MADISON, Wis.–Credit union loan balances and membership growth both slowed during April, with the number of new members joining CUs down significantly. Adjustable-rate mortgages showed surprising growth however, while net charge-offs showed a small decrease.
Here’s a look at how credit unions performed during April by category, according to CUNA Mutual’s Trends Report:
Total Credit Union Lending
Credit union loan balances rose 0.6% in April, less than the 0.9% pace reported in April 2018 and 1.4% year-to-date. “April is, historically, the first month of the loan growth season as the monthly loan seasonal factors turn positive,” CUNA Mutual noted.
The Trends Report said during the year ending in the first quarter of 2018, total credit union loan balances rose 7.8%, slightly slower than the 9.6% pace set for the similar period last year.
“This has pushed the loan-to-asset ratio to 70.7%, above the 69.7% reported in April 2018. A greater proportion of loans on the balance sheet increased the yield-on-asset ratio 14 basis points to 3.9% in the first quarter, compared to all of 2018,” CUNA Mutual stated.
But the Trends Report also again reminded, “Industry average loan growth rates mask big disparities between large and small credit unions, even though the disparity has narrowed during the last year. In the year ending in the first quarter of 2019, credit unions with assets greater than $1 billion reported an 8.8% increase in loan balances. Meanwhile, credit unions with assets less than $20 million reported loan growth of only 5.2%.”
Credit Union Consumer Installment Credit (CUCIC)
Credit union credit card loan balances grew 6.9% during the last 12 months, above the credit union 20-year average growth rate of 5.75%, due to rising consumer confidence and sustained job growth, according to the Trends Report.
Credit quality deteriorated somewhat over the last year, according to CUNA Mutual. Credit card annualized net charge-off rates rose to 3.08% in the first quarter of 2019, up from the 2.86% reported in the first quarter of 2018. Credit union consumer installment credit (auto, credit card and other unsecured loans) grew 11.2% during the last year, more than double the 4.6% for the total market excluding credit unions, the Report found.
Vehicle Loans
Credit union new-auto loan balances grew only 0.2% in April, below the 0.6% reported in April 2018. April’s new-auto loan seasonal factors usually subtract 0.09 percentage points from the underlying trend growth rate, the Trends Report states. The new- auto buying and lending season begins in May and runs through October.
“Today, improving consumer fundamentals are driving strong auto loan growth: a strong labor market, fast wage growth, low interest rates, expanding driving-age population, improving construction activity and better household balance sheets,” the Trends Report added.
Real Estate Secured Lending – First Mortgages and Other Real Estate
According to the Trends Report, credit union fixed-rate first mortgage loan balances fell 0.1% in April, below the 0.7% jump reported in April 2018.
“The first month of each quarter traditionally reports the weakest growth rate of each quarter. However, adjustable-rate first mortgage balances rose a strong 0.4%,” CUNA Mutual said. “Adjustable-rate mortgages now make up 28% of all credit union first mortgage loan balances. During the last 12 months, fixed-rate first mortgage balances rose 7.5%, slightly more than the 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.”
CUNA Mutual is forecasting credit union real estate lending will remain robust through 2019 because the fundamental drivers of housing demand are moving in the right direction: falling interest rates, strong labor market, rising real weekly earnings, increasing household formation, lower secondary-market down payment requirements, improving household balance sheets and rising consumer confidence.
Surplus Funds (Cash + Investments)
Credit union surplus funds as a percent of assets fell to 24.5% in April, down from 26.2% last April, as credit unions’ loans grew faster than investments, according to the Report. During the last year, credit unions added $79 billion in loans to their balance sheets and lost $3 billion in investments. The lion’s share of new loans was funded with $72 billion in new savings deposits. The remainder was funded by $17 billion in additional capital (net income), of which $3 billion was used to pay off borrowings, the Trends Report states.
Savings and Assets
Credit union savings balances fell 0.6% in April, similar to the 0.7% drop reported in April 2018. April is typically one of the weakest months for savings growth as members use deposits to pay tax liabilities. Seasonal factors typically shave 0.49 percentage points off from the underlying savings trend growth, the Trends Report stated, adding in the year ending in the first quarter of 2019, credit union savings balances rose only 5.8%, above the 5.6% growth rate reported for the year ending in the first quarter of 2018, due to higher interest rates paid on deposits and falling gas prices.
Savings growth decelerated for all asset size categories during the last two years except for credit unions with assets over $1 billion. Overall, larger credit unions reported faster growth than smaller credit unions, according to the analysis.
Capital and Other Key Measures
Credit union return-on-asset ratios averaged 0.95% in the first quarter of 2019, above the 0.9% reported in the first quarter of 2018.
“However, the credit union movement’s average return-on-asset ratio masks large disparities between large and small credit unions,” the Report found. “Net interest margins rose 10 basis points over the last year due to rising loan-to-asset ratios pushing up the yield-on-asset ratio faster than higher funding costs. However, fee and other income fell 5 basis points over the last year. A five basis point increase in operating expense ratios was matched by a five basis point decrease in the provision for loan loss expense ratio.
The credit union net charge-off-to-average-loan ratio fell to 0.57% in the first quarter, down from the 0.60% reported in the first quarter of 2018 due to falling auto loan charge-offs, CUNA Mutual said. Credit card charge-off rates rose to 3.08% in the first quarter from 2.86% in the first quarter of 2018.
Number of Credit Unions
As of April 2019, CUNA estimates 5,567 credit unions were in operation, five fewer than in March, according to the Trends Report. During the first four months of 2018, approximately 36 credit unions ceased to exist because of mergers, purchase and assumptions or liquidation.
“This rate is slower than the 76 reported during a similar time period in 2018,” CUNA Mutual said. “Expect the annual decline in the number of credit unions to be about 180 per year over the next two years as competitive pressures rise on smaller institutions.”
Meanwhile, at the end of the first quarter of 2019, 2,088 credit unions reported assets less than $20 million, down from 2,246 one year earlier, according to the data.
“These small credit unions make up 38% of all credit unions but control only 0.8% of all credit union loans,” the report notes. “Large credit unions enjoy significant economies of scale advantages over smaller institutions. Higher levels of productivity raise the barrier to entry for new credit unions and increase the competitive pressure on smaller credit unions.”
Membership Growth
Continuing to slow from the torrid growth of 2018, credit union memberships grew a modest 136,000 in April, or 0.11%, down from April 2018 when the movement added 358,000 memberships at an increase of 0.31%. In the year to April 2019, credit union memberships rose 3.6% slower than the 4.2% pace set in the year to April 2018, the slowest pace since 2015, CUNA Mutual said.
“Credit unions should expect membership growth to exceed 3.5% in 2019 and 2.5% in 2020 as the economic expansion and credit demand continue for the next two years,” the Trends Report forecast. “Most of the membership growth is taking place at credit unions with assets over $1 billion (Figure 15) due to organic growth and mergers. Credit unions with less than $50 million in assets lost memberships during the last two years.”
A full copy of the report can be found here.