MADISON, Wis.–Credit union lending and membership growth did anything but take a vacation during July.
New data released as part of CUNA Mutual’s Credit Union Trends Report shows that during July CUs added another 463,000 new members, loan balances grew at an annualized pace of 10.4%, and loan quality improved.
A look at some of the individual categories documented by the Trends Report:
Total Lending
Credit union loan balances rose 1.0% in July, slower than the 1.3% pace reported in July 2014, as overall credit creation slows to a more sustainable pace. Home equity loans and unsecured personal loan balances, however, rose a strong 2.2% in July, the two fastest growing loan categories, CUNA Mutual said. Currently total loans are rising at a 10.4% seasonally-adjusted annualized growth rate, down from the 10.8% set back in March.
CUNA Mutual’s economists are projecting loan growth to be 10.5% in 2015 and 10% in 2016 before slowing to 8% in 2017.
Credit Union Consumer Installment Credit
Credit union consumer-installment-credit loan balances (auto, credit card and other unsecured loans) rose 1.4% in July, a faster pace than the 1.2% set in July 2014. During the last 12 months, credit union consumer installment credit grew 13.9%, more than twice as fast as the total market pace, excluding credit unions, of 6.2%, according to CUNA Mutual. “We are forecasting consumption expenditures on durable goods – autos, appliances, furniture – to increase 6.2% in 2015 and then accelerate to 6.9% next year as household income grows and consumer confidence levels rise to prerecession highs,” the company said in its analysis.
Vehicle Loans
Credit union new-auto loan balances rose 1.5% in July, below the 1.9% pace set in July 2014. Currently new-auto loan balances are rising at a 17.6% seasonally adjusted annualized growth rate, down from the record, and “frankly unsustainable 22.5% pace set last summer.”
Vehicle sales rose to a 17.5 million units seasonally adjusted annualized sales rate in July, up from 17.2 million in June and above the 16.5 million sales pace set in July 2014. Auto sales will remain above this level for the next two years as Americans make up for the lack of purchases during the two years.
First Mortgages
Credit union first mortgage originations are on pace to reach record levels in 2015. “We believe total originations (refinances and purchase) will come in at $137 billion, up from $94 billion in 2014, a 46% increase,” CUNA Mutual said. “Credit unions have gained significant market share in the mortgage lending space in the last few years. Today credit unions originate 8.5% of all first mortgage loans, up from 4.4% in 2010. Credit unions have stepped into the real estate lending void created by the exiting of many banks from this arena.”
Home Equity
Home equity lending posted a stronger than expected growth rate in July, increasing 2.2%, compared to only 0.8% in July 2014. Consumer spending is expected to accelerate in the fourth quarter of 2015 and members will tap into their home equity to finance those purchases, CUNA Mutual is projecting. Second mortgages, however, continued to decline falling 5.1% over the last year.
Surplus Funds (Cash + Investments)
Credit union surplus funds rose $3.2 billion, or 0.8%, in July to reach $382.6 billion, as the strong dollar increase in savings ($10.1 billion), capital ($1 billion) and borrowings ($0.3 billion) exceeded the $8 billion increase in loans. Credit union surplus funds as a percent of assets fell to 31.8% in July, down from 34.0% in July 2014, as credit unions partly funded $74 billion in new loans with $1.4 billion of cash and investments, according to CUNA Mutual.
“Credit unions are repositioning their investment portfolios due to expectations that the Federal maturity of less than one year rose to 43.3% of all surplus funds in the second quarter, which is up from 41.9% in June of last year,” the analysis notes.
Savings and Assets
Credit union savings balances grew a rapid 1.0% in July, significantly faster than the -0.1% drop in balances in July 2014 and the recent 0.4% average, due to July 31 landing on a Friday payday. CUNA Mutual noted July is normally the weakest month of the year for savings growth due to seasonal factors like vacation spending and auto loan down payments.
However, during the last 12 months, savings balances rose 6.7% due to low gas prices, rising household income, strong job growth, and fast membership growth, said CUNA Mutual, which is projecting savings balances to grow 5% in 2015.
Capital and Other Key Measures
The industry’s weighted average capital-to-asset ratio fell to 10.7% in July from 10.8% in June due to a 1% surge in savings deposits and assets. But during the last 12 months, capital-to-asset ratios rose for all asset categories as the growth in capital (7.3%) exceeded the growth in assets (6%), according to recently released mid-year NCUA Call Report data. The 7.3% capital growth rate is the return-on-equity ratio and has been trending down lately, CUNA Mutual said.
The credit union loan net charge rate fell to 0.46% in June, from 0.49% in June 2014 the lowest since the third quarter of 2007. “The charge-off rate will fall to 0.44% in the third quarter, which is historically the quarter with the lowest charge-off rate of the year, due to rapid loan growth over the summer months. We expect the charge-off rate to raise five basis points to 0.49% in the fourth quarter as loan growth slows and delinquent loans rise,” CUNA Mutual said.
Credit Unions and Members
As of July 2015, CUNA estimates 6,330 credit unions are in operation, down 48 from June. Year-to-date, the number of credit unions fell by 183, which is significantly above the 137 reported in the first seven months of 2014. NCUA’s Insurance Report of Activity showed 20 mergers in July with an average asset size of $25.7 million, down from the 25 mergers reported in July 2014 with an average asset size of $42 million. These smaller credit unions are finding it difficult to increase their member value proposition as fast as larger credit unions and are therefore losing members, CUNA Mutual stated.
Just released mid-year NCUA call report data shows 240 credit unions with assets in excess of $1 billion and 237 credit unions with assets greater than $500 million, but less than $1 billion. The greater than $1 billion asset category represents 3.8% of all credit unions, but more than 56.4% of the credit union system assets and 58.8% of the loans. The median asset size of a U.S. credit union rose to $25.7 million in mid-year, up from $23.9 million at mid-year 2014.
Credit union memberships grew a strong 463,000 in July, or 0.45%, much better than the 195,000 new members, or 0.2%, added in July 2014. Year-to-date credit unions added 2.4 million new members, faster than the 1.9 million members added in 2014. Total credit union memberships reached 103.9 million in July, 3.6% above the level recorded last year.
“We forecast credit union memberships to grow 3% in 2016 and in 2017 due to job gains exceeding 2.5 million each year and more Americans reaching out to credit union in search of loans to satisfy their pent up demand for durable goods,” CUNA Mutual said.