MADISON, Wis.–Credit union membership set a record during the first three quarters of 2017, while credit unions themselves are also seeing near-record loan-to-share ratios as many CUs are now reaching further down into credit files for new loans, according to a new report.
In addition, credit unions are also taking steps to prepare for an increase in cost of funds in 2018, according to the latest Trends Report from CUNA Mutual, which is based on data compiled by CUNA through Sept. 30 of this year.
Here’s a look at how credit unions performed by various categories, as reported by CUNA Mutual’s Trends Report:
Total Credit Union Lending
Credit union loan balances rose 0.7% in September, slower than the 0.8% pace reported in September 2016. Driving overall loan growth was strong growth in unsecured personal loans (2.4%), fixed-rate first mortgages (1.4%), second mortgages (1.3%) and new-auto loans (1.1%), CUNA Mutual reported.
The Trends Report is projecting that CU loan-to-savings ratios are expected to reach 82.4% at year’s end due to loan growth exceeding deposit growth. This will be the highest ratio since the beginning of the Great Recession in December 2007, CUNA Mutual said.
“Loan-to-savings ratios peak right before recessions and may contribute to the economic slowdown that follows due to tight liquidity from credit unions reducing their pace of lending and high levels of member’s debt reducing their demand for loans,” the Trends Report states. “Based on current trends, credit union lending growth could slow slightly to 9.5% while savings balances increase only 6%. This will raise the average loan-to-savings ratio to 85.1% at year’s end 2018, the highest ratio since May 1980.”
Credit Union Consumer Installment Credit (CUCIC)
Credit union consumer installment credit loan balances (auto, credit card and other unsecured loans) rose 1.1% in September, faster than the 0.7% pace set in September 2016, CUNA Mutual said. During the last 12 months, credit union consumer installment credit grew 12.0%.
Vehicle Loans
Credit union new-auto loan balances rose 1.1% in September, slightly below the 1.5% pace set in September 2016. New-auto loan balances rose 15.8% during the last 12 months, faster than the 12.3% increase in used-auto loans. Total auto loan balances rose 13.7% since September 2016, which is faster than overall loan growth and in turn has led to auto loans making up 34.9% of the credit union loan portfolio, the highest since April 2007.
Real Estate Secured Lending – 1st Mortgages and Other Real Estate
Credit union fixed-rate first mortgage loan balances grew a strong 1.4% in September, similar to the 1.7% pace set in September 2016, due to existing home sales rising 0.7% from August. ARM loan balances fell 1.2% in September, below the 0.2% pace recorded in September 2016.
Home equity lending balances were unchanged in September, which is better than the 1.0% drop reported in September 2015, CUNA Mutual reported.
Surplus Funds (Cash + Investments)
Credit union liquidity fell to the lowest level since December 2008 in September as loan growth outpaced asset growth, the Trends Report found. Credit union surplus funds as a percent of assets declined to 26.9% in September, down from 29.4% one year earlier, due to asset growth (6.8%) outpacing surplus funds growth (-2.5%). Credit union borrowings rose 9.5% over the last year, $4.7 billion, due to loan demand outpacing savings supply. Credit union borrowings as a percent of assets stands at 3.8%, below the 4.9% set back in the first quarter of 2009. Loans rose to 69.2% of assets in September, the highest level since December 2008.
The Trends Report said that currently 48.1% of credit union surplus funds have a maturity of less than one year, up from 47.1% in June 2016. “This shift towards shorter maturity investments could be due to credit unions expecting the Federal Reserve to continue raising interest rates in December 2017 and on through 2018 and 2019,” The Trends Report stated.
Savings and Assets
Credit union savings balances rose 1% in September, but less than the 1.4% gain reported in September 2016, due to the month ending near a payday Friday, according to the Trends Report. Savings balances rose 6.7% during the last 12 months due to the windfall gain from falling gas prices, rising credit union memberships and stronger job growth.
“Credit union cost of funds is expected to rise 10 basis points in 2018 as the Federal Reserve raises the Fed Funds interest rate 0.75%,” the Trends Report projects. “Credit unions will follow suit and raise interest rates on share certificates and money market accounts similar to what they did in 1994 and 2004. Members’ behavior will also contribute to rising funding costs as they move deposits from low-cost regular shares to higher-cost share certificates.”
Capital and Other Key Measures
The credit union system’s capital-to-asset ratio fell to 10.7% in September, down from 10.8% in August, due to a surge in deposit growth because of the month ending on a payroll Friday. The capital ratio is identical to what was reported in September 2016 due to asset growth of 6.8%, equaling capital growth. The credit union loan-to-share ratio rose over the last year to 82.1% from 78.9% due to loan growth outpacing savings deposits, according to the Trends Report.
CUNA Mutual reported the loan delinquency rate (loans two or more months delinquent as a percent of total loans outstanding) fell to 0.76% in September, down from 0.77% in September 2016, as the unemployment rate falls below what economists now believe is the “full employment rate” of 4.7%. “This is leading to credit unions relaxing lending standards by going further down the credit spectrum.”
Credit Unions and Members
As of September 2017, CUNA estimates 5,849 credit unions were in operation, down 233 from September 2016. Year-to-date, the number of credit unions has fallen by 173, slightly more than the 154 reported in the first nine months of 2015, CUNA Mutual reported.
Meanwhile, credit unions added more than 3.964 million memberships in the first nine months of 2017, the fastest pace in credit union history, and significantly above the 3.539 million added in the similar time period of 2016, according to the Trends Report. Surging demand for credit was the major driver for the upwelling in memberships. Credit union loan balances increased $27.9 billion in the third quarter, above the $24.2 billion in the third quarter of 2016.
“We expect membership growth to remain strong in 2018, but slow to a more sustainable pace of 3.5% to 4%,” the Trends Report projects.
The full CUNA Mutual Trends Report can be found in CUToday.info’s The Vault here.