MADISON, Wis.–Credit union membership rose a record 526,000 during August, the fastest monthly increase in credit union history.
That’s a 4.2% seasonally adjusted, annualized growth rate, according to the latest CUNA Mutual Trends Report, which credits some of the growth to consequences of the effects the Durbin Amendment is having on bank debit cards.
The Trends Report, which is based on data compiled by CUNA, also found that large credit unions reported falling return-on-asset ratios in the first half of 2016 compared to the first half of 2015 due to rising provision for loan loss expenses, falling fee and other incomes, and rising operating expense ratios. However, net interest margins did improve five to seven basis points during the last year as strong loan growth pushed up yield-on-asset ratios, CUNA Mutual said.
Here’s a look at how CUs performed by category during August:
Consumer Installment Credit (CUCIC)
Credit union consumer installment credit loan balances (auto, credit card and other unsecured loans) rose 1.9% in August, more than twice as fast as the 0.9% pace set in August 2015, CUNA Mutual reported. During the last 12 months, credit union consumer installment credit grew 11.9%, twice as fast as the total market excluding credit unions.
Vehicle Loans
Credit union new auto loan balances rose 1.6% in August, above the 1.2% pace set in August 2015, CUNA Mutual said. Currently new auto loan balances are rising at a 14.9% seasonally adjusted annualized growth rate, a pace similar to that seen over the past year, the Trends Report said. CUNA Mutual is forecasting auto sales will remain above this level for the next two years.
Real Estate Secured Lending – First Mortgages and Other Real Estate
Credit union fixed-rate first mortgage loan balances grew 1.2% in August, faster than the 1% pace reported in August 2015, CUNA Mutual said. “However, when comparing year-over-year growth, fixed-rate first mortgage balances rose 8.3%, which is below the 10.9% reported in the year ending in August 2015,” the Trends Report noted. ARM loan balances grew faster than fixed-rate loans over the last year, rising 11.6% during the last year, and faster, too, at an 8.2% pace reported in the year ending August 2015. Credit unions now hold $346.5 billion of first mortgages on their books, 70% of which are of the fixed-rate variety, CUNA Mutual said.
Home equity lending posted another strong month in August, increasing 1.3%, exactly the same as what was reported in August 2015.
Surplus Funds (Cash + Investments)
Credit union surplus funds fell $7.8 billion, or -2.0%, in August to help fund strong loan demand ($9.2 billion) and deposit outflows ($-0.7 billion), according to CUNA Mutual. To make up the loan funding shortfall, additional borrowings contributed $7 billion and capital growth contributed $0.5 billion. Credit union surplus funds as a percent of assets fell to 29.1% in August, down from 31.0% in August 2015. This is the tightest credit union liquidity position since January 2009. The obverse of the falling surplus funds ratio is the rising loan-to-asset ratio, which reached 66.5% in August, from 64.9% last August, as loan growth outpaced asset growth, according to the Trends Report.
Savings and Assets
Credit union savings balances fell 0.1% in August, less than the -0.6% decline in balances reported in August 2015. During the first eight months of the year, credit union deposits rose $48.2 billion. Contributing to this growth was a $9.4 billion increase in certificate deposits; thus, making up 19.5% of total deposit growth, according to the Trends Report.
Savings balances grew at a 6.8% seasonally adjusted annualized growth rate in August, continuing the downward trend in growth reported over the last year as members spend more of their windfall from low gas prices, according to the Trends Report.
Capital and Other Key Measures
The credit union movement’s weighted average loan-to-share ratio reached 79.4% in August, up from the 77.1% reported in August 2015, due to loan balance growth (10.4%) outpacing savings balance growth (7.3%), CUNA Mutual said. The loan delinquency rate (loans two or more months delinquent as a percent of total loans outstanding) fell to 0.76% in August, down from 0.78% in August 2015.
Credit Unions and Members
As of August 2016, CUNA estimates 6,082 credit unions were in operation, down 276 from August 2015. Year-to-date the number of credit unions fell by 154, which is similar to the155 decline reported in the first eight months of 2014. NCUA’s Insurance Report of Activity showed 20 mergers were approved in August with an average asset size of $20.7 million, up from the 17 mergers reported in August 2015 with an average asset size of $14 million.
Meanwhile, large credit unions reported falling return-on-asset ratios in the first half of 2016 compared to the first half of 2015 due to rising provision for loan loss expenses, falling fee and other incomes, and rising operating expense ratios. However, net interest margins did improve five to seven basis points during the last year as strong loan growth pushed up yield-on-asset ratios, CUNA Mutual said.
Credit union memberships rose a record 526,000 in August, or 0.49%, much better than the 340,000 new members, or 0.33%, added in August 2015. During the last year, credit unions added 4.2 million new members – the fastest in credit union history – which translates into a 4.2% seasonally adjusted, annualized growth rate.
“Membership growth is being driven by strong job gains and Americans’ demand for credit. Membership growth is also being supported by an unintended consequence of the Durbin Amendment of the Dodd-Frank Act. The amendment capped the fees large banks can charge merchants to process debit card transactions (21 cents plus 0.05% of the total charged),” CUNA Mutual said in its analysis. “To make-up for this lost revenue, banks increased their monthly fees for having a debit card or a checking account. The higher charges are driving many bank customers to their local low-or-no-fee, not-for-profit credit union.”