MADISON, Wis. — Credit union loan balances grew at an 11% annualized pace in June, while loan delinquency rates fell, according to the latest Credit Union Trends Report from CUNA Mutual Group.

The nation's credit unions increased their loan portfolios 1.4% in June, which CUNA Mutual said was slightly more than the 1.3% pace reported in June 2014. Lending is up 10.9% during the last 12 months.

Another positive trend spotted in the report was credit unions picking up 440,000 new memberships during June. CUNA Mutual said CU memberships rose a "robust" 0.43% in June, up from a 0.25% gain reported in June 2014, and the fastest monthly growth rate since July 2013. Memberships are up 3.3% over the past year due to rapid job creation and strong demand for new and used auto loans.

According to Steve Rick, CUNA Mutual's chief economist, the economic picture generally was good. He noted vacation spending and car purchases reduced savings balances 0.1%, firms hired 231,000 workers, nominal consumer spending increased a modest 0.2%, and long-term interest rates rose 16 basis points. Second quarter economic growth came in at 2.3%, better than the 0.6% in Q1.

Rick said CUs should expect the economy to expand at a 3% pace in the second half of 2015 and 3.3% in 2016.

"This will move the economy to full employment by the summer of 2016; increasing wage growth, boosting consumer incomes, and ultimately, additional borrowing," Rick wrote in the report.

Total credit union assets fell 0.3% in June as credit unions liquidated investments to pay down $3.5 billion in wholesale borrowings. Assets rose 6.0% over the past year due to a 5.5% increase in deposits, a 14% increase in borrowings, and a 7.3% increase in capital.

One negative development was the continuing disappearance of credit unions. At the end of June, CUNA's monthly estimates reported 6,378 CUs in operation, down 20 CUs from one month earlier. Year-over-year the number of credit unions declined by 293, more than the 259 lost in the 12 months ending in June 2014.

Numerous Gains In Lending
Credit union loan balances rose 1.4% in June, faster than the 1.3% pace reported in June 2014. CUNA Mutual attributed this to strong growth in new-auto loans (2.0%), fixed-rate first mortgages (1.7%), and used-auto loans (1.6%).

The only lending product still contracting was second mortgage loans (-0.5%) as members continued to roll second mortgage balances into refinanced first mortgages. Rick said June typically is the month of the year recording the fastest loan growth, with seasonal factors adding 0.46 percentage points to the underlying trend growth.

The 11% seasonally-adjusted annualized growth rate for credit union loan balances in June is similar to the 2004-2005 credit boom, Rick said. He predicted there are "confluences of factors that will drive double digit loan growth" through 2016.

The most important driver, Rick continue, is job growth. He said the U.S. economy is expected to add nearly 3 million jobs in both 2015 and 2016. "As the labor market reaches full employment in the first half of 2016, wage growth will begin to accelerate. This will raise consumer confidence back to prerecession highs," he wrote.

Credit union consumer-installment-credit loan balances (auto, credit card and other unsecured loans) rose 13.7% during the 12 months ending in June, helping to pull up the overall loan growth average to 10.9%, which is the fastest pace since September 2009. Real estate loans increased only 7.6% over the past year, reducing the pace of overall loan growth. The underlying trend of credit card loan balance growth spiked in June with the seasonally-adjusted annualized growth rate moving up to 7.6% as members began loosening their purse strings, CUNA Mutual said.

Used auto loans, a credit union loan category typically twice as large as new auto loans, were the second-fastest growing loan category during the last 12 months. Used auto loan balances rose by 13.5% in the year ending in June.

Used auto loans accounted for 25% of the total increase in loan balances over the past year, while new auto loans only accounted for 22%. Rick said with a typical used auto loan originated at roughly half the dollar amount of a new auto loan, many credit unions have had to increase staffing in this lending area to keep up with the surge in used auto loan demand.

CU loan delinquency rates fell to 0.65% in June, down from 0.85% 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," Rick predicted.

Some Weakness In Real Estate Lending
Credit union fixed-rate first mortgage loan balances grew 1.7% in June, slower than the 2.5% reported in June 2014. But year-to-date growth comparison shows the exact 3.1% growth rate during the first half of 2014 and 2015.

Home equity lending posted a weaker-than-expected growth rate in June, increasing by only 0.2%, compared to 0.4% in June 2014. Rick said this probably was only a "temporary lull," however, as consumer spending is expected to accelerate in the second half of 2015 and credit union members will tap into their home equity to finance those purchases.

"All the fundamental drivers of housing demand are accelerating and will keep home prices moving higher over the next two years," Rick asserted. "Labor market slack is decreasing rapidly and wage growth is beginning to accelerate, both of which are positive factors for homebuyer demand and house price appreciation.

"Credit union mortgage lending should increase as improving financial positions among borrowers and rising incomes justify loosening credit standards," Rick continued. "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."

Fact & Figures Of Note

  • Credit union savings balances grew 0.13% in June, faster than the -0.6% drop in balances in June 2014, which Rick said was due to consumers pocketing the savings at the gas pump.
  • Savings balances rose 4.4% during the first half of 2015, better than the 3.3% rise for the similar period last year.
  • The credit union capital-to-asset ratio rose to 10.8% in June, above the 10.6% reported in June 2014.
  • Rick said the capital-to-asset ratio should reach 11% by year-end, the highest level since September 2008 - the month Lehman Brothers collapsed.
  •  During the past year the dollar amount of credit union capital rose 7.3% to reach $128.3 billion. The 7.3% growth rate is also known as the return-on-equity ratio.

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