MADISON, Wis.–America’s credit unions held 12% of total household savings in April, the highest percentage in credit union history and up from 11.6% one year ago, 9.2% 20 years ago and 4.3% 40 years ago, according to CUNA Mutual’s newest Trends Report, which is based on data through April.
Meanwhile, the Report is also forecasting the pace of CU mergers is going to pick up this year and will approach another record, this one not seen since 2015.
The rising marketshare came at the same time credit union yield on asset ratios fell to 2.9% in the first quarter of 2022, the lowest in credit union history (and “significantly below” the 4.6% long-run average, according to the CUNA Mutual report. The ratio has fallen 112 basis points from the 4% set in 2019, right before the COVID-19 pandemic, according to the report.
“This 28% drop in interest earnings as a percent of assets is a serious concern for credit unions since 72% of their total revenues come from interest revenues,” stated Steve Rick, CUNA Mutual’s chief economist. “The other 28% of revenues come from fees, interchange income, gains on the sale of mortgages, etc.
The Trends Report analysis notes that over the last year, yield-on-asset ratios fell from 3% in Q1 2021 to 2.9% in Q1 2022.
“Most of this 12- basis point decline was due to amortizing loans and investments rolling over or repricing into lower interest rate loans and investments called the ‘rate effect’ in the first quarter,” the Trends Report explains. “The remainder of the 12-basis point decline was due to the mix of assets shifting towards investments and away from loans, the ‘mix effect.’ Expect the yield on asset ratio to rise during the remainder of the year as the Federal Reserve raises the Fed Funds interest rate above 3% by year-end, from 1.6% today, and loan growth exceeds investment growth.”
Here’s a look at how the country’s credit unions performed by category through April:
Credit Union Total Lending
Credit union loan balances rose 1.9% in April, almost four times the 0.5% pace reported in April 2021 and 13% during the last 12 months, according to the Trends Report, which noted that April is historically the beginning of the credit creation season with seasonal factors typically adding 0.2 to 0.4 percentage points to the underlying trend loan growth rate.
“During the first four months of 2022, loan balances rose a remarkable 5.6%, the fastest pace in more than 30 years and double the second-fastest pace of 2.8% reported in 2000,” stated Rick in his analysis. “Every real estate and consumer loan category reported positive loan growth. Home equity loan balances grew 4.6% in April, the fastest growing loan category.”
The data show credit union loan balances rose 11.1% in the year ending in the first quarter of 2022. Credit unions with assets exceeding $1 billion reported loan balances growing 12.3%, while credit unions with assets less than $20 million reported loan growth of 1.9%.
“Expect credit union loan balances to rise 11% in 2022, and 8% in 2023 which will be above the long- run average rate of 7.2%,” the report forecasts. “Loan growth will decelerate next year as job growth slows, worries about recessions increase and consumer confidence declines.”
Credit Union Installment Lending
Credit union credit card loan balances rose 0.7% in April, a big turnaround compared to the 1% drop reported in April 2021, according to the Trends Report.
On a seasonally-adjusted annual rate, credit card balances rose 14.2%, above the long-run average of 5.5% and at the fastest pace since 2007.
“As the pandemic recedes, we are seeing consumers increase their spending on travel and leisure and using debt to finance these purchases,” the Report states. “With strong job growth and household balance sheets in generally a favorable position, consumers' demand for consumer credit remains strong.”
Revolving credit balances, meanwhile, which include credit card spending, grew at an annualized pace of 21.5% in April.
“Retail sales are slowing, however, as consumers may have satiated much of their demand for goods,” the Report observes. “The outlook remains favorable as demand for services remains high and wage growth is strong.”
Vehicle Loans
The Trends Report analysis shows credit union new-auto loan balances rose 2.1% in April, a big increase compared to the 0.3% gain reported in April 2021. On a seasonally-adjusted annual rate, new auto loan balances rose 15.5% in April, the ninth monthly increase.
“The month of May is historically the beginning of the new auto lending season, so we expect credit union lending to remain strong through October,” the Report states. “New auto loan balances rose 4.6% year to date, greater than the 1.3% drop reported during the first four months of 2021.”
The Report added that affordability is becoming a major issue for new vehicle demand, with new vehicle prices now 20% higher than pre-pandemic levels and rising interest rates and high gas prices pushing up the cost of ownership.
“This will reduce the demand for new vehicles and slow the normalization of the auto industry,” Rick forecast.
Real Estate Information
Credit union fixed-rate first mortgage loan balances rose 2% in April, above the 0.8% increase reported in April 2021. Credit union fixed-rate first mortgage loan balances rose 21.6% at a seasonally-adjusted annual rate in April.
Adjustable-rate first mortgage balances rose 0.3% in April, below the 1.2% gain reported in April 2021, according to the Trends Report.
“Fixed-rate first mortgages now make up 82% of all credit union first mortgage loan balances, up from 78% last April and the highest in credit union history,” the Report states. “This raises concerns about interest rate risk as market interest rates rise.
“During the last 12 months, home prices rose 20.9%, the fastest pace on record due to a persistent lack of supply of homes for sale,” the analysis continued. “The current rate of price appreciation is unsustainable when compared to 5.5% income growth. As a result, expect house price appreciation to slow over the next several quarters as affordability challenges curb housing demand.”
Savings & Assets
Credit union savings balances rose 0.7% in April, lower than the 1.7% surge reported in April 2021 following the third round of stimulus checks. Savings balances grew at a 7.7% seasonally-adjusted annual rate in April above the 7% long-run average, the Trends Report stated.
“April is typically one of the weakest months for savings growth as members use deposits to pay tax liabilities,” the Trends Report said. “Credit unions held 12% of the total household savings market in April, the highest in credit union history and up from 11.6% one year ago, 9.2% 20 years ago and 4.3% 40 years ago. Banks currently hold 76.1% of total household savings while savings and loan associations and mutual savings banks hold only 3.3%.”
The report noted household savings is defined as the sum of checkable deposits, savings accounts, small time deposits, money market deposit accounts, money market mutual funds and savings bonds.
“Savings growth for the first four months of the year came in at 4%, slightly below the 4.1% average pace set during the last 20 years,” the Trends Report stated. “Expect savings balances to grow 6-7% in 2022, below last year’s very strong pace of 12.6%.”
Capital & Other Key Measures
Credit union’s average capital-to-asset ratio fell to 9.2% in March 2022, down from 9.8% in March 2021, the Trends Report analysis shows.
In the year ending in March 2022, credit union capital rose only 1.5% while assets grew 8.4%, which decreased the capital ratio by 0.6 percentage points and 6%, the approximate difference between the numerator and denominator growth rates.
“Credit union ‘net capital’ (aka equity) is defined as the sum of reserves plus undivided earnings plus gains divided by losses on available-for-sale securities,” During the first quarter, rising market interest rates reduced the value of available-for-sale securities and the dollar amount of credit union equity fell to $11.3 billion, from $209.2 billion in December 2021 to $197.9 billion in March 2022. Over the last 12 months, credit unions have taken on more interest rate risk by increasing their percent of investments in maturities greater than one year from 43% to 53% today.”
Delinquencies
Meanwhile, the credit union loan delinquency rate (loans two or more months delinquent as a percent of total loans outstanding) fell to 0.4% in March 2022, down from 0.5% in December 2021, and down from 0.5% in March 2021, according to the Trends Report.
“Credit unions normally report large declines in the delinquency rate in February and March as members use bonuses and tax refunds to catch up on overdue loans,” the Report states. “The labor market is now at ‘full employment,’ with the unemployment rate at 3.6%, which is slightly below the 4.5% considered to be the natural unemployment rate. With the unemployment rate expected to slowly rise and approach 4.5% over the next few years, we can expect the credit union loan delinquency rate to also rise to its long-run natural delinquency rate of 0.8%.”
Credit Unions & Members
As of April 2022, CUNA estimates 5,083 credit unions were in operation, six fewer than in March.
During the first four months of 2022, approximately 69 credit unions ceased to exist because of mergers, purchases and assumptions or liquidation, the Report said.
“This rate is slightly above the 48 credit union decline reported during a similar period in 2021,” according to the Report’s analysis. “In 2021, the number of credit unions declined by 165, with 74 occurring during the first half and 91 taking place in the second half of the year.
Rick said credit unions should expect the pace of credit union consolidation to accelerate in 2022 and 2023 due to some credit union managers focusing on possible merger opportunities as the COVID-19 pandemic and its related issues recedes.
‘Fastest Pace Since 2015’
“We expect the number of credit unions to decline by 225 in 2022, the fastest pace since 2015,” the report forecasts. “This acceleration in the pace of consolidation is what happened in the wake of the Global Financial Crisis in 2009-2011 when the number of mergers dipped in 2010 and 2011 but surged in the four years following the crisis. So, once the economic seas calm, expect a surge in mergers during 2022-2026 as smaller credit unions with limited digital capabilities look for merger partners to increase the products and services offered to their members.”