CREDIT UNION TRENDS REPORT

Transcription

1 CREDIT UNION TRENDS REPORT CUNA Mutual Group Economics August 216 (June 216 Data) Highlights During June, credit unions picked-up 392, new memberships, loan balances grew at a 1. annualized pace, vacation spending and car purchases reduced savings balances., firms hired 292, workers, nominal consumer spending increased a modest., and long-term interest rates fell 17 basis points. Second quarter economic growth came in at 1., better than the. in Q1. At the end of June, CUNA s monthly estimates reported 6,119 CUs in operation, down 7 CUs from one month earlier. Year-over-year the number of credit unions declined by 278, more than the 274 lost in the months ending in June 2. Total credit union assets fell. in June as credit unions liquidated investments to pay down $8 billion in wholesale borrowings. Assets rose 6. over the past year due to a 7. increase in deposits and a 7. increase in capital despite a 1. drop in borrowings. The nation s credit unions increased their loan portfolios 1. in June, slightly less than the 1. pace reported in June 2, and 1. during the last months. June is historically the month reporting the fastest loan growth as the summer car buying season begins in earnest. Credit union memberships rose a robust.3 in June, similar to the.3 gain reported in June 2. Memberships are up 3. over the past year due to rapid job creation and strong demand for new and used auto loans. Credit union loan delinquency rates fell to. in June, down from.7 one year earlier due to a stronger economy and double digit loan growth. As the labor market approaches full employment and the unemployment rate falls, the delinquency rate will decline even further. ECONOMIC, COMPETITIVE AND INTEREST RATE ENVIRONMENT During June, the economy added 292, jobs, the unemployment rate rose to 4., personal income rose., personal spending rose., consumer prices were unchanged, consumer confidence rose, new home sales rose 3., existing home sales rose 1., auto sales fell 4., home prices rose 1., and the 1-year Treasury interest rate decreased 17 basis points to average 1.6. The economy expanded at a 1. annual pace in the second quarter, according to the Bureau of Economic Analysis, better than the. pace reported in the first quarter, but lower than the 1. CBO estimate of potential GDP growth. Consumer spending led growth at a 2.9 annualized pace, the fastest pace since the fourth quarter of 214. Real disposable income growth rose to 2. from 2. in the first quarter. Expect the economy to expand at a 2. pace in the third quarter and 2. pace in the fourth quarter, pushing the economy close to full employment and potential GDP. This will boost wages, consumer confidence and ultimately keep credit union lending growth strong. Total Lending Credit union loan balances rose 1. in June, slower than the 1. pace reported in June 2, due to slower growth in fixed-rate mortgages (1. vs 2.) and adjusted-rate first mortgages (. vs.5). The only lending product still contracting was second mortgage loans (-.) as members continued to roll second mortgage balances into refinanced first mortgages. June is typically the month of the year recording the fastest loan growth with seasonal factors adding.42 percentage points to the underlying trend growth. Credit union loan balances were growing at a 1. seasonally-adjusted, annualized growth rate in June, (Figure 1), similar to the credit boom. There are confluences of factors that will drive double digit loan growth through 216. The most important one is job growth. The economy is expected to add close to million jobs in 216 and 2.3 million in 217. As the labor market reaches full employment in the second half of 216, wage growth will accelerate. This will raise consumer confidence back to prerecession highs. Figure 1: CU Loan Growth Seasonally Adjusted Annualized Growth Rate 1 1 % % % % - -

2 Credit Union Consumer Installment Credit (CUCIC) Credit union consumer-installment-credit loan balances (auto, credit card and other unsecured loans) rose 1. during the months ending in June, more than twice the 5. reported by all other lenders. Revolving credit, mostly credit cards, came in surprisingly strong in June growing at a 1. seasonally-adjusted annualized growth rate (Figure 2). June s seasonal factors usually add.59 percentage points to the underlying trend growth rate (Figure 3). Low gas prices had been weighing on credit card growth by reducing the amounts charged on credit cards and increasing the savings available to pay down outstanding debt. Rising consumer confidence is encouraging members to start buying again. Figure 2: Figure 3: CU Credit Card Growth Seasonally Adjusted Annualized Growth Rate % % % % - - Vehicle Loans Credit union used-auto loan balances grew at a 14. seasonally-adjusted, annualized growth rate in June, a slight deceleration from the cyclically high pace set during the last couple of months (Figure 4). On a month-over-month basis, used-auto loan balances increased 1. in June, faster than the 1. reported in June 2. June s seasonal factors usually add.72 percentage points to the underlying trend growth rate (Figure 5) and are typically the largest of the year. March through August is considered the used-auto buying and lending season. Credit union used-auto loan balances are typically 6 larger than new-auto loan balances, but a typical used-auto loan is originated at roughly half the dollar amount of a new-auto loan. So even though new-auto loan balances increased. during the last months and used-auto loan balances grew only 14., many credit unions have had to increase staffing in the used-auto lending area to keep up with the surge in used-auto loan demand. Figure 4: Figure 5: 5.% 4.% 3.% 2.% 1.%.% -1.% -2.% -3.% -2.3 Credit Card Loan Seasonal Factors Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Source: CUNA & NCUA CU Used Loan Growth Seasonally Adjusted Annualized Growth Rate % % % % % % % Used Auto Loan Seasonal Factors Jan Feb Mar Apr May June July Aug -. Sept Oct Nov Dec -. Source: CUNA & NCUA Vehicle sales fell in June to a 16.7 million unit seasonally-adjusted, annualized sales rate, which is down from the 17.3 million units reported in May, but above the 16.5 million-level considered to be a strong auto market. A confluence of positive factors will keep new auto sales above the 17 million mark in 216 and begin to slow slightly in Credit Union Trends Report

3 Real Estate-Secured Lending 1 st Mortgages and Other Real Estate Credit union fixed-rate first mortgage loan balances grew 1. in June, slower than the 2. reported in June 2. However, a year-to-date growth comparison shows about the same 8. growth rate during the first half of 2 and 216. Adjustable-rate first mortgage loan balances grew faster than fixed-rate loans, increasing 11. in the first half of the year, but slightly less than the. reported in the first six months of 2 (Figure 6). Credit unions now hold $341 billion of first mortgages on their books, which are 3. of the entire mortgage market, up from 3. in June 2. The contract interest rate on a 3-year fixed-rate conventional home mortgage fell to 3.5 in June, down from 3. in May, and below the 3.9 reported in June 2. We expect the Federal Reserve to raise short-term interest rates in the second half of 216, which will lift the 3-year mortgage interest rate to the % range by the first half of 217. This forecasted increase in interest rates will encourage some fence-sitters to purchase a home now before interest rates rise further. Home prices rose 1. in June from May, according to the Core Logic Home Price Index, and 5. year-over-year. The index is now 4 above the low point in March 211, and only 6. below the peak set in April 26. Home prices are expected to rise another in 216 and in 217. Therefore, home prices should reach new highs by the end of 217. Existing home sales rose a strong 1. in June compared to May and by compared to June 2. The housing market tightened as first time homebuyers entered the market and purchased 3 of all sales, the highest share in four years. The return of first time homebuyer sales could herald stronger demand for home purchases in coming years. Credit union mortgage lending should increase as improving financial positions among borrowers and rising incomes justify loosening credit standards. In addition, confidence in the housing market will return as the general economy strengthens and lingering memories regarding the most recent housing downturn fade from view. Figure 6: Figure 7: 2 Growth CU Real Estate Loans 216 = June 7 CU Surplus Funds (Cash + Investments) All Real Estate Loans Fixed Rate 1 st Mortgages Adjustable Rate 1 st Mortgages -1.6 Home Equity Loans Second Mortgages Recession 5 Surplus Funds-to-Assets (Right Axis) Loan-to-Asset (Left Axis) Surplus Funds (Cash + Investments) Credit union surplus funds as a percent of assets fell to 29. in June, down from 31. in June 2, as credit unions partly funded $77.4 billion in new loans during the last year with $2.7 billion of cash and investments (Figure 7). The lion s share of loans, however, was funded with $75.9 billion in new savings deposits. The strong growth in savings over the last year resulted in credit unions relying less on wholesale borrowings, which declined by $4.7 billion. Credit unions capital balances increased by $1.1 billion during the last months, pushing the credit union movement s capital-to-asset ratio to 1., slightly above the 1. reported in June 2. The obverse of the falling surplus funds ratio is the rising loan-to-asset ratio, which reached 6 in June, the highest level since April 29. Credit unions can expect rising asset yields over the next year as more and more funds are moved from the investment portfolio into new and used auto loans and additional mortgage lending. During the month of June, credit unions added $9.1 billion in loans to their balance sheets partly funded by $6.2 billion in new savings. Surplus funds were drawn down by $.4 billion to fund new loans and pay down $8. billion in wholesale borrowings. Paying-off borrowings in June slightly reduced the overall asset size of credit union balance sheets. 3 Credit Union Trends Report

4 Yield to Maturity Savings and Assets Credit union savings balances grew 7. during the months ending in June (Figure 8), significantly faster than the 5. average annual growth rate recorded during the last 1 years. This strong savings growth rate was caused by the combination of fast membership growth, 3. during the last months, and rising savings-per-member growth, 3. during the last year (Figure 9). The savings-per-member growth rate picked-up during the last two years due to falling gas prices and households deciding to save rather than spend this windfall. Meanwhile, the membership growth rate rose due to faster job growth and a rising demand for loans at credit unions. If households come to expect the fall in gas prices are more permanent than temporary, they will begin to spend the gas dividend windfall, which will dampen down credit union savings growth rates in 217. Figure 8: Figure 9: Growth In Credit Union Savings Growth in Savings Per Member 1 8 June Year Average Growth Rate June 2 1 Year Average Growth = June Capital and Other Key Measures The yield curve has flattened significantly over the last year, which will put downward pressure on credit unions net interest margins during the remainder of 216 (Figure 1). Last December, the Federal Reserve raised the Fed Funds interest rate.25 percentage points, raising short-term interest rates and credit union cost of funds. Worries over global economic growth and Great Britain voting to leave the European Union created a capital flight to safety, which reduced longer-term interest rates. This will reduce credit union yield on assets as loan interest rates fall. Credit union loan-to-share ratios rose to 77. in June, up from 75. one year earlier (Figure 11). The recent cyclical high of 84. occurred during October 27, two months before the start of the Great Recession. Loan-to-asset ratios reached 6 in June, the highest since October 28, which will buoy net interest margins and offset the downward pressure on margins caused by the flattening yield curve. Figure 1: Figure 11: Treasury Yield Curves July 216 June 216 July Years to Maturity Loan-to-Asset & Loan-to-Share Ratios Recession July March 1991 Recession March 21 Nov. 21 June 216 Recession L/A Ratio L/S Ratio Recession Dec. 27 June 29 6 Loan-to- 55 Asset = Loan-to-Share = 84. Loan-to-Share = Credit Union Trends Report

5 Credit Unions and Members As of June 216, CUNA estimates 6,119 credit unions were in operation, 7 fewer than May and 278 fewer than June 2 (Figure ). During the first half of 216, approximately 117 credit unions ceased to exist because of mergers, purchase and assumptions, or liquidation. During a typical year, 4 of the total decline in the number of credit unions takes place in the first half of the year (Figure 13), which means we can forecast the 216 full year decline in the number of credit unions to be 254, slightly below the 277 reported in 2. The average asset size of a credit union now stands at $26.6 million, up 11. from a year ago. The median asset size is now $27.8 million, up 9.% over the last year. 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. Figure : Figure 13: Comparison of Declines in # of CUs June 216 Actual = 6,119 Annual Net Decline in Number of CUs Number of CUs 4 Annual Declines June to June # of CUs 5 JAN - JUN JUL - DEC % s = JAN - JUN Share of Annual Change YTD June Declines Annual Declines Credit union memberships grew a strong 392, in June, or.3, which is similar to the 393, new members, or.3, added in June 2. Total credit union memberships have now reached 17.2 million 33. of the total U.S. population of million. Last June, 32. of the U.S. population belonged to a credit union. The membership gain was driven by strong demand for credit by the American consumer and the 292, new jobs added to the U.S. economy in June, according to the Bureau of Labor Statistics. Year-to-date credit unions added 2.23 million new members, (Figure 14), faster than the 1.8 million members added in 2. Year-over-year memberships have increased at a 3. pace, (Figure ), the fastest in more than 2 years. We expect the economy to add another million jobs in 216 and 2.3 million jobs in 217 contributing to credit union membership growth of in both 216 and 217. Figure 14: Figure : Comparison of Membership Increases Members in Millions June 216 Actual = 17.2 Million Annual Increase June to June YTD June Increase Annual Increase Annual Membership Growth June 216 = 17.2 Million Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Credit Union Trends Report

6 National Monthly Credit Union Aggregates CAPITAL/ ($ Billions) (Millions) CREDIT LOAN / ASSET YR/MO LOANS ASSETS SAVINGS CAPITAL MEMBERS UNIONS SAVINGS RATIO , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,23.3 1, , ,21.2 1, , ,23.4 1, , , , , , , , , , , , , , , , , , , , , , , ,274. 1, , , , , Credit Union Growth Rates Change Previous Year # OF CUs Delinquency YR/MO LOANS ASSETS SAVINGS CAPITAL MEMBERS # OF CUs DECLINE Ratio* (3.7) (259) (3.5) (244) (3.3) (226) (4.) (272) (3.7) (254) (4.3) (297) (4.2) (282) (3.9) (262) (4.2) (286) (4.3) (288) (4.) (267) (3.9) (26) (4.1) (274) (4.5) (299) (4.5) (296) (4.) (263) (4.8) (316) (3.9) (256) (4.2) (277) (4.1) (267) (3.7) (241) (3.9) (252) (4.7) (34) (4.5) (291) (4.3) (278).7 * Loans two or more months delinquent as a percent of total loans. 6 Credit Union Trends Report

7 Distribution of Credit Union Loans Estimated $ (Billions) Outstanding 1 ST TOT. OTHR TOTAL TOTAL NEW USED TOTAL UNSEC CREDIT MORT MORT REAL YR/MO LOANS VEHICLE LOANS Ex. CC S CARDS CUCIC TOTAL 2 ND +HE ESTATE MBLs* * Member Business Loans Distribution of Credit Union Loans Change From Prior Year 1 ST TOT. OTHR TOTAL TOTAL NEW USED TOTAL UNSEC CREDIT MORT MORT REAL YR/MO LOANS VEHICLE LOANS Ex. CC S CARDS CUCIC TOTAL 2 ND +HE ESTATE MBLs* (.8) Credit Union Trends Report

8 Annual Growth Rates Total Loans & Installment Credit Total Loans CUCIC $ in Billions $58.5 $587.4 $544.1 $511.1 $ CU Loan Portfolio $58.3 $ June CIC 61.% 61. Other $6.1 $66.1 $728.9 $84.9 $ CIC Share of Total Loans at Credit Unions $ Billions Consumer Installment Credit at Credit Unions This report on key CU indicators is based on data from CUNA E&S s Monthly Credit Union Estimates, the Federal Reserve Board, and CUNA Mutual Group Economics. To access this report on the Internet: Sign in at cunamutual.com Go to the Resource Library tab Under Publications heading, select Credit Union Trends Report If you have any questions, comments, or need additional information, please call. Thank you. Steven Rick , Ext steve.rick@cunamutual.com CUNA Mutual Group Economics CUNA Mutual Group, 216 All Rights Reserved. CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries and affiliates. 8 Credit Union Trends Report