MADISON, Wis.–Membership in U.S. credit unions was “on a tear” during the first two months of 2018, with projections calling for CUs to add enough members that by year-end they will represent one-third of the U.S. population, according to the latest Trends Report released by CUNA Mutual.
The new Trends Report, which is based on credit union data through February, found that in addition to the 850,000 new members who signed up during the first two months of the year, loan balances grew by another half point (including a reversal of a recent trend in auto lending), savings deposits have surged, and delinquencies have risen slightly.
By category, the CUNA Mutual Trends Report, which is based on CUNA data, shows:
Total Credit Union Lending
Credit union loan balances rose 0.5% in February, faster than the 0.2% pace reported in February 2017, and 10.4% during the last 12 months, CUNA Mutual reported. Loan growth is expected to be 9% in 2018, slightly less than the 10.0% reported in 2017.
“Credit unions are still riding high on the boom portion of the short run credit cycle, as measured by the difference between the annual growth rates of loans (10.4%) and deposits (5.9%),” according to the Trends Report analysis. “Credit growth drives short run economic activity as borrowing pulls income from the future to allow increased spending in the present. But when the future comes, consumption spending will have to fall below income to facilitate the paying down of the debt accumulated in the past.”
Credit Union Consumer Installment Credit (CUCIC)
Credit union consumer installment credit balances (auto, credit card and other unsecured loans) fell 0.2% in February, below the 0.9% pace set in February 2017, due to falling credit card balances offsetting rising auto loan balances, according to CUNA Mutual. Credit union consumer installment credit grew 10.8% during the last year, better than the total market excluding credit unions
Vehicle Loans
Credit union new auto loan balances rose 0.7% in February, despite the fact that February is historically the weakest new- auto loan growth month of the year, with seasonal factors typically shaving -0.66 percentage points from the underlying trend growth rate, according to the Trends report, which added that on a seasonally-adjusted annualized growth rate basis, new auto loan balances rose 14.5% in February – a reversal of the recent growth slowdown.
Real Estate Secured Lending – First Mortgages and Other Real Estate
Credit union fixed-rate first mortgage loan balances rose 0.4% in February, above the 0.1% gain reported in February 2017, due to rising mortgage interest rates inducing some borrowers to purchase now before rates rise further, according to the Trends Report analysis. Fixed-rate first mortgage balances were up 11.6% over the last year, while adjustable-rate mortgages grew even slower at 5.2%. Home equity loan balances grew a strong 10.2% as members tap into rising home equity due to rising home prices to release some of their pent-up demand for cars, appliances and furniture that built-up over the last few years, CUNA Mutual said.
CUNA Mutual is forecasting that home prices will rise 5-6% in 2018 as the economy adds another 2.2 million jobs and young adults release some of their pent-up demand for housing.
Surplus Funds (Cash + Investments)
Surplus funds rose to 26.6% of assets in February from 25.7% in January due to a surge in savings deposits. However, the ratio is down more than two percentage points from the 29.3% reported in February 2017 due to loan growth exceeding deposit growth over the last year (10.4% versus 5.9%), CUNA Mutual reported.
“Credit unions subtracted $13.3 billion from their liquidity position during the last 12 months to help fund a record $93.5 billion jump in loan balances,” according to the Trends Report. “The rest of the funding for the loan increase came from a $67.1 billion increase in deposits, a $9.6 billion increase in borrowings and a $9.0 billion jump in capital. With loan balances expected to grow another 9% this year ($88 billion), expect surplus funds as a percent of assets to fall below 24% by year end, the lowest relative liquidity position since October 2007, two months before the start of the Great Recession.”
The report further reported that with the Federal Reserve expected to raise short-term interest rates to 2.25% by the end of 2018, and expectations of strong loan demand, credit unions are holding more short-term investments and less long-term. Currently 49.5% of surplus funds have a maturity of less than one year, up from 48.7% from last year.
Savings and Assets
Credit union savings balances surged 2.4% in February, slightly above the 2.2% gain reported in February 2017, due to the seasonal factors of tax refunds and bonuses being deposited in credit union members’ share draft and regular share accounts, which increased 7.2% and 3.2%, respectively, the company’s analysis found.
Credit union savings balances grew at a relatively slow 5.6% seasonally-adjusted annualized growth rate in February, due mainly to higher gas prices surging consumer spending. “We forecast credit union savings balances to grow 7% in 2018, above the 6% reported in 2017,” the Trends Report stated.
Other Key Measures
The credit union industry’s average loan net charge-off rate fell to 0.56% in the fourth quarter, down from the 0.60% reported in the fourth quarter of 2016, and is above its “natural” long-run rate of 0.5%.
“Rapid loan growth over the last 4 years has allowed enough time for these new loans to ‘season, which is now increasing loan delinquency rates as some consumers experience credit deterioration,” the Trends Report said.
The credit union loan delinquency rate (loans two or more months delinquent as a percent of total loans outstanding) rose to 0.84% in February from 0.75% reported one year earlier.
Credit Unions and Members
As of February 2018, CUNA estimates 5,757 credit unions are in operation, down 240 from February 2017.
“The pace of consolidation in the credit union system is accelerating due to the following factors: retiring Baby Boomer CEOs, rising regulatory/compliance burdens, low net interest margins, rising concerns over scale and operating efficiency, rising competitive pressures, and members’ demand for ever more products, services and access channels,” according to the Trends Report.
“Credit union membership growth was on a tear during the first two months of 2018, adding 850,000 new memberships versus the 650,000 reported in the first two months of 2017,” according to the Report. “In percentage terms, credit union memberships rose 0.365% in February, 0.75% year-to-date, and 4.2% during the last 12 months.:
Credit unions should expect membership growth to exceed 3.5% in 2018, the Trends Report forecast.
“This will push the total number of credit union memberships to 117.6 million by year end, which is equal to 33% of the total U.S. population,” the Report added. “With job growth expected to slow slightly in 2018 to 2.2 million, we forecast credit unions to pick-up an additional four-million members.”