MADISON, Wis.—Call it a clear-cut case of “divided earnings.”
The bifurcation in growth in both lending and members in the credit union community has seldom been clearer than in just-released numbers for January of 2015, which show that while overall numbers for credit unions are strong, smaller CUs continue to struggle to make loans and to add members.
According to data released as part of CUNA Mutual’s Trends Report, which is based on data compiled by CUNA, CU loan balances rose 0.5% in January 2015, better than the 0.4% pace reported in January 2014, due to faster growth in auto and second mortgage loans. For example, closed-end second-mortgage loans grew 2% this January, significantly faster than the 1% decline reported in January 2014.
But loan-to-asset ratios among different sized asset groups continue to reveal lending growth is largely being driven by larger CUs.
Indeed, as the chart at right shows, success in lending is a steady step up the asset ladder, ranging from a 48% LTA ratio at CUs of $20-million and below, to 66% at CUs of more than $1 billion in assets during 2014.
Similarly, credit unions added what CUNA Mutual called a “remarkable” 368,000 memberships in January 2015, more than double the 165,000 set in January 2014, due in no small part to the 239,000 jobs added to the U.S. economy in January, according to the Bureau of Labor Statistics. Memberships rose 3.7 million during the last 12, the fastest pace in credit union history. In percentage terms, credit union memberships rose 0.36% in January, and 3.8% during the last 12 months. With the economy expected to add 3.3 million jobs in 2015, CUs should expect membership growth to exceed 3%, CUNA Mutual said.
But again, that growth largely depends on asset size. During 2014, CUs with $20-million in assets and less actually had negative membership growth, while many smaller asset size groups were flat or showed negligible growth.
Meanwhile, the overall numbers for January show, according to CUNA Mutual:
- Credit union members took a slight respite in January from their rapid debt accumulation seen in the fourth quarter of 2014.
The underlying annual trend growth rate for credit union loans fell to 10.2% in January, down from the recent cyclical high of 11.2% set back in November 2014, CUNA Mutual said. “Expect loan growth to exceed 10% in 2015 for the second year in a row, because of the virtuous cycle of consumer credit; faster economic growth reduces the unemployment rate and pushes up wages and income, this in turn reduces loan delinquency rates and encourages looser loan underwriting standards, which ultimately increases loan volumes and economic growth.”
- Credit unions’ consumer installment credit balances rose 0.8% in January 2015, down slightly from the 0.9% advance reported in January 2014, due to falling gasoline prices reducing spending at the gas pump and, therefore, the accumulation of credit card debt. But during the last 12 months credit union consumer installment credit balances rose a strong 13.6%, twice the 6.2% pace of the total market excluding credit unions, CUNA Mutual said.
- Credit union new-auto loan balances surged by 2.1% in January, significantly better than the 1.3% gain reported in January last year, as more and more Americans turn to their credit union to finance their auto purchases. January’s rise is remarkable because January’s seasonal factors usually shave off 0.6 percentage points from the underlying trend growth rate. During the last 12 months, CU new auto loan balances rose a remarkable 21.6%, the fastest pace since July 1995.
- The average new car transaction price was up 5% over the last year, contributing to the rise in credit union loan balances. Vehicles sales started 2015 on a strong note; the seasonally adjusted annual rate for vehicle sales came in at 16.7 million units in January, above the 16.5 million sold in 2014, according to CUNA Mutual.
- Falling interest rates during January created a surge in mortgage applications and a mini refi boom at credit unions. The average 30-year fixed-rate mortgage interest rate fell to 3.86% in January, down from 4.04% in December, and thus below the psychology important 4% interest rate.
- Credit union first mortgage loan originations were $94 billion in 2014, down 22% from 2013, see Figure 4, due to significantly less refi activity. But credit union first mortgage origination market share rose to 8.4% in 2014, up from 6.5% during 2013 and significantly up from 2% back in 2004. Credit unions sold off only $31 billion of mortgage loans into the secondary market, or 33.4% of total originations, down from 45.9% in 2013, in an attempt to boost the loan portfolio and thereby increase asset yields.
- Credit union purchase mortgage originations should increase 15% in 2015 as housing demand recovers while refi activity increases slightly. Demographics will also play a role; the post-baby boom generation is reaching their prime earning years which will increase the number of first-time credit-needing homebuyers, CUNA Mutual said.
- First mortgage credit quality improved significantly in 2014 as measured by delinquency rates falling from 1.18% in the fourth quarter of 2013 to 0.91% in the fourth quarter of 2014. Moreover, first mortgage charge-offs fell from 0.21% to 0.13%. “Although this is still greater than the 0.02% reported in 2006. Improving credit quality will encourage credit unions to loosen their underwriting standards as well as hold more of the loans originated on the balance sheet.”
- Credit union surplus funds rose 3% in January, as borrowing and deposit growth surprised on the upside. Deposits rose a strong 0.9% ($8.3 billion) due to fast membership growth and members not spending as much at the gas pump, which is leaving more funds in their checking accounts at the end of the month. Credit unions also increased their borrowings by 6.2% ($2.1 billion) in January, faster than 1.5% increase reported in January 2014, to help fund some of the recent surge in loan demand. Credit union borrowings as a percent of assets now stand at 3.2%, up from 2.8% last year.
- Credit union monthly savings balance growth climbed over 0.6% in January, due to falling gas prices, rising household income and faster membership growth. Personal income rose 0.3% in January, according to the Bureau of Economic Analysis, led by a strong 0.6% increase in wage income. Falling gas prices reduced nominal spending by 0.2% in January, allowing the national savings rate (personal savings as a percent of disposable personal income) to rise to 5.5% from 5% in December. “Households are accumulating the monthly gas pump dividend to build a larger savings account balance. Expect spending to rise later this year as the savings balances rise to a level that entice members to purchase durable goods like furniture, appliances and cars,” CUNA Mutual said.
- The credit union average loan-to asset ratio rose to 63.3% in January 2015, up from 60.5% in January 2014, due to loan growth of 10.3% almost doubling asset growth of 5.5% during the last 12 months. This shift in the mix of assets toward loans boosted credit union yield-on-asset ratios to 3.53% in 2014, up from 3.36% in 2013.
- As of January 2015, CUNA estimates 6,495 credit unions were in operation, 39 fewer than December. During the last 12 months the number of credit unions fell by 264, significantly below the 298 annual decline set one year ago. NCUA approved 21 mergers in January with an average asset size of the merged credit union at around $24 million, according to their monthly Insurance Report of Activity.
- Year-end 2014 NCUA call report data shows 229 credit unions with assets in excess of $1 billion who held 55.0% of the credit union system assets and 57.2% of the loans. This is up from 209 billion dollar credit unions in 2013, which held 52.4% of assets and 54.0% of loans. The median asset size of a U.S. credit union rose to $24.5 million in 2014, a 7.9% increase from the $22.7 million set back in 2013.
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