MADISON, Wis.–Credit union loan growth is approaching its fastest pace in nearly two decades and asset yields should increase by nine basis points as a result, according to the newest CU industry numbers released by CUNA Mutual Group.
On the flip side, during the first quarter of 2016, the number of credit unions fell by 73, the fastest pace since the first quarter of 2012, even as membership grew by a record 1.392 million during Q1, according to CUNA Mutual Group’s latest Trends Report, which is based on activity through March.
Here’s a look at each of the performance categories tracked by CUNA Mutual—which uses CUNA data—in its Trends Report.
Lending
Credit union loan balances rose 1.0% in March, faster than the 0.7% pace reported in March 2015, and 10.9% during the last 12 months, said CUNA Mutual, noting March is historically the third weakest loan growth month of the year, with seasonal factors typically shaving -0.24 percentage points from the underlying trend growth rate. The lending season is now in full swing with strong loan growth expected from April through September, the company projected.
“Credit union loan growth is approaching its fastest pace in almost two decades,” the Trends Report states. “Credit union seasonally adjusted annualized loan growth reached 12% in March, the fastest pace since the first quarter of 2000 when the stock market boom was reaching its apex and the accompanying wealth effect encouraged borrowing and spending…This time around the credit boom is being driven by strong job growth, rising household formations and pent-up demand.”
Credit Union Consumer Installment Credit (CUCIC)
Credit union consumer installment credit balances (auto, credit card and other unsecured loans) rose 0.9% in March, better than the 0.0% pace set in March 2015, due to strong auto lending, CUNA Mutual said. Credit card balances were unchanged due to March seasonal factors that typically shave 1.31 percentage points from the underlying trend growth as members use tax refunds and bonuses to pay down outstanding credit card balances, CUNA Mutual said. Credit union consumer installment credit grew 13.9% during the last year, which is better than the 6% for the total market excluding credit unions
Mortgages and Other Real Estate
Credit union fixed-rate first mortgage loan balances jumped 1.5% in March, but the jump was only half the 3.0% increase reported in March 2015, CUNA Mutual said.
“This rapid March mortgage volume was due to a surge in loan applications during January and February when mortgage interest rates fell. Moreover, the third month of each quarter typically reports the biggest monthly increase in loan balances,” the company said. “During the last 12 months, fixed-rate first mortgage balances rose 9.4%, similar to the 9.6% increase in adjustable-rate mortgage balances. Improving household balance sheets, rising consumer incomes and a rising capacity to service debt has decreased mortgage credit risk and therefore encouraged credit union lenders to loosen lending standards.”
Home equity loan balances rose a weak 0.2% in March as members used bonuses and tax refunds to pay down some of their lines of credit.
Surplus Funds (Cash + Investments)
Credit union surplus funds as a percent of assets fell to 31.6% in March from 33.3% last year, as credit unions partly funded new loan growth with cash and investments, CUNA Mutual said. During March, a 1.6% surge in savings balances funded a 1% increase in loans, a 0.6% increase in surplus funds and a 7.4% reduction in external borrowings.
Surplus funds are expected to fall to 29% of assets by this time next year, the tightest liquidity position since the first quarter of 2009, as loan balances grow 10% and savings balances rise only 5%. Loans as a percent of assets are expected to rise from 64.6% today to 67.1% by March 2017, according to CUNA Mutual.
“Since the average return on loans is approximately 4.7% today, and the average return on investments is 1.2%, the 2.5 percentage point shift in assets from surplus funds to loans will boost asset yields by nine basis points,” CUNA Mutual said in its analysis.
Credit union savings balances surged 1.6% in March, significantly above the 0.5% gain reported in March 2015, due to the seasonal factors of tax refunds and bonuses being deposited in credit union members’ share draft and regular share accounts, which increased 2.5% and 3.1%, respectively.
Capital and Other Key Measures
The credit union average capital-to asset ratio fell to 10.6% in March 2016, down from 10.7% reported one year earlier. In the year ending in March, credit union capital rose a weak 6.4% while assets grew 7.4%, which pushed down the capital ratio 0.1 percentage points. Strong asset growth was caused by members saving their gasoline windfall instead of redeploying that spending power. Capital ratios should climb to 11.2% by the end of 2017 as earnings and capital accumulation outpaces asset growth.
The credit union loan delinquency rate (loans two or more months delinquent as a percent of total loans outstanding) fell to 0.74% in March, down from 0.81% in December, but up from 0.68% in March 2015, CUNA Mutual said.
Credit Unions Overall
As of March 2016, CUNA estimates 6,163 credit unions were in operation, 24 fewer than February, the Trends Report states. During the last 12 months, the number of credit unions fell by 284, slightly below the 288 annual decline set one year ago. During the first quarter of 2016, the number of credit unions fell by 73, the fastest pace since the first quarter of 2012, CUNA Mutual said.
“Greater regulatory compliance burdens from the Consumer Financial Protection Bureau will put additional downward pressure on CU non-interest fee income and will therefore accelerate the number of mergers over the next few years,” the Trends Report forecasts.
At the end of 2015, 253 credit unions reported assets greater than $1 billion; 24 more than the year before. These large credit unions control over 60% of all credit union loans, but make up less than 4.1% of all credit unions. The number of credit unions with assets less than $20 million fell by 243 to reach 2,688 as these credit unions either grew into the larger asset class or merged with a larger credit union, according to CUNA Mutual.
Credit Union Membership
Credit union memberships grew at a record pace in the first quarter of 2016, adding 1.392 million, significantly better than the 0.7 million added in the first quarter of 2015, CUNA Mutual said.
On a growth rate basis, memberships are up 4.1% in the year ending in March 2016, faster than the 3.5% pace set in 2015 (Figure 14). The memberships gain was partially driven by the 609,000 new jobs created in the first quarter, according to the Bureau of Labor Statistics, better than the 586,000 jobs added in the first quarter of 2015.
Members are also joining credit unions in droves to get an auto loan and other forms of credit. Credit unions should expect membership growth to exceed 3% in 2016 and 2017.