CREDIT UNION TRENDS REPORT

Transcription

1 CREDIT UNION TRENDS REPORT CUNA Mutual Group Economics November (September Data) Highlights During September, credit unions picked up 1, in new memberships, loan balances grew at a.% annualized pace, while savings balances rose at a.7% annualized pace. Firms hired 11, workers, nominal consumer spending increased.%, and long-term interest rates increased 7 basis points. Third quarter economic growth came in at.%, but only increased 1.% from the third quarter of. At the end of September, CUNA s monthly estimates reported,3 CUs in operation, down 1 credit unions from one month earlier. Year-over-year, the number of credit unions declined by, more than the 3 lost in the months ending in September. Total credit union assets rose.% in September, faster than the.% gain reported in September of, due to the month ending on a payroll Friday. Assets rose.3% during the past year due to an.7% increase in deposits, a 3% increase in borrowings, and a 7.% increase in capital. The nation s credit unions increased their loan portfolios by.% in September, less than the 1.% pace reported in September. Loan balances are up 1.% during the last months. September is historically the month where seasonal factors have little to no effect on trend loan growth. Credit union memberships rose a robust.3% in September, but down from the remarkable.% gain reported in September. Memberships are up.% during the past year due to robust demand for credit, solid job growth and comparatively lower fees and loan interest rates versus the banks. Credit union capital-to-asset ratios fell to 1.7% in September, down from 1.% reported one year ago. Credit union loan delinquency rates fell to.7% in September, down from.7% one year earlier due to a stronger economy and double digit loan growth. Expect both credit unions and banks to loosen credit standards in 17. ECONOMIC, COMPETITIVE AND INTEREST RATE ENVIRONMENT During September, the economy added 11, jobs, the unemployment rate remained at %, personal income rose.3%, personal spending rose.%, consumer prices rose.3%, consumer confidence rose, new home sales rose 3.1%, existing home sales rose 3.%, auto sales rose.7%, home prices rose 1.1%, and the 1-year Treasury interest rate increased 7 basis points to average 1.3%. The election of Donald Trump has changed the outlook for economic growth, inflation and interest rates for the next few years. Trump is looking to implement a fiscal expansion in the form of infrastructure investment along with corporate and personal tax cuts. If implemented, this could boost economic growth. to 1. percentage points above the base case forecast of.% growth during the next couple of years. This will add to the growing inflationary pressure the economy is already experiencing as it approaches full employment and potential output. This will increase long-term interest rates like the 1-year Treasury rate which will in turn put upward pressure on the 3-year mortgage interest rate. Trump will also have the opportunity to fill a few vacant seats on the Federal Reserve s board of governors with inflation hawks who are more inclined to raise the Fed Funds interest rate sooner and faster than previously anticipated. So it appears interest rate normalization has begun, and with it slower loan growth. Total Lending Credit union loan balances rose.% in September, slower than the 1.% pace reported in September. Driving overall loan growth was strong growth in new-auto loans (1.%), fixed-rate first mortgages (1.1%), and used-auto loans (1.1%). The loan growth profile is very similar to the growth profile in (Figure 1). Loan balances rose 7.% during the first nine months of this year, slightly below than the.% reported for the similar period last year. Based on current trends, credit union lending growth could hit 1.% this year, the third year of double digit loan growth. We expect loan growth to slow to around % in 17. Figure 1: 1 Total CU Loans Year-to-Date Growth Comparison September Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 7.% 1.% 1.%

2 $ bil (SA) Credit Union Consumer Installment Credit (CUCIC) Credit union consumer installment credit loan balances (auto, credit card and other unsecured loans) rose 1.1% in September, faster than the.% pace set in September. During the last months, credit union consumer installment credit grew.% (Figure ). According to the Federal Reserve, outstanding consumer credit rose a large $1.3 billion for all lenders in September (Figure 3), with balances up 7.1% over the last year. Consumer credit is rising due to strong job growth, rising wages and improved household wealth from rising stock and home prices. Figure : Figure 3: 1 Loan Growth Trends September Total Loans Consumer Installment Credit (CUCIC) Real Estate Secured Loans.% 1.% 7.% 1 Consumer Credit Outstanding (monthly change & annual growth rate) Consumer Credit Monthly Change (RHS) Year-over-Year Growth (LHS) Vehicle Loans Credit union new-auto loan balances rose 1.% in September, slightly below the 1.% pace set in September. Newauto loan balances rose.% during the last months, (Figure ), faster than the.7% increase in used-auto loans. Total auto loan balances rose.% since September, which is faster than overall loan growth and in turn leads to auto loans making up 3.1% of the credit union loan portfolio, the highest since September 7. The strong auto sector is being driven by solid household financial fundamentals, including: robust job creation, better job quality, low interest rates, accessible auto credit, rising wage growth and improving household balance sheets. Figure : Figure : 1-1 Vehicle Lending Growth Comparisons Annual Growth September -.% CU New vs. Used Vehicle September 1 New.% Used.7% Millions of Units U.S. Vehicles Sales Seasonally Adjusted Annual Rate New Auto Sales Inherent Demand Source: Autodata Corp Vehicle sales rose to 17. million unit seasonally-adjusted annualized sales rate in September (Figure ), up from 17. million in August but below the 1. million sales pace set in September. Low gas prices are fueling strong sales of light trucks and luxury automobiles. These strong sales numbers are above the. million annual sales pace considered by economists to be the inherent demand for the U.S. auto sector, (see yellow line in Figure ). Record stock prices in November should support auto sales since stock sales are often used for vehicle purchases. Moreover, the strengthening construction sector and low gas prices should support the light trucks sales for the next year. 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 a strong 1.1% in September, exactly the same pace as the 1.1% set in September, due to existing-home sales surging 3.% from August. Adjustable-rate mortgage loan balances grew.3% in September, below the.% pace recorded in September. Home equity lending rose.3% in September, significantly better than the -.% drop reported in September. Seasonal factors typically shave.1 percentage points from the underlying monthly trend growth rate in September, so the September increase in balances indicate credit union members are willing and able to tap into their home equity to satisfy some of their borrowing and spending needs. The contract interest rate on a 3-year, fixed-rate conventional home mortgage rose to 3.7% in September, from 3.% in August, but below the 3.% reported in September. With rising inflation expectations and a tightening labor market, we expect the 3-year mortgage interest rate to increase to basis points during the next year, reaching.% by year-end 17. Rising interest rates will lead to a pullback in refinancing applications, but improving consumer balance sheets and tightening labor market conditions should boost purchase mortgage activity. Home prices rose 1.1% in September from August, according to the Core Logic Home Price Index, and.3% year-overyear. The index is now only.% below the peak set in April. The OFHEO House Price Index rose.1% over the last year ending in the second quarter (Figure ). Some people are wondering if home prices are becoming overvalued again and therefore creating another home price bubble. One way to measure overvaluation is to compare today s home price-to-income ratio and home price-to-rent ratio to their historical averages. The home price-to-income ratio is % below its historical average indicating no price bubble, but the home price-to-rent ratio is 7% above its historical average indicating some valuation issues. If we take an average of these two numbers, however, we see that current home prices are -1% undervalued compared to historical norms. In other words, no price bubbles nationwide, yet. Figure : Figure 7: 1 OFHEO House Price Index (-Qtr Change) U.S. 1 7% 73% 7% CU Surplus Funds (Cash + Investments) % 3% 3% % % 3% 3% 3% 3% % % % % % 3% Surplus Funds-to-Assets (Right Axis) Loan-to-Asset (Left Axis) % % % % Surplus Funds (Cash + Investments) Credit union liquidity fell to the lowest level since January in September as loan growth outpaced asset growth. Credit union surplus funds as a percent of assets declined to.1% in September, (Figure 7), down from 3.% one year earlier, due to asset growth (.3%) outpacing surplus funds growth (3.%). Credit union borrowings dropped %, $ billion, as credit unions paid off borrowings with surging deposit growth to boost quarter-end capital-to-asset ratios. Loans rose to.% of assets in September, the highest level since February (Figure 7). Currently 7.1% of credit union surplus funds have a maturity of less than 1 year, up from 3.3% in June. Meanwhile, investments with maturities in the -1 year range now make up only.% of all surplus funds, down from 7.% one year earlier. This shift towards shorter maturity investments could be due to credit unions expecting the Federal Reserve to finally start raising interest rates in December and continuing through 17 and 1. The shift to shorter-maturity investments will reduce credit unions exposure to falling investment values as interest rates increase, but this interest rate risk reduction comes at a cost, specifically an opportunity cost, or what is given-up. Currently, the 3-year Treasury notes have yields roughly 1 basis points above overnight money. This opportunity cost is in effect an interest rate risk insurance premium. 3 Credit Union Trends Report

4 Savings and Assets Credit union savings balances rose 1.% in September, greater than the.% gain reported in September, due to the month ending on a payday Friday. September, however, is typically a weak month for savings growth due to seasonal factors such as back-to-school shopping and college tuition payments. Savings balances rose.7% during the last months due to the windfall gain from falling gas prices, rising credit union memberships and stronger job growth. Credit union cost of funds is expected to rise 1 basis points in 17 as the Federal Reserve raises the Fed Funds interest rate. Credit unions will follow suit and raise interest rates on share certificates and money market accounts similar to what they did in 1 and (Figure ). Members behavior will also contribute to rising funding costs as they move deposits from low-cost regular shares to higher-cost share certificates (Figure ). This is known as the mix effect. Figure : Figure : 7 Deposit Interest Rates versus Fed Funds Fed Funds Regular Shares MMAs CDs Savings Distribution U.S. Credit Unions Certificates Share Drafts MMAs IRAs Regular Shares Capital and Other Key Measures The credit union system s capital-to-asset ratio fell to 1.7% in September, down from 1.% in August, due to a surge in deposit growth because of the month ending on a payroll Friday (Figure 1). The capital ratio is down from the 1.% reported in September due to asset growth of.3% outpacing capital growth of 7.%. The credit union loan-to-share ratio also declined slightly to 7.% due to the strong growth in savings deposits. On time payment performance of loans is improving in tandem with the labor market. The loan delinquency rate (loans two or more months delinquent as a percent of total loans outstanding) fell to.7% in September, down from.7% in September, as the unemployment rate approaches what economists now believe is the full employment rate of.7% (Figure 11). This is leading to credit unions relaxing lending standards by going further down the credit spectrum. Figure 1: 7 7 Credit Union Key Ratios September Capital-to-Asset (Right Scale) Loan-to-Share (Left Scale) Credit Union Trends Report. 7.% 1.7% Figure 11: CU Delinquency Rate Versus Unemployment Rate Unemployment (Left Axis) 1 Delinquency (Right Axis) Full Employment Target

5 Basis Points Credit Unions and Members As of September, CUNA estimates,3 credit unions were in operation, down from September (Figure ). Year-to-date the number of credit unions fell by 173, slightly less than the 1 reported in the first nine months of. NCUA s Insurance Report of Activity showed mergers were approved in September with an average asset size of $. million. This is down from the mergers reported in September with an average asset size of $.3 million. Sixteen of the mergers this September were due to credit unions wanting expanded services, one merger was due to poor financial condition, two were due to declining field of memberships and one was due to the inability to find officials. The pace of consolidation continues in both the credit union and banking industries. The number of FDIC-insured banks fell by during the last months ending in June. This leaves a grand total of, banks in operation, fewer than the total number of credit unions. This consolidation is eliminating the excess capacity in the financial services space, cutting duplication of operating costs, culling layers of overlapping management and allowing for scale to squeeze better deals from suppliers. This consolidation trend will lead to larger and more efficient depository institutions with lower operating expense ratios (Figure ) and a more competitive financial services industry. Figure : Figure : 3 Comparison of Declines in # of CUs September Actual =,3 Number of CUs 3 Annual Declines September to September 7 3 Credit Union Operating-Expense-to-Assets (by Asset size) Q Q YTD September Declines Annual Declines < $ mil $-$ $-$1 $1- $ $- $ $-$1 bil >$1 bil Credit unions added more than 3.71 million memberships in the first nine months of, the fastest pace in credit union history (Figure ), and significantly above the.3 million added in the similar time period of. Surging demand for credit was the major driver for the upwelling in memberships. Credit union loan balances increased $. billion in the third quarter, above the $ billion in the third quarter of. Also driving membership gains was the 1, new jobs added to the U.S. economy in the third quarter. Credit union memberships grew at a.3% seasonally-adjusted annualized growth rate in September the fastest pace in years (Figure ). We expect membership growth to remain strong in 17, but slow to a more sustainable pace of 3.3%. Figure : Figure : Members ( s) 3 1 Month-Only Membership Gains.3 Million YTD September = 1. Million Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 3.71 Million YTD.%.%.%.%.% 3.% 3.%.%.% 1.% 1.%.% CU Membership Growth Seasonally Adjusted Annualized Growth Rate.% %.%.%.%.% 3.% 3.%.%.% 1.% 1.%.%.% 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 , , , , , , , , , , , , ,11. 1,..3 1., ,1.3 1, , ,1. 1, , ,11. 1,. 7..3, ,3.3 1,.7.7., ,1. 1,1.7.3., ,3. 1,.3.., ,1.7 1, , ,17. 1,. 1.., ,7. 1,3.3.., ,3. 1, , ,. 1,. 3.., ,. 1,71..., ,7. 1,..., ,73.3 1,7..., ,7. 1, , ,.3 1, , ,. 1, , ,33. 1,1.. 1., Credit Union Growth Rates Change Previous Year # OF CUs Delinquency YR/MO LOANS ASSETS SAVINGS CAPITAL MEMBERS # OF CUs DECLINE Ratio* (.) (7).% (3.7) ().3% (.3) (7).% (.) ().% (3.) ().3% (.) ().73% (.3) ().3% (.) (7).7% (3.) ().737% (.1) (7).7% (.) ().77% (.) ().77% (.) (3).77% (.) (3).7% (3.) ().% (.) (77).% (.1) (7).% (3.7) (1).7% (3.) ().7% (.) (7).7% (.) ().7% (.) (71).7% (.) ().7% (.3) (7).7% (.) ().77% * Loans two or more months delinquent as a percent of total loans. 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 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 ND +HE ESTATE MBLs* Credit Union Trends Report

8 Annual Growth Rates Total Loans & Installment Credit Total Loans CUCIC $ in Billions $. $7. $.1 $7. $ %.1% CU Loan Portfolio.7%.3%.% $.3 $ Sept. CIC 1.% 1.% Other $.1 $7. $.1 $.1 7.% 7.%.%.3%.% $ 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.3., Ext.. steve.rick@cunamutual.com CUNA Mutual Group Economics CUNA Mutual Group, All Rights Reserved. CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries and affiliates. Credit Union Trends Report