MADISON, Wis.—Credit union financial performance improved during the third quarter, with ROA at 0.89%, up six BPs from Q2, and the capital ratio hitting 10.8%, its highest mark in six years. Also worth noting: for first time since the Great Recession, every major loans category is positive year-over-year, and the surge in CU membership is in large part due to surge in auto sales.
Those findings are part of the November Trends report released by CUNA Mutual Group, which noted that the addition of 256,000 jobs during September and the decline in the unemployment rate to 5.9% indicate a tightening labor market that should accelerate during 2015, meaning credit unions may have to budget for higher wage costs.
Among the findings from the most recent report, which features data through Sept. 30:
- At the end of September, using data provided by CUNA, it is estimated there were 6,590 CUs in operation, down 64 from just one month earlier. Over the nine-month same period in 2013, the number of CUs was down 275, compared to 274 to date this year.
- Credit union savings and assets both fell by approximately 0.7% during September, which CUNA Mutual noted is a historically weak month for deposit growth. Savings balances are up just 3.7% during the 12 months ending Sept. 30, while total assets were at $1.130 trillion, a 4.8% increase over 2013,
- Loan portfolios were up 0.8% in September, 7.9% year-to-date, and 10.1% over the previous 12 months, the fastest pace since March 2006. This pushed the loan-to-asset ratio to 63.1%, up from 60% one year earlier. For the first time since the onset of the great recession, every major loan category tracked by CUNA’s monthly survey posted positive year-over-year growth in September.
- CU membership rose 470,00 during September to hit 101.4 million. There’s been a 3.4% growth rate year-over-year in CU membership, the fastest rate since July of 2003. As has been the case, the fastest membership growth has been occurring at CUs of more than $1-billion in assets (6.3%), while those with assets below $20-million recorded a 1.6% membership decline. The biggest factor driving the surge in membership growth is the resurgence in U.S. auto sales over the last five years, said CUNA Mutual.
- “During 2011-2012, slow membership growth coincided with auto sales of only 12-13 million units. By 2012-2013, auto sales had picked up to the 15-16 million range and credit union membership growth rose to over 2%. With auto sales closing in on 17-million this year, credit union membership growth numbers have stepped up again to a higher level,” the Trends Report observed. “The big challenge for many credit unions will be converting these new members with only an auto loan and a regular savings account into ones with more than five financial products and services and who view their credit union as their primary financial institution.”
- Credit unions reported another strong auto lending month in September with new auto loan balances rising 1.9%, more than double the 0.9% pace reported in September 2013, CUNA Mutual noted. During the last 12 months, credit union new auto loan balances rose 19.8%, the fastest pace since August 1995. “We expect 16.5 million vehicle sales in 2014, which is a pace consistent with a steadily improving economy and reflects healthy conditions for the auto industry,” CUNA Mutual said.
- Fixed-rate first mortgage loan balances rose 2% in September, the fastest growing loan category for the month, and were up 6.7% year-over-year. Adjustable-rate mortgages rose a more modest 0.9% in September, but are up a remarkable 16.3% during the last 12 months, CUNA Mutual noted, adding that rising home prices and consumer confidence pushed home equity loan balances up 0.8% in September, and 6.2% year-over-year. Real estate loans now make up 51.5% of the total credit union loan portfolio, the lowest percentage since December 2007, the month the National Bureau of Economic Research cites as the beginning of the Great Recession.
- The Trends Report noted that the recent decline in gasoline prices may boost savings growth in the next few months. Consumers spending on gasoline fell by $7 billion in the third quarter. “These savings are available to be spent on other goods and services, used to pay down debt, or saved at their local financial institution.”
- The credit union loan delinquency rate (loans two or more months delinquent as a percent of total loans outstanding) fell to 0.78% in September, the lowest since September 2007, two months before the onset of the Great Recession.
- The credit union system’s capital-to-asset ratio rose to 10.8% in September, up from 10.3% in September 2013, as the growth in capital (9.6%) exceeded the growth in assets (4.8%). “We expect the capital ratio to reach a record high of 11.6% by the end of 2015 due to improving earnings performance and slower asset growth,” CUNA Mutual said.
- The slowdown in the pace of credit union consolidation is due to the improving financial condition of smaller credit unions as they now report positive loan growth and higher earnings.