Trends Report: CU Loan, Membership Growth Are Slowing

MADISON, Wis.–With considerable national discussion around whether the U.S. will enter a recession, new CU performance data certainly indicates a slowdown is occurring. In fact, for the first time in six years, one measure of credit union liquidity did not tighten during the last 12 months, CUNA Mutual reported in its latest Trends Report, which tracks performance through June of 2019. 

Among some of the other topline findings:

Trends Loans
  • Some CUs may pull back on the availability of credit and implementing tighter lending standards.
  • Credit union new-auto loan balances fell at a 1.2% seasonally-adjusted, annualized growth rate in June, the first negative reading since the fall of 2011
  • Credit union surplus funds as a percent of assets rose to 25.8% in June, up from 25.6% in June 2018. 
  • Credit unions can expect downward pressure on asset yields over the next year as the lower rate investment portfolio grows faster than the loan portfolio.
  • Credit union memberships grew 381,000 in June (0.32%) which is below the 494,000 new members (0.43%) added in June 2018. Total credit union memberships have now reached 120.5 million – 36.6% of the total U.S. population of 329.3 million. Last June, 35.6% of the U.S. population belonged to a credit union

Here's how credit unions performed by category through June:

Total Credit Union Lending 

Credit union loan balances rose 0.7% in June, lower than the 1.1% pace reported in June 2018, due to slower growth in new-auto loans (-0.1% vs 1.5%) and fixed-rate first mortgages (0.9% vs 1.7%), CUNA Mutual reported. “June typically records the fastest loan growth of the year, with seasonal factors adding 0.39 percentage points to the underlying trend growth,” the Trends Report stated.

Credit union loan balances grew at a 5.2% seasonally-adjusted, annualized growth rate in June, significantly below the pace set over the last five years, CUNA Mutual’s analysis states.

“This is indicative that both the credit cycle and the U.S. business cycle are moving into their last stage before the next economic slowdown. We are forecasting below trend credit union loan growth for the next few years due to little pent up demand remaining for durable goods by the American consumer…We may be seeing some credit unions pull back on the availability of credit and implementing tighter lending standards. 

Credit Union Consumer Installment Credit (CUCIC) 

Credit union consumer installment credit loan balances (auto, credit card and other unsecured loans) rose 8.6% during the 12 months ending in June, more than twice the 4.9% pace reported by all other lenders, according to the Trends Report, which added that credit card growth has been accelerating lately, growing at an 13% seasonally-adjusted annualized growth rate. “Rising interest rates had been weighing on credit card growth in 2018 because credit cards often carry variable rates, but the recent surge in second quarter retail sales has pushed credit card growth to the fastest pace since before the Great Recession,” the company said.

Trends Credit Cards

Vehicle Loans 

Credit union new-auto loan balances fell at a 1.2% seasonally-adjusted, annualized growth rate in June, the first negative reading since the fall of 2011, according to the Trends Report.

“Negative readings are associated with recessions, so this is yet another indicator of an impending economic slowdown,” the company said. “On a month-over-month basis, new-auto loan balances decreased 0.1% in June, slower than the 1.5% gain reported in June 2018. June’s seasonal factors usually add 0.5 percentage points to the underlying trend growth rate and are typically the second largest of the year, given that May through October is considered the new-auto buying and lending season.”

The Trends Report noted credit union new-auto loans currently make up 39% of total auto loans, with used-auto loans making up the other 61%. Used-auto loan balances rose 0.8% in June, slightly below the 0.9% pace reported in June 2018. A typical used-auto loan is originated at roughly half the dollar amount of a new-auto loan. 

Trends Auto Loans

Real Estate Secured Lending – First Mortgages and Other Real Estate 

Credit union fixed-rate first mortgage loan balances grew 0.9% in June, slower than the 1.7% reported in June 2018, the Trends Report said. 

“A year-to-date growth comparison shows a 3.1% growth rate during the first half of 2019, down when compared to the 6% in 2018. Adjustable-rate first mortgage loan balances reported 1.1% growth during the first half of 2019, down from 3% during the similar period last year. Credit unions now hold $445.2 billion of first mortgages on their books, which are 4.3% of the entire mortgage market, up from 4.1% in June 2018. All credit union real estate loans grew 6.9% over the last year, slower than the 8.8% pace set in 2018.”

Trends Real Estate Surplus

Surplus Funds (Cash + Investments) 

Credit union surplus funds as a percent of assets rose to 25.8% in June, up from 25.6% in June 2018, as surplus funds rose 6.9% over the last year while assets grew 6.1%, the data indicate. 

“This is the first time in six years when this measure of credit union liquidity did not show tighter credit union liquidity during the last 12 months,” CUNA Mutual said in its analysis. “The stronger growth in credit union savings over the last year resulted in credit unions relying less on wholesale borrowings, which fell by $0.7 billion, or a drop of 1.4%. Credit unions’ capital balances increased by $17.3 billion, 11.2%, during the last 12 months.”

The credit union movement’s capital-to-asset ratio rose to 11.1%, above the 10.6% reported in June 2018, due to capital growing faster than assets. 

The obverse of the surplus funds ratio is the loan-to-asset ratio, which reached 70.5% in June, slightly above the 70.4% reported in June 2018, the Trends Report added.

“Credit unions can expect downward pressure on asset yields over the next year as the lower rate investment portfolio grows faster than the loan portfolio,” CUNA Mutual is forecasting. “Moreover, as the Federal Reserve lowers interest rates over the next six months, auto and credit card interest rates will fall as well.”

Trends Real Estate Surplus

Savings and Assets
Credit union savings balances grew 6% during the 12 months ending in June, exactly equal to the 6% average annual growth rate recorded during the last 10 years. The 6% credit union savings growth rate was caused by the combination of the 3.5% membership growth during the last 12 months and the 2.5% savings-per-member growth rate. The increase in deposit growth rates over the last year coincide with a rise in the national savings rate (savings as a percent of disposable personal income) which reached 8.1% in June. This is above the 6.5% national savings rate set in June 2018. 

During the last 12 months certificate of deposits growth accounted for 66% of all deposit growth at credit unions. Certificate of deposits are currently growing at a 27.4% seasonally adjusted annualized rate the fastest pace in recent history as members shift funds from money market deposit accounts and share draft accounts to hire rate CDs, the Trends Report found.

Trends Savings CDs

Capital and Other Key Measures 

4The Treasury yield curve inverted in June as the 10-year Treasury interest rate fell below the Fed Funds interest rate, which will put downward pressure on credit unions’ net interest margins during the remainder of 2019, CUNA Mutual forecast. 

“Continued quantitative easing (printing money to buy assets) by the European Central Bank, low inflation expectations and the global savings glut will keep downward pressure on longer-term interest rates. In turn, this will keep downward pressure on credit union yield on assets,” it added.

Credit union loan-to-share ratios rose to 83.5% in June, up from 83.2% one year earlier. 

Credit Union Numbers

As of June 2019, CUNA estimates 5,529 credit unions were in operation, 21 fewer than May and 179 fewer than June 2018, according to the Trends Report.

“During the first half of 2019, approximately 74 credit unions ceased to exist because of mergers, purchase and assumptions or liquidation. During a typical year, 46% of the total decline in the number of credit unions takes place in the first half of the year, which means that we can estimate the 2019 full year decline in the number of credit unions to be 161, below the 197 reported in 2018,” the report states.

But CUNA Mutual’s chief economist Steven Rick added in the report, “However, my official forecast is for a decline of 180 credit unions in 2019The average asset size of a credit union now stands at $279.7 million, up 10.2% from a year ago, while the median asset size is $34.9 million, up 7.4% over the last year, indicating larger credit unions growing faster than their smaller counterparts. The trend towards industry consolidation and bigger credit unions is only likely to accelerate due to the benefits of greater economies of scale, higher productivity and larger earnings that are all achieved with a larger asset base. Larger, more efficient credit unions will also raise the barrier to entry for new small credit unions.”

Trends Number of CUs

Credit Union Membership

Credit union memberships grew 381,000 in June (0.32%) which is below the 494,000 new members (0.43%) added in June 2018. Total credit union memberships have now reached 120.5 million – 36.6% of the total U.S. population of 329.3 million. Last June, 35.6% of the U.S. population belonged to a credit union. 

“The membership gain was driven by demand for credit by the American consumer and the 193,000 new jobs added to the U.S. economy in June, according to the Bureau of Labor Statistics. Year-to-date, credit unions added 1.9 million new members, slower than the 2.7 million members added in the similar period in 2018,” the Trends Report states. “Year-over-year memberships have increased at a 3.5% pace, faster than the 0.8% population growth. We expect the economy to add another 2.1 million jobs in 2019 and 1.5 million jobs in 2020, contributing to a credit union membership growth rate of 3.5% in 2019 and 2.5% in 2020.”

The full Trends Report can be found in CUToday.info’s The Vault here.

Trends Members
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Copyright Year: 2019
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