MADISON, Wis.–The average asset size of a credit union now stands at $381.2 million, up a “remarkable” 22% from a year ago, while the median asset size is $46.5 million, up 24% over the last year, indicating the loss of smaller credit unions, according to CUNA Mutual’s latest Trends Report, which examines CU performance through June.
In addition, credit union delinquencies continue to be at their lowest point in a quarter-century.
An improving labor market was credited for the low delinquency rate of 0.44% in June, significantly lower than the 0.75% considered the natural delinquency rate, reported CUNA Mutual, noting CU loan net charge-off rates show similar below trend numbers.
Meanwhile, credit union new-auto loan balances fell at a 3.3% seasonally-adjusted, annualized growth rate in June, the 24th consecutive monthly decline; fixed-rate first mortgage loan balances grew 1.8% in June, faster than the 1.3% reported in June 2020, and liquidity is projected to continue to decline as a percent of assets going forward for the next few years.
Here’s a look at how credit unions performed by category during June, according to the Trends Report.
Total CU Lending
Credit union loan balances rose 1% in June, faster than the 0.7% pace reported in June 2020, due to every loan category reporting positive growth except new auto loans (-1.1%) and business loans (-2.4%). June typically records the fastest loan growth of the year, with seasonal factors adding 0.39 percentage points to the underlying trend growth, CUNA Mutual reported.
The Trends Report noted credit union loan balances grew at a 5.9% seasonally-adjusted, annualized growth rate in June, significantly better than the 4.9% pace set in June 2020 during the worst of the economic crisis.
“Over the long run, credit union loan balances rise on average 7% per annum,” the Trends Report stated. “We are forecasting above-trend credit union loan growth for the next two years (around 8%) as the economy resumes its normal growth, pent-up demand is satiated and infrastructure spending kicks in.”
Consumer Installment Credit
The Trends Report found credit union consumer installment credit loan balances (auto, credit card and other unsecured loans) rose 0.4% in June, below the 2.2% reported in June 2020 when used auto and other unsecured loans reported a big jump.
Credit union consumer installment credit rose 6.8% during the 12 months ending in June, above the 4.1% pace reported by all other lenders, the Report added.
“Credit card growth finally turned positive in June, rising at a 2.2% seasonally-adjusted annualized growth rate, the first positive reading since October 2019,” the Report added.
Vehicle Loans
Credit union new-auto loan balances fell at a 3.3% seasonally-adjusted, annualized growth rate in June, the 24th consecutive monthly decline.
On a month-over-month basis, new auto loan balances decreased 1.1% in June, a bigger decline than the 0.6% drop reported in June 2020, according to CUNA Mutual’s analysis, which noted June’s seasonal factors usually add 0.5 percentage points to the underlying trend growth rate, and June typically has the second-largest seasonal factor of the year.
Credit union new-auto loans currently make up 36% of total auto loans, with used-auto loans making up the other 64%, the Report added.
Used-auto loan balances rose 1.2% in June, below the 1.5% pace reported in June 2020. A typical used-auto loan is originated at roughly half the dollar amount of a new auto loan.
Real Estate
Credit union fixed-rate first mortgage loan balances grew 1.8% in June, faster than the 1.3% reported in June 2020, according to the Trends Report. A year-to-date growth comparison shows a 5.6% growth rate during the first half of 2021, down when compared to the 8.1% in 2020, the report added.
“Expect mortgage interest rates to fall for the next few months due to a drop in the 10-year Treasury interest rate,” the Report forecasts.
Surplus Funds
Credit union surplus funds as a percent of assets fell to 34.9% in June, down from the high-water mark of 36.5% set back in April, the Trends Report stated.
“We expect credit union liquidity to keep falling as a percent of assets going forward for the next few years. During the last 12 months, surplus funds rose 31% while assets grew 13%,” said CUNA Mutual’s economist, Steve Rick. “The obverse of the surplus funds ratio is the loan-to-asset ratio, which rose to 60.9% in June, above the low-water mark of 59.6% set in April. Expect the loan-to-asset ratio to keep rising for the next two years. This shift of assets toward loans (the mix effect) will help offset the drop in the yield-on-asset ratios due to the effect of record-low market interest rates.”
The Report added that the stronger growth in credit union savings over the last year resulted in credit unions relying less on wholesale borrowings, which fell by $9 billion, or a drop of 17%. Credit unions’ capital balances increased by $14 billion, 7.5%, during the last 12 months. The credit union movement’s capital-to-asset ratio fell to 10%, below the 10.5% reported in June 2020, due to capital growing slower than assets, the Report added.
Savings & Assets
Credit union savings balances grew 15.1% during the 12 months ending in June, more than double the 5.7% average annual growth rate recorded during the last 10 years, CUNA Mutual stated.
The Report noted the 15.1% credit union savings growth rate was caused by the combination of the 3.5% membership growth during the last 12 months and the 11.1% savings-per-member growth rate.
“The increase in deposit growth rates over the last year coincides with a rise in the personal savings rate (savings as a percent of disposable personal income), which reached 9.4% in June,” CUNA Mutual stated. “This is above the 7.2% personal savings rate set during the 10-year period ending December 2019.
“During the last 12 months, regular share deposit growth accounted for 56% of all deposit growth at credit unions. Regular share deposits are currently growing at a 17% seasonally-adjusted annualized rate, 10 percentage points above the 20-year average of 7%,” The Trends Report continued. “We expect deposit growth to come in around 15% in 2021, before slowing to 5% in 2022 and 2023.”
Capital and Other Key Measures
“With short-term interest rates rising and long-term interest rates falling the last few months, the yield curve flattened slightly,” noted the Trends Report analysis. “Normally this would put downward pressure on credit unions’ net interest margins as the business of buying money short-term and selling money long-term becomes less lucrative.
“Moreover, the surge in deposits and short-term investments will also put downward pressure on credit union net interest margins for the next 18 months due to investment yields falling to record lows,” the Report added.
CUNA Mutual’s analysis shows the credit union loan-to-share ratios rose to 70.1% in June, up from 69.5% one month earlier, but down from 77% in June 2020. The recent cyclical high of 86% occurred during January 2019, the highest since May 1980.
“Expect loan-to-share ratios to continue to rise for the rest of the year as loan growth picks up speed as the economy reopens from the pandemic,” the Trends Report forecasts.
Credit Unions & Members
As of June 2021, CUNA estimates 5,530 credit unions were in operation, three fewer than May and 154 fewer than June 2020, the Trends Report states.
During the first half of 2021, approximately 87 credit unions ceased to exist because of mergers, purchases and assumptions or liquidation.
“During a typical year, 46% of the total decline in the number of credit unions takes place in the first half of the year, which means that we can estimate the 2021 full-year decline in the number of credit unions to be 189, above the 143 reported in 2020,” the Trends Report stated. “The average asset size of a credit union now stands at $381.2 million, up a remarkable 22% from a year ago, while the median asset size is $46.5 million, up 24% over the last year, indicating the loss of smaller credit unions.”
CUNA Mutual said the trend towards industry consolidation and bigger credit unions is only likely to accelerate due to the benefits of greater economies of scale, higher productivity and larger earnings that are all achieved with a larger asset base.
“Larger, more efficient credit unions will also raise the barrier to entry for new small credit unions,” the Report adds.