6% to $143.2 million.

The report said, “Positively, management remains focused on containing non-interest expense, and has cost-cutting initiatives in place with salaries expense expected to decline by ~$15 million annually with another ~$4 million in additional cost saves from restructuring contracts with their payment processing provider.”

The KBRA report said its outlook for Global was lowered because its return on assets had dropped to zero because of higher loan loss provisions, lower non-interest income and tighter net interest margins.

Global lost $210,987 from January through September, which works out to zero ROA, compared with 0.71% a year earlier.

At GreenState, a Dec. 1 KBRA report said its lowered outlook was “primarily driven by the diminishing earnings profile, largely impacted by rising funding costs” and higher net charge-offs in the first nine months of 2023.

It attributed most of the bump in net charge-offs to a program in which fintechs provided GreenState unsecured consumer loans through a participations purchase arrangement, which was terminated last year. The fintech loans accounted for $60 million of the year-to-date net charge-offs, or about two-thirds of $86.1 million total charge-offs for the first nine months of 2023.

Jim Kelly, GreenState’s chief marketing officer, said the fintech loan program was started in 2020.

“These were unsecured loans that, similar to the increased losses seen in the credit card industry, experienced heightened loss levels as interest rates and inflation rates began escalating rapidly. There are no longer any active allocations to these partnerships as we have been focusing our lending into our core organic channels and markets,” Kelly said.

“Additionally, as the economic environment and rapid rate increases took hold, we rightfully focused on increasing our liquidity buffer and growing member deposits, albeit at the expense of earnings.”

GreenState took a $6.6 million net loss in the third quarter, lowering its year-to-date net income to $8.7 million, or an annualized 0.10% of average assets, down from 1.42% a year earlier.

As of Sept. 30, its loan-to-share ratio stood at 113% and its net worth ratio was 10.32%. NCUA reports for the fourth quarter will be available by month’s end.

“We have a strong liquidity position entering 2024,” Kelly said.

“We expect the earnings pressure to continue into this year,” he said. “We are focused on slowing the tide of margin compression through repricing our loan portfolio, implementing additional deposit pricing and funding strategies, and continuing to focus on loan loss mitigation/provisioning.”

The KRBA reports also cited lowered interchange income required under the Durbin Amendment for banks and credit unions with more than $10 billion in assets.

At Global, which passed the $10 billion mark in early 2021, KBRA said lower interchange income and lower mortgage originations have caused non-interest income to fall from about 40% of revenue in the past to 24% of income in the first nine months of 2023.

GreenState passed the $10 billion mark in June 2022 and became subject to Durbin last summer.

KBRA said GreenState management forecasts that the loss of interchange fee income in 2023 will cost about $10 million annually or around 15 basis point of ROA. “KBRA expects the revenue from non-interest income to decline but still should represent near 15% to 20% of total revenue.”

Kelly said GreenState expects interchange income at the start of 2024 will be about half its prior levels.

“That said, we are working our way through it and have a path back to positive earnings,” he said. “In the meantime, we remain well capitalized and in a very strong liquidity/cash position.”