Credit Union Trends Report

Transcription

1 Credit Union Trends Report CUNA Mutual Group Economics October 2 (August 2 data) Highlights Note: Quarterly revisions, impacting April- July results were mostly modest and positive, especially with respect to lending. Mid-year data revisions show the rate of industry consolidation was overstated by 19 CUs. At 7,1 CUs, the industry count is down 171 YTD and 269 since August 2. A fifth payroll Friday in August helped boost annual savings growth to 7.7%, well above its 1-year average. More than 2.5 million additional members and growing economic uncertainty were also contributing factors. Assets finished August at $1.33 trillion, up 7.5% for the year. YTD, loan growth is now stronger than full-year 29, 21 and 2 gains. At $63 billion, loans are up 3.9% from August 2. Most of the strength is coming from 1 st mortgages and vehicle loans. Membership gains continue unabated. The addition of 313, members in August brought the annual gain up to 2.5 million. Total membership at CUs currently stands at 95. million. Are these new members, customers banks don t want or are they helping us lower the average member age in the CU system? The capital-to-asset ratio held steady at 1.3% even with strong asset growth. The loan-to-share ratio fell to 67.7%. The loan delinquency rate was revised lower and continues to recede. At 1.159% it is now just four basis points above it 1-year average. ENVIRONMENT Our economic outlook remains clouded as we are now less than 3 days away from a reportedly tight election. Economic growth in the rest of the world is slowing and nothing has changed for the better in the Eurozone. The open-ended monetary policy actions by the Fed indicate its level of concern regarding the sustainability of our fragile recovery. Defensive deposit increases by members are also raising concerns. 2 will likely go down as the year when CUs regained their financial footing and turned more of their attention to member financial well-being. As we move forward, we hope economic concerns slowly give way to regulatory burdens as the primary industry concern. Raising time and resource demands on the CU movement s leadership will likely accelerate industry consolidation in 213 and beyond. This is especially true for smaller CUs. Total Lending Mid-year data revisions added $2.4 billion to previous loan portfolio estimates and growth was restated.4 percentage points (pp) higher. Almost all of the positive revisions came from short-term consumer installment credit, particularly vehicle loans. Data revisions were also positive for MBLs. Total loans are up 2.7% YTD, much better than same period 2 results and well above 29, 21 and 2 full-year results, as shown in Figure 1. On a year-over-year basis, total industry loans are up 3.9%, with fixed-rate 1 st mortgages and vehicle loans the biggest positive contributors. It is important to note: a year ago we were reporting.4% portfolio contraction. CUs are starting a real recovery at the member level. Not included in the portfolio statistics is member mortgage refinances, which are freeing up cash flow and providing members with interest rate security. A $1. billion (4.4%) gain in MBLs also contributed to improving loan portfolio growth, but this source of growth (and net interest margin) is losing steam, as many CUs are approaching their MBL caps Figure 1 Growth in CU Loans and CUCIC 1-Year Average Growth Rates Loans = 6.% CUCIC = 1.% August 2 August 2 Growth Loans = 3.9% CUCIC = 5.9% Aug. YTD Loans CUCIC

2 Credit Union Consumer Installment Credit (CUCIC) Mid-year data revisions added $2.4 billion to previous estimates of consumer installment credit outstanding at CUs (CUCIC). This boosted the July growth estimate by a solid 1.1 pp. At $23 billion, CUCIC is up $.1 billion (5.4%) YTD and it is up $13.4 billion (6.%) since August 2, as shown in Figure 2). We have not seen this level of growth since early 26 and last year in August, we were reporting portfolio contraction of 1%. The rest of the market is expanding at a 5.6% annual rate (red dashed line), but if you remove Government Student Loans, which are up 29% year-over-year, the rest of the market is up just.9% (green line triangles). CUs are reporting moderate gains in unsecured credit cards, student loans and vehicle loans. All of these portfolios are up on a YTD and annual basis. The continued surge in vehicle lending accounted for 79% of all CUCIC growth and 4% of total loan growth since August 2. 4 G row th in Consum er Installm ent Credit August 2 Total Market Excl. CUs 5.6% CUs 6.% -4 - Total Market Excl. CU s & GSLs.9% Figure 2 Vehicle Loans Mid-year data revisions not only confirmed the vehicle lending growth surge, they added to it. Overall, total vehicle loans were restated almost $1 billion higher and.5% was added to the growth rate. At $177.6 billion, the total vehicle loan portfolio has advanced in each of the last seven months and is up $9.5 billion (5.7%) YTD. On an annual basis, the $1.6 billion increase translates into a 6.4% gain, as shown in the left graphic of Figure 3. Roughly 4% of all CU loan growth since August 2 is attributable to vehicle loans (6% on a YTD basis). Currently, 29.5% of all CU loans are vehicle loans, up from 2.% at this time last year. Used vehicles (19.1% of all CU loans) are up 6.% YTD and 7.6% year-over-year (see the right graphic of Figure 3). This is the strongest growth since mid-24. Reports from CUs indicate loan demand remains brisk. Annual new vehicle loan portfolio growth is now 4.1%, but is up 5.% YTD. Aggressive rate pricing, a reduced rate of payoffs, less competition from home equity loans, and less generous rate incentives from new vehicle sellers, contributed to the amazing growth turnaround shown in the right graphic of Figure 3. Vehicle Lending Growth Comparisons Annual Growth CU New vs. Used Vehicle 6 4 August 2 6.4% 1 5 Used 7.6% New 4.1% Figure 3 2 Credit Union Trends Report

3 Real Estate-Secured Lending 1 st Mortgages and Other Real Estate Mid-year data revisions had no impact on 1 st mortgage portfolio results, but the home equity/2 nd mortgage portfolio was restated lower. The overall net impact on total real estate secured lending (RE) revisions was.1 pp lower growth. At $323 billion, total RE is up just.9% YTD and 2.3% since August 2, as shown by the left-most bars in Figure 4. What is surprising is that 171% of all RE growth is attributable to the 7.7% gain in fixed-rate 1 st mortgages (FRFs). Despite historically low yields, CUs appear to be in no rush to sell into the secondary market. While there is always some risk, the additional yield spread over alternative short-term investments is building current capital. We also believe CUs are originating short-duration, low loan-to-value member mortgages to hold in portfolio. The 2.1% annual gain in adjustable-rate 1 st mortgages (ARMs) shows some members, with a short time horizon, are using ARMs as an effective borrowing strategy. Overall, we do believe the rate differential with FRFs is not enough for members to assume the interest rate risk, in this environment. Home equity and 2 nd mortgage loan portfolios continue to fall as there is a lack of equity in many cases and interest rates are not competitive when compared to extremely low FRFs and vehicle loan sales. 1 G row th in CU R eal Estate Loans 2 = August 7.7% 5 2.3% 2.1% -5-1 Figure 4-7.9% All R eal E state Fixed Rate A djus table Rate H ome Equity & 2 nd Loans 1 st Mortgages 1 st Mortgages Mortgages Surplus Funds (Cash + Investments) Surplus funds were restated $2.2 billion lower in the mid-year data revisions, but this change had little impact on overall trends. Surplus funds currently stand at almost $393 billion, up $.6 billion (2.2%) during the month due to the five payroll Fridays in August. YTD, surplus funds have increased $ 33.1 billion (9.2%) and the year-over year gain is $46.9 billion (13.6%). During both of these periods, 65% of the change in assets went into surplus funds. The surplus funds to assets ratio increased to 3%, up two full percentage points during the past year. This is the fourth highest level in recent memory. Currently, 47.3% of surplus funds have a maturity of one year or less. Given the extremely low interest rate environment, this does not bode well for already low investment yields. Savings and Assets Savings and asset data revisions were modest subtracting.1 pp from previous savings growth estimates and asset growth was lower fractionally. A fifth payroll Friday included in the August data helped boost savings by $1.4 billion (1.2%) during the month. The extra payday effect is validated by the.% month-only increase in share draft balances. YTD, member savings are up 5.3% and the annual gain came in at a very strong 7.7% or 1.1 pp above the 1- year average rate of expansion. The long-term savings growth trend show in Figure 5 indicates a sharp up-tick in growth since last year. Looking back to previous pre-recession periods (gray shaded areas), we see members sought the safe haven of insured deposits as they built their household reserves. It appears we are seeing this phenomenon again and this time it is occurring with historically low (and falling) deposit account yields. Offsetting some of the low yield growth drag is a rapidly increasing membership base. Despite adding more than 2.5 million members during the past year, savings per member increased 4.9% since August 2. At $1.33 trillion, total assets are up 5.2% YTD and $72 billion (7.5%) during the past year. 3 Credit Union Trends Report

4 2 15 G row th in Total Savings at C redit Unions August 2 Re ces sion July Marc h Recession March 21 Nov. 21 Recession Dec. 27 June Figure 5 Capital and Other Key Measures Total CU capital was restated higher by $.5 billion in mid-year data revisions and.5 pp were added to previous growth estimates. At the end of August, the CU system had $16.5 billion in capital. CUs added $6.3 billion YTD and $6.9 billion during the past year. This translates into 6.9% growth, as shown in the right graphic of Figure 6. Data revisions fractionally improved the capital-to-asset (C/A) ratio. At 1.3% (see line in the left graphic of Figure 6), this key safety and soundness measure is roughly the same as August 2, despite the payroll induced 1.1% asset surge in August. Barring any late-year surprises, the C/A ratio will be at or better than our forecast. Positive revisions in loans and negative ones in shares, translated into a positive 34 basis point (bp) improvement in the loan-to-share (L/S) ratio. The bars in the left graphic of Figure 6 show the steady decline in this key measure since 2. At 67.7%, the L/S ratio is down 4 bp in August (due to savings surge), 17 bp YTD and 253 bp during the past year. Expect this key measure to stabilize by year-end in the 67.5% - 6.7% range. The need to sell off fixed rate 1 st mortgages to avoid interest rate risk will continue to dampen any potential improvements in the L/S ratio. The loan delinquency rate (loans two or more months delinquent as a percent of total loans) was not as high as previously estimated as the mid-year data revisions reduced the key loan quality indicator by bp. At 1.159%, the loan delinquency rate improved 42 bp since August 2 and is now at its lowest level since October 2. Credit Union Key Ratios and Capital Growth August 2 K ey Ratios Capital Growth 6.9% L/S = 67.7% C/A = 1.3% 9 Lo an -t o-s hare (B ar-l ) Capita l-to -A sset (L ine-r) Percen t Aug Figure 6 4 Credit Union Trends Report

5 Credit Unions and Members CUNA Economics and Statistics quarterly benchmark revisions (based on mid-year NCUA Call Report data) show early estimates overstated the rate of CU marketplace contraction by 19 CUs. Post benchmark results indicate 7,1 CUs at the end of August. On a YTD basis, the CU count is down by 171 institutions. This is 23 CUs above the 2 pace, as shown in Figure 7 and is 6% above the four-year average YTD rate of consolidation. During the past months, the CU industry saw a net loss of 269 CUs, a moderate up-tick from results in 21 and 2. Based on mid-year data, the new NCUA definition of a small credit union ($3 million or less in assets) includes roughly 4,3 CUs (57% of all CUs). These CUs hold just 4% of industry assets. Collectively this group reported 4% annual asset growth (MY 2 to MY 2), but 34% of these CUs had asset declines. With an average asset size of just over $1 million, these CUs will struggle financially with compliance burdens. Annual Net Decline in Num ber of CUs 6 Number of CUs August 2 August 2 Decline = YT D YTD Figure 7 Quarterly revisions had a minimal impact on CU membership estimates and growth trends. At the end of August, CUNA estimates show 95. million CU members. On a year-over-year basis, total membership is up 2.5 million (2.7%). This is the highest growth rate since September 23. The positive fallout from Bank Transfer Day (BTD) continues as the August gain was 313,. Figure shows strong month-only gains and we believe some of this continuing strength is attributable to word-of-mouth recommendations from those who switched to CUs in the early days of BTD phenomenon. Based on recently released Bankrate.com fee surveys of the 5 largest CUs and 5 largest banks, it appears new members made the right choice. CUs are increasing their relative value advantage, as highlighted in CUNA Mutual s Sustainable Growth Blog. Membership gains are great as long as there is a mutually beneficial relationship. Month-Only Membership Gains August 2 = 95. Million 35 Members ( s) Jan Fe b M ar Apr M ay Jun Jul Aug S ep Oct N ov D e c J an Fe b M a r Apr M a y J un Jul Aug Se p O ct Nov D e c Figure 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 , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Credit Union Growth Rates Change Previous Year # OF CUs Delinquency YR/MO LOANS ASSETS SAVINGS CAPITAL MEMBERS # OF CUs DECLINE Ratio* 1 (1.2) (2.9) (23) 1.74% 1 9 (1.2) (2.) (223) 1.751% 1 1 (1.5) (2.9) (232) 1.76% 1 (1.6) (3.1) (243) 1.765% 1 (1.2) (3.) (234) 1.747% 1 (1.4) (2.9) (229) 1.772% 2 (1.2) (2.) (219) 1.77% 3 (1.1) (2.7) (2) 1.625% 4 (.) (2.9) (22) 1.637% 5 (.6) (3.) (233) 1.61% 6 (.5) (3.) (232) 1.52% 7 (.3) (3.1) (236) 1.5% (.4) (.1) (3.2) (244) 1.577% 9 (.1) (3.) (232) 1.592% (3.1) (24) 1.51% (2.9) (222) 1.61% (3.2) (246) 1.64% (3.3) (247) 1.56% (3.6) (271) 1.492% (3.7) (27) 1.445% (3.6) (274) 1.373% (3.6) (267) 1.27% (3.6) (266) 1.19% (3.7) (2) 1.161% (3.6) (269) 1.159% * 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* 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* 1 (1.2) (16.9) 2.4 (6.2) (6.) 2.6 (4.6) (1.2) (17.) 2. (6.) (6.4) 2.3 (4.7) (1.5) (17.1) 2.5 (6.1) (.7) 3.9 (4.4) 1.9 (5.6) (.3).3 1 (1.6) (17.) 3.3 (5.6) (.1) 3. (4.) 1. (5.7) (1.) (1.2) (16.5) 3.4 (5.3) (.3) 3.1 (4.5) 2.7 (6.3) (1.4) (16.1) 2.9 (5.3) (.4) 2.4 (3.6) 2.6 (7.) (.3) (1.2) (15.4) 2.9 (4.9) (.9) 2.4 (3.6) 3.1 (7.4) (.) (1.1) (14.6) 3.5 (4.1) (2.4) 1.9 (4.3) 3.3 (7.2) (.) (14.1) 4. (3.5) (3.) 1.9 (3.3) 2.7 (6.9) (.2) 9. 5 (.6) (13.3) 4. (3.1) (1.5) 2.2 (2.7) 2.5 (7.) (.2) (.5) (.6) 4. (2.7) (1.) 2.3 (2.2) 3.3 (7.6) (.3) (.) 4.1 (2.3) (1.4) 2.6 (1.5) 3.3 (7.9).1 2. (.4) (.4) 4.2 (2.) (1.4) 2.6 (.) 2.6 (7.7) (.4) (.1) (1.) 4.2 (1.7) (1.3) 2. (.4) 3.4 (7.6) (9.) 4.9 (.) (1.3) 4.3 (7.7) (.7) 4.9 (.4) (1.1) 4. (7.1) (7.4) (.2) 4.2 (7.1) (6.5) (7.4) (5.6) (7.5) (4.) (7.7) (2.4) (7.9) (.) (.2) (.2) (7.7) (7.9) *Member Business Loans 7 Credit Union Trends Report

8 Annual Growth Rates Total Loans & Installment Credit 7 $ in Billions CU Loan Portfolio Total Loans CUCIC $355.2 $ % 44.9% $ % $5.5 $57.4 $5.3 $57. $63. $544.1 $5.1 $474.2 $ % 51.% 54.1% 56.7% 59.3% 59.6% 61.% 61.5% 6.5% Aug CIC Other CIC Share of Total Loans at Credit Unions Consumer Installment Credit at Credit Unions $ Billions 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. Dave Colby , Ext. 772 dave.colby@cunamutual.com CUNA Mutual Group Economics CUNA Mutual Group, 2 All Rights Reserved. CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries and affiliates. CORP-5-752D Credit Union Trends Report