Every fall, trees shed their leaves. They look small and bare throughout the winter, seemingly weak. But this isn’t weakness, it’s a strategy for survival when the climate is harsh. By letting go of what no longer serves them, the trees are protecting themselves. When spring comes, they’re stronger than before and ready for growth.
Credit unions are facing a similar change in seasons as the economic environment shifts. Over the past year, cost of funds has been declining across the industry as deposit pressures ease. With FOMC rate cuts now coming into play, cost of funds should decline further. Credit unions that actively restructure expensive liabilities, pay down excess borrowings, and focus on stable, low-cost funding sources will come out of this phase with leaner, healthier balance sheets. Like the tree dropping its leaves, they may look smaller for a time, but they will emerge stronger in the future.
Across the credit unions we track, cost of funds varies widely, from below 25 bps on the low side to well over 2% on the high side. That spread determines who is lean and efficient versus who is weighed down.
- Chart 1 shows a credit union that focused on retaining core deposits and avoiding “hot money.” The tradeoff: they lost about 7.5% of liabilities over the last two years. Yet despite higher expenses and lower loan yields than peers, they’ve maintained an ROA above industry averages.
- Chart 2 highlights a credit union that chased growth, adding 5% in deposits over two years by competing aggressively on rates. The higher funding cost has pulled their ROA down to just 0.30%, well below peer averages, even with one of the lowest expense ratios in the industry.
Chart 1. Credit Union Focused on Core Deposits
Chart 2. Credit Union Struggling with Higher Cost of Funds
It’s easy to say the credit union in Chart 2 should trim back their liabilities by shedding expensive deposits and rethinking funding. That strategic discipline would create a foundation for stronger growth when the economic season changes. Cutting liabilities also allows credit unions to refocus lending priorities, reducing less profitable volume in favor of growth that builds resilience.
And just as winter tests whether a tree has stored enough strength in its roots, the economy is about to test balance sheets. Delinquencies are rising, charge-offs are following, and provisions for loan losses are tightening earnings. The credit unions that endure will be those with healthy reserves, balanced credit exposures, and liability structures that don’t sap energy when margins are thin.
The lesson is clear: shedding isn’t shrinking, it’s strengthening. Trees let go of their leaves to protect the trunk and roots. Credit unions can do the same by shedding costly liabilities, trimming unprofitable lending, and protecting the capital base that supports long-term growth.
When spring comes, in the form of lower rates, renewed loan demand, and economic recovery, the credit unions that conserved energy and protected their core will be the first to bloom.
At Accolade, we help credit unions navigate this seasonal cycle by lowering cost of funds, preparing for rate cuts, and building resilience against credit headwinds. Like in nature, success comes from knowing when to hold on, and when to let go.