MADISON, Wis.–Credit union memberships grew at a record pace in the first quarter of 2017, adding 1.5 million new memberships, while lending continues to remain robust and liquidity looks to grow tighter, according to the latest Credit Union Trends Report from CUNA Mutual.
The Trends Report reflects data compiled by CUNA through March of 2017.
Among the performance data by category:
Total Credit Union Lending
Credit union loan balances rose 0.9% in March, slower than the 1.1% pace reported in March 2016, and 11.3% during the last 12 months, CUNA Mutual said, noting that March is historically the third weakest loan growth month of the year.
Credit union seasonally adjusted annualized loan growth reached 13.4% 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.
Credit Union Consumer Installment Credit (CUCIC)
Credit union consumer installment credit balances (auto, credit card and other unsecured loans) rose 1.1% in March, better than the -0.7% pace set in March 2016, due to strong auto lending and banks tightening their credit standards, according to the Trends Report. Credit card balances fell 0.4% in March due to seasonal factors that typically shave 1.24 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 14.1% during the last year.
Auto Lending
Credit union used auto loan balances grew 1.5% in March, below the 1.7% reported in March 2016. On a seasonally adjusted annualized growth rate basis, used auto loan balances rose 16.2% in March – the fastest pace on record, CUNA Mutual said, adding that improving consumer fundamentals are driving strong auto loan growth.
Mortgage Lending
Credit union fixed-rate first mortgage loan balances jumped 2.3% in March, faster than the 2.1% increase reported in March 2016. This rapid March mortgage volume was due to a surge in loan applications during January and February when mortgage interest rates rose, CUNA Mutual said. Moreover, the third month of each quarter typically reports the biggest monthly increase in loan balances. During the last 12 months, fixed-rate first mortgage balances rose 11.7%, faster than the 7.6% increase in adjustable-rate mortgage balances.
Home equity loan balances fell 0.4% in March as members used bonuses and tax refunds to pay down some of their lines of credit, the analysis added.
Surplus Funds (Cash + Investments)
Credit union surplus funds as a percent of assets fell to 30% in March, from 31.1% last year, as credit unions partly funded new loan growth with cash and investments, according to the Trends Report. During March, a 2.6% surge in savings balances funded a 0.9% increase in loans, a 3.8% increase in surplus funds, and a 17.2% reduction in external borrowings. Surplus funds are expected to fall to 27% of assets by this time next year, the tightest liquidity position since the fourth quarter of 2008, as loan balances grow 10% and savings balances rise only 5.5%, CUNA Mutual said.
Loans as a percent of assets are expected to rise from 66.2% today to 68.7% by March 2018.
Savings and Assets
Credit union savings balances surged 2.6% in March, significantly above the 1.6% gain reported in March 2016, due to March ending on a payroll Friday and the seasonal factors of tax refunds and bonuses being deposited in credit union members’ share draft and regular share accounts, which increased 3.6% and 4.9%, respectively, the Trends Report said.
Credit union savings balances grew at a 7.8% seasonally adjusted annualized growth rate in March. “We forecast credit union savings balances to grow 5.5% in 2017,” CUNA Mutual said.
Capital and Other Key Measures
The credit union average capital-to asset ratio fell to 10.4% in March 2017, down from 10.6% reported one year earlier. In the year ending in March, credit union capital rose a weak 5.9% while assets grew 8.7%, which pushed down the capital ratio 0.2 percentage points, according to CUNA Mutual. Capital ratios should climb to 10.6% by the end of 2017, the same as the end of 2016, as capital growth rate equals asset growth rate this year, the company projected.
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 0.83% in December 2016, but up from 0.71% in March 2016.
Credit Unions and Members
As of March 2017, CUNA estimates 5,953 credit unions were in operation, 24 fewer than February, the Trends Report stated. During the last 12 months, the number of credit unions fell by 242, slightly below the 252 annual decline set one year ago. During the first quarter of 2017, the number of credit unions fell by 69, the fastest pace since the first quarter of 2012.
“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 forecast.
At the end of 2016, 275 credit unions reported assets greater than $1 billion–22 more than the year before. These large credit unions control more than 63% of all credit union loans, but make up less than 4.7% of all credit unions. The number of credit unions with assets less than $20 million fell by 209 to reach 2,479 as these credit unions either grew into the larger asset class or merged with a larger credit union, the Trends Report said.
Credit union memberships grew at a record pace in the first quarter of 2017, adding 1.5 million new memberships, significantly better than the 1.0 million added in the first quarter of 2016. On a growth rate basis, memberships are up 4.5% in the year ending in March 2017, faster than the 3.8% pace set in the year ending in March 2016.
“Credit unions should expect membership growth to exceed 3.5% in 2017 and 2018,” the Trends Report said. “Most of the membership growth is taking place at credit unions with assets greater than $500 million, due to organic growth and mergers. Credit unions with less than $50 million in assets lost memberships during the last two years.”