MADISON, Wis.–Credit union loan balances rose 1.1% in February, faster than the 0.2% reported in February 2021, even as membership growth slowed significantly during the first two months of 2022, according to data released as part of CUNA Mutual’s April Trends Report.
The Report, which is based on data through February, showed overall loan growth was 9.6% during the last 12 months.
But as CUToday.info has been reporting, the overall industry data belie what is actually happening below the surface. According to the Trends Report, consistent with the trend line the analysis shows large credit unions reported significantly faster loan growth in 2021 as compared to smaller credit unions. Credit unions with assets greater than $1 billion reported loan growth of 8.4% compared to credit unions with assets less than $20 million, reporting loan growth of 0.9%.
Here's a look at how credit unions performed by category, according to the newest Trends Report”
Credit Union Lending
Credit union loan balances rose 1.1% in February, faster than the 0.2% reported in February 2021, and 9.6% during the last 12 months, according to the Trends Report, which said growth was driven by first mortgage loans balances (1.3%), home equity loan balances (1.2%) and used-auto loan balances (1%).
Consumer Installment Credit
The Trends Report shows credit union consumer installment credit balances (auto, credit card and other unsecured loans) rose 1% in January, significantly above the 0.1% reported in February 2021.
“Consumer installment credit year-over-year growth rates have been rising over the last year due mainly to a surge in used- auto loans and credit card lending,” CUNA Mutual said. “During the last year, credit union members were using funds from cash-out mortgage refinances to pay down higher-rate consumer loan debt and using around 30% of their stimulus checks to pay down debt. Those two behaviors have come to an end with rising mortgage interest rates and the ending of the COVID pandemic.”
According to the Trends Report, credit union consumer installment credit grew 7.4% during the last year, faster than the total market, excluding credit unions, which rose 6.7%. The total consumer installment credit market, excluding credit union and government student loans, rose a very strong 8.8% during the last year.
Vehicle Lending
Credit union new-auto loan balances rose 0.8% in February, stronger than the -0.1% decline set in February 2021, and rose 0.7% during the last 12 months, CUNA Mutual reported. On a seasonally-adjusted annualized basis, new-auto loan balances rose at a 5.9% pace in February, slightly above the 5% long-run average growth rate.
“The first quarter is typically the weakest quarter for credit union new-auto loan growth due to various seasonal factors. February is historically the weakest new-auto loan growth month of the year, with seasonal factors typically adjusting -0.68 percentage points from the underlying trend growth rate,” CUNA Mutual reported.
Real Estate Information
Credit union fixed-rate first mortgage loan balances rose 1.3% in February, above the 0.4% increase reported in February 2021, due to historically low mortgage interest rates, CUNA Mutual said.
Credit union fixed-rate first mortgage loan balances rose 17.4% over the last 12 months, similar to the pace set in the year ending in February 2021, the data show.
“With the Federal Reserve expected to raise interest rates this year, expect mortgage interest rates to remain above 5.0% for the rest of the year,” CUNA Mutual forecast.
Savings & Assets
Credit union savings balances rose 1.6% in February, the same 1.6% gain reported in February 2021, due to the seasonal factors of tax refunds and bonuses being deposited in credit union members’ share draft and regular share accounts, which increased 3.3% and 1.9% respectively, according to the Trends Report.
“We forecast credit union savings balances to grow 5% in 2022, below the 7% long-run 30-year average, and significantly below the record-setting 23.3% growth rate set in September 2020,” CUNA Mutual’s economists stated. “Credit union savings growth will slow during the next two years. This is largely payback for the torrid deposit growth of the past two years, fueled by COVID’s impact on consumer spending. There is also the possibility that members holding high-balance non-maturity shares and deposits (particularly money market accounts) might find yields on money market mutual funds attractive as the year progresses.”
Capital and Other Key Measures
According to the Trends Report, the credit union industry’s average loan net charge-off rate fell to 0.26% in the fourth quarter, from 0.35% one year earlier.
“The loan charge-off rate is the lowest in over a generation and is below its ‘natural’ long-run rate of 0.5%. In other words, 50 cents of every $100 of credit union loans are normally charged off each year,” CUNA Mutual stated. “The charge-off rate is low due to credit union loan forbearance programs, stimulus checks, enhanced unemployment benefits and unemployment concentrated in low-wage service sector jobs. The charge-off rate typically exhibits a quarterly seasonal pattern whereby the loan charge-off rate rises by 0.05% in the fourth quarter and then declines over the next three quarters. That seasonal pattern may not happen this year due to abnormally low levels.”
Meanwhile, the Trends Report shows the credit union loan delinquency rate (loans two or more months delinquent as a percent of total loans outstanding) fell to 0.46% in February from the 0.52% reported one year earlier. A delinquency rate around 0.75% is considered the “natural delinquency rate,” or the rate due to idiosyncratic life events (divorce, large medical expense, job loss), not due to the business cycle.
Credit Unions & Members
Credit union membership growth slowed significantly during the first two months of 2022, adding 290,000 new memberships versus the 847,000 reported in the first two months of 2021, the Trends Report found.
It added that in percentage terms, credit union memberships rose 0.15% in February, 0.29% year-to-date, and 3.7% during the last 12 months. Memberships grew at a 3.4% seasonally adjusted annual rate in February, down from 3.8% in February 2021.
“The ending of the COVID-19 pandemic is expected to keep credit union membership growth over 3% during the next few years. Americans typically join credit unions to obtain credit. With loan growth expected to be 8% this year and 7% in 2023, membership growth is expected to remain around its long-run average of 3.5% in 2022 and 2023,” the Trends Report analysis states. “Americans also join credit unions when they obtain a job at a business with an associated credit union. With millions of Americans expected to gain jobs this year, this avenue of membership growth will be strong. And finally, the decline in membership growth in 2020 was due to a decline in indirect auto lending. New indirect auto lending is expected to rise again in 2022 and 2023, which will bring in new members.”