MADISON, Wis.–The “fastest membership growth in more than a generation” and strong loan growth can be seen in the latest credit union industry performance numbers.
According to CUNA Mutual’s just-released Trends Report, which is based on CU data through July, credit unions added more than 450,000 members in July helping to drive the double-digit loan growth. Credit unions are also repositioning their portfolios in anticipation of a Fed rate increase, the Report found.
One trend that hasn’t changed: the performance of the largest CUs continues to far exceed that of the smallest.
Lending
Credit union loan balances rose 1.1% in July, above the 0.9% pace reported in July 2016, and 6.1% year-to-date. July’s seasonal factors usually add 0.32 percentage points to the underlying trend growth rate, CUNA Mutual said.
In the year ending in the second quarter of 2017, total credit union loan balances rose 10.8%, according to NCUA call report data. “This is the fourth year of double-digit loan growth. The credit union movement’s loan-to-asset ratio now stands at 68.2%, above the 66.0% reported in July 2016, and the highest since January 2009,” the analysis noted. “A greater proportion of loans on the balance sheet during the last year increased the yield-on-asset ratio 10 basis points to 3.47% in the second quarter of 2017, compared to the second quarter one year earlier.”
As has been the case for some time, CUNA Mutual noted the overall industry averages mask disparities between large and small CUs. CUs of more than $1 billion in assets reported a 12.6% increase in loan balances, while CUs below $20 million reported loan growth of only 2.7%
Credit Union Consumer Installment Credit (CUCIC)
Credit union consumer installment credit loan balances (auto, credit card and other unsecured loans) rose 1.8% in July, double the 0.9% pace set in July 2016. During the last 12 months, credit union consumer installment credit grew 13.5%, about twice as fast as the total market excluding credit unions of 5.1%, CUNA Mutual said.
Vehicle Loans
Credit union new-auto loan balances rose 1.6% in July 2017, above the 1.4% pace set in July 2016. Currently, new-auto loan balances are rising at a 16.1% seasonally-adjusted annualized growth rate, which is down from the record, “and frankly unsustainable,” 22.4% pace set in the summer of 2014, the Trends Report states.
“This recent strong performance in new auto loans is due in large part to the 2.1 million jobs created during the last 12 months and the 189,000 jobs created in July alone,” according to the report, which forecasts that auto sales will remain strong.
Mortgage Lending
Credit unions originated a record $67.5 billion in the first half of 2017, a 6.6% increase over the $63.3 billion in originations in the first half of 2016. “The stage is set for another strong year of credit union first mortgage growth as rising purchase activity offsets slower refinance business,” CUNA Mutual stated.
Credit unions also originated $17.9 billion of home equity and second mortgages in the first half of 2017, a 26.0% increase from the same time period last year.
Surplus Funds (Cash + Investments)
Credit union surplus funds fell $6.8 billion, or 1.80%, in July to reach $379.7 billion, which funds the runoff in savings balances of -$7.3 billion. To fund the additional $10.5 billion in loans, credit unions borrowed $13 billion and capital increased $1.2 billion, CUNA Mutual reported.
Credit union surplus funds as a percent of assets fell to 27.4% in July, down from 29.9% in July 2016, and the tightest liquidity since December 2008.
“Credit unions are repositioning their investment portfolios due to expectations that the Federal Reserve one-year rose to 48.1% of all surplus funds in the second quarter, which is up from 47.3% at the end of last year,” according to the report.
Savings and Assets
Credit union savings balances fell -0.6% in July, below the 0.5% jump in balances in July 2016, as payback for the 1.4% surge in June when that month ended on a Friday payday, according to the Trends Report, which added that July is normally the weakest month of the year for savings growth.
“However, during the last 12 months, savings balances rose 7.4% due to low gas prices, rising household incomes, strong job growth, and fast membership growth,” CUNA Mutual stated. “We expect savings balances to grow 7.5% in 2017, and then slow to 6.0% in 2018 as the Federal Reserve raises interest rates 0.75 percentage points.”
Capital and Other Key Measures
The industry’s weighted average capital-to-asset ratio fell to 10.6% in July from 10.7% for the same time period last year, according to NCUA call report data, due to assets growing faster than capital (7.3% vs 6.0%), the Trends Report stated.
The credit union loan net charge-off rate rose to 0.56% in June, from 0.5% in June 2016. A ratio of 0.5% is the long run average during an economic expansion, according to CUNA Mutual’s analysis, which predicts the charge-off rate will fall to 0.5% in the third quarter, which is historically the quarter with the lowest charge-off rate.
Credit Unions and Members
As of July 2017, CUNA data estimate 5,893 credit unions are in operation, down 18 from June. Year-to-date, the number of credit unions fell by 129 through July, which is greater than the 112 reported in the first seven months of 2016. CUNA Mutual noted NCUA’s Insurance Report of Activity showed 11 mergers in July with an average asset size of $8.4 million, the same number of mergers reported in July 2016 but with an average asset size of $14 million.
“Recently released mid-year NCUA call report data shows 284 credit unions with assets in excess of $1 billion and 245 credit unions with assets greater than $500 million, but less than $1 billion,” the Trends Report states. “The greater than $1 billion asset category represents 4.9% of all credit unions, but more than 62.0% of the credit union system’s assets and 64.0% of the loans. The median asset size of a U.S. credit union rose to $30.5 million in mid-year, up from $28.2 million at mid-year 2016.”
Credit union memberships grew a strong 454,000 in July, or 0.4%, similar to the 452,000 new members added in July 2016, according to the data. Through July, credit unions added 2.9 million new members, faster than the 2.6 million members added in 2016. Total credit union memberships reached 112.1 million in July, 4.3% above the level recorded last year.
“This is the fastest membership growth in more than a generation,” CUNA Mutual said. “We forecast credit union memberships to grow 4.0% in 2017 and 3.5% in 2018 due to job gains exceeding 2.1 million each year and more Americans reaching out to credit unions in search of loans to satisfy their pent-up demand for durable goods.”
The full CUNA Mutual Trends Report can be found in CUToday.info’s The Vault here.