MADISON, Wis.–Credit unions set a membership growth record over the first five months of 2018, according to new data, breaking the five-month record established in 2017.
Some 2.2-million people joined credit unions from January through May of this year, CUNA Mutual’s latest Trends Report shows.
All those new members are pushing up credit union assets, which should breach the $1.5 trillion mark by the end of the fourth quarter, the Trends Report is forecasting.
The latest credit union performance numbers come as during May the economy added 244,000 jobs, the unemployment rate fell to 3.8%, personal income rose 0.4%, and personal spending rose 0.2%, consumer prices rose 0.2%.
All of that and more, noted CUNA Mutual in its analysis, contributed to credit unions “feeling confident” enough to “keep economic growth above 3.0% for the remainder of 2018.”
Here’s a look at how credit unions performed by Category, according to the Trends Report:
Total Credit Union Lending
Credit union loan balances rose 1.3% in May, above the 1.2% reported in May 2017 and 3.9% year-to-date, CUNA Mutual said. “Every loan category reported solid growth in May, led by adjustable-rate mortgage lending, which increased 2.5%. This pushed year-over-year loan growth to 9.9%, which is slower than the 10.9% pace reported in the year ending May 2017.”
On the savings side, CUNA Mutual reported CU savings balances grew 5.7% over the last year, below the 6.1% 10-year average growth rate, due to members’ desire to spend rather than save. “But with loans growing faster than savings, the credit union average loan-to-savings ratio reached 83.4% in May, above the 80.2% reported one year earlier,” CUNA Mutual said. “We are still below the high-water mark for the loan-to-share ratio set back in September 2008, when credit unions were 84.1% loaned out.”
First mortgage lending has made up the lion’s share of loan growth over the last year, with the Trends Report noting that since May of 2017, credit union first mortgage loan balances increased a record $42.4 billion, followed by vehicle loan balances rising $36.3 billion.
Credit Union Consumer Installment Credit (CUCIC)
Credit union consumer installment credit loan balances (auto, credit card and other unsecured loans) rose 8.4% during the 12 months ending in May, CUNA Mutual said, which is almost twice the 4.3% pace of the total market, excluding credit unions, and significantly faster than the 2.0% growth rate of the total market, excluding credit unions and government student loans. Credit union credit card loan balances grew at a strong 9.2% seasonally-adjusted, annualized growth rate in May.
Vehicle Loans
Credit union new-auto loan balances grew at a 12.2% seasonally-adjusted, annualized growth rate in May, a deceleration from the 13.6% pace set in May 2017, the Trends Report said.
“Credit union new-auto lending is the second fastest growing loan category for the first five months of 2018. Used-auto lending is the fastest growing loan category, increasing 5.8% during the first five months and greater than new-auto loan growth of 5%,” the report states.
Real Estate Secured Lending – First Mortgages and Other Real Estate
Credit union home equity loan balances grew at a 5.8% seasonally-adjusted, annualized growth rate in May due to rising home prices and improving consumer confidence, according to CUNA Mutual. The report forecasts “the demand for home equity credit will remain strong due to rising home prices, the improving job market, rising consumer confidence, consumers releasing pent-up demand for durable goods and low interest rates. Credit union fixed-rate, first mortgage loan balances rose only 0.2% in May, down from the 1.5% in May 2017, and have shown only 2.9% growth so far this year.”
Surplus Funds (Cash + Investments)
Credit union surplus funds as a percentage of assets fell to 25.4% in May, down from 28.2% in May 2017, due to credit union assets growing faster than surplus funds – 5.4% versus -5.0%, respectively, according to the Trends Report.
Credit union yield-on-asset ratios rose 22 basis points over the last year to reach 3.63% in the first quarter of 2018. The “mix effect,” the shift in the mix of credit union assets from low-yielding investments to higher-yielding loans, added seven basis points to credit union yield-on-asset ratios, CUNA Mutual’s analysis stated. “However, the ‘rate effect’ added 15 basis points to yield-on-asset ratios due to the yield on loans rising from 4.49% in the first quarter of 2017 to 4.57% in the first quarter of 2018. Credit union cost of funds rose eight basis point to reach 0.60% throughout the last year, so net interest margins then rose 14 basis points.”
Surplus funds with a maturity of less than one year rose to 60.6% of all surplus funds in the first quarter, which is up from 60.1% in the same period a year ago, the data show.
Savings and Assets
Credit union savings balances grew at a 5.7% seasonally-adjusted, annualized growth rate in May, a slight acceleration when compared to the last few months, the Trends Report stated. “However, growth is slower now than the last couple of years because of higher gas prices, high consumer confidence and the desire for consumers to spend rather than save today.”
Contributing to the overall growth in savings balances was the 2.8% growth in share certificate balances during the first five months of 2018 as credit unions slowly increased deposit interest rates to help fund the surge in loan balances, CUNA Mutual said. It further reported credit union wholesale borrowings are up 2% from a year ago to boost year-over-year asset growth to 5.4%.
Capital and Other Key Measures
The credit union loan delinquency rate (loans two or more months delinquent as a percent of total loans outstanding) fell to 0.64% in May, down from 0.66% in April and from 0.74% in May 2017, the Trends Report said. “Today’s delinquency rate is significantly lower than the 10-year average of 1.21%. Delinquency rates tend to decline during the first half of the year and rise during the second half, so we don’t expect the ratio to decline much further in 2018,” said CUNA Mutual’s analysts.
Credit union return-on-equity ratios rose to 6.5% in the first quarter of 2018, up from 6.3% in Q1 2017, due to rising earnings. The disparity between large and small credit unions’ return-on-equity ratios remains large, CUNA Mutual reminded.
Credit Unions and Members
As of May 2018, CUNA estimates 5,722 credit unions were in operation, two fewer than April and 231 less than May 2017. During the first five months of 2018, approximately 78 credit unions ceased to exist because of mergers, purchase and assumptions, or liquidation.
That rate is faster than the 69 reported during the similar time period in 2017, CUNA Mutual reporting, noting most of the recent mergers were either an acquisition merger (where the assets of the merged credit union were 10-50% of the acquirer credit union) or an absorption merger (where the assets of the merged credit union were less than 10% of the acquirer credit union).
“Our 2018 forecast estimates an average annual decline of 250 credit unions through 2021, bringing the total number of credit unions below 5,000 by the end of 2021,” the Trends Report said.
Meanwhile, credit union memberships grew a strong 475,000 in May, or 0.41%, up from May 2017 when the movement added 396,000 memberships, an increase of 0.36%, the Trends Report shows.
Credit union memberships grew at a 4.3% seasonally-adjusted, annualized growth rate in May, similar to the record- setting pace of the last few months.
“However, the rapid membership gain that began with Bank Transfer Day on November 5, 2011 is being maintained by the strong pace of new job creation over the last few years and the tremendous growth in credit union auto lending,” said CUNA Mutual in its analysis. “During the first five months of 2018, credit unions added a record 2.2 million new credit union memberships, which has outpaced the previous record set back in 2017.”