MADISON, Wis.—Credit union membership was “on a tear” during February, according to analysis in CUNA Mutual’s latest Trends Report, which is offering a prediction for where total membership will be at year-end 2015.
Meanwhile, while savings growth was unusually robust for a February, the surge in lending has meant credit unions are turning more and more to wholesale funds as result of recent surge in loan demand, according to CUNA Mutual.
The numbers reflect an economy that continues to add jobs and to boost the average personal income for American workers, noted Steve Rick, chief economist with CUNA Mutual. The Trends Report’s analysis noted, too, that the growth comes even though large portions of the Midwest and Northeast suffered through severe winter conditions in February.
Rick forecast that the Federal Reserve will respond to the strengthening economic conditions by raising their fed funds interest target to 2.25% by December 2016.
A more detailed look at February’s numbers shows, as reported by CUNA Mutual:
Total Lending
Credit union loan balances rose 0.22% in February 2015, double the 0.11% pace reported in February 2014, due to faster growth in auto loans, adjustable- rate mortgages and home-equity loans. The company said credit union loan balances are now growing at a 10.9% seasonally-adjusted annualized growth rate, similar to the credit boom of 2004.
“Expect loan balances to grow over 10% in 2015 and 2016 as the strengthening economy boosts members’ willingness and ability to accumulate debt and therefore satisfy some of their pent-up demand that was accumulated during the weak and uncertain economic recovery of the last six years. This will push loan-to-savings ratios to almost 86% by year-end 2016, the highest since 1980,” CUNA Mutual said.
Credit Union Consumer Installment Credit
Credit unions’ consumer installment credit balances rose 1.1% in February 2015, significantly better than the 0% growth reported in February 2014. Credit card balances fell 1.9% in February as members used bonuses and tax refunds to pay down balances accumulated during December, according to CUNA Mutual’s analysis. During the last 12 months credit union consumer installment credit balances rose a strong 14.9%, more than double the 6.1% pace of the total market, excluding credit unions,
Vehicle Loans
Credit union new-auto loan balances rose a “surprisingly” strong 1.2% in February, significantly better than the 0.3% gain reported in February last year, and given the fact that February’s seasonal factors usually shave off 0.63 percentage points from the underlying trend growth rate. CUNA Mutual noted that credit union new-auto loan balances are currently growing at a 24.9% seasonally adjusted annualized growth rate, the fastest pace since January 1999. Used-auto loan balances are also reporting a strong seasonally adjusted annualized growth of 15.6%, the fastest since September 1997.
Mortgages And Other Real Estate
Credit union first mortgage loan balances fell 0.4% in February, lower than the 0.5% gain reported in February 2014. Nevertheless, mortgage balances are up 7.8% over the last year. CUNA Mutual reported that over the last 12 months, fixed-rate mortgages balances rose 6.0%, less than half the 12.1% pace of adjustable-rate mortgage balances. “Credit unions are placing more adjustable-rate mortgages on their books in preparation of the Federal Reserve raising short-term interest rates in the third quarter of this year,” the Trends Report analysis states.
Home equity loan balances rose 0.44% in February, faster than the 0.35% reported in January 2014. Home equity loan balances are up 8.5% during the past 12 months due to rising home prices, the improving job market, rising consumer confidence, consumers releasing pent-up demand for durable goods, and lower interest rates.
“Credit union purchase mortgage originations should increase 15% in 2015 as housing demand recovers and refi activity increases slightly,” the Trends Report said.
Surplus Funds (Cash + Investments)
Credit union surplus funds rose 5.3% ($20.1 billion) in February, due to a strong seasonal surge in deposits of 1.9 percentage points. Deposits rose $18.8 billion in February, slightly less than the $20.2 billion reported in February 2014, which was a 2.2% increase. Remarkably, February’s $18.8 billion deposit growth was half of the $37.8 billion total deposit growth during the last 12 months. Credit unions increased their borrowings by 7.5% ($3.3 billion) in February, a significant jump when compared to last February when borrowings fell -0.85%. Credit unions are turning more and more to wholesale funds to help fund some of the recent surge in loan demand, CUNA Mutual said.
Surplus funds were 34% of assets in February, down from 36.7% in February 2014, or a decline of $9.4 billion during the past year. Credit unions drained their liquidity during the last 12 months to fund a record $71 billion jump in loan balances. The rest of funding for the loan increase came from a $37.8 billion increase in deposits, a $13.8 billion increase in borrowings and a $9.1 billion jump in capital.
“With loan balances expected to grow another 10.5% this year ($76.4 billion), expect surplus funds as a percent of assets to fall below 30% by year end, the lowest level of liquidity since February 2009,” the Trends Report states. “Currently 48.6% of surplus funds have a maturity less than one year, up from 46.4% during February 2014.”
Savings And Assets
Credit union saving balances grew a strong 1.9% in February, historically the fastest savings-growth month of the year due to bonuses and tax refunds being deposited into members’ accounts, combined with low gas prices and other strong economic factors. Almost all of this growth is taking place in liquid deposits like share drafts, regular shares, and MMAs.
Capital And Other Key Measures
The credit union average capital-to asset ratio fell to 10.6% in February 2015, down from 10.8% in January, but up from the 10.4% reported one year earlier. The decline, said CUNA Mutual, was due to little capital accumulation accompanied by strong asset growth. Asset growth was fueled not just by deposit growth but by a 7.5% surge in wholesale borrowings. Loan-to-savings ratios also took a respite from their cyclical climb, falling back to 73.6% in February from the 75.1% set in December 2014.
Meanwhile, CUNA Mutual noted the disparity between large and small credit unions return-on-equity ratios remained large in 2014. Credit unions with assets exceeding $1 billion reported ROE ratios of 9.5%, more than twice that reported by credit unions with assets less than $100 million.
Credit Unions And Members
As of February 2015, CUNA estimates 6,437 credit unions were in operation, 37 fewer than January. During the last 12 months the number of credit unions fell by 309, above the 301 annual decline set one year ago. The pace of consolidation in the credit union system is accelerating due to the following factors: retiring baby-boomer CEOs, rising regulatory/compliance burden, record low net interest margins, rising concerns over scale and operating efficiency, rising competitive pressures and members’ demand for more products, services and access channels.
“Year-end 2014 NCUA call report data shows 4,878 credit unions with less than $100 million in assets, or 76% or all credit unions,” the Trends Report states. “These credit unions are typically not growing their deposits and assets fast enough to keep pace with the growth in the overall economy, and so are losing market share, and are unable to afford the upgrades necessary to enhance their mobile and online banking platforms.”
Credit union membership growth was “on a tear during the first two months of 2015,” adding 800,000 new memberships versus the 500,000 reported in the first two months of 2014, said CUNA Mutual. “Credit unions should expect membership growth to exceed 3% in 2015. This will push the total number of credit union memberships to 104.5 million by year end, which is equal to 33% of the total U.S. population.”