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Trends Report: CU Loan Balances Up in September
Tuesday, November 25, 2014 6:45 AM

Broad-Based Loan Increases

The American consumer is buying again, and credit unions are taking advantage by booking solid loan growth, according to the November Trends Report by CUNA Mutual Group. Overall, the report said, CU loan portfolios increased 0.8 percent in September, 7.9 percent year to date, and 10.1 percent year over year.

According to the report, auto lending continued to trend up in September, with new auto loan balances rising 1.9 percent, more than double the 0.9 percent pace reported in September 2013. Fixed-rate first mortgage loan balances rose 2 percent in September, the fastest growing loan category for the month. First mortgages were up 6.7 percent year-over-year.

The U.S. economy added 256,000 jobs in September, and the unemployment rate fell to 5.9 percent. Steven Rick, chief economist for CUNA Mutual Group, said these numbers are an indication the labor market is tightening and wage growth should begin to accelerate in the first half of 2015.

"We expect job growth to average more than 250,000 in 2015 and be widespread across industries, regions, firm size and pay scales," Rick wrote, adding, "This will bode well for consumer confidence and, in turn, increase their desire to borrow and spend."

The economy grew by 3.5 percent in the third quarter, better than many analysts had expected. Rick said the main reason for the improvement was the reduction in government drag. Final sales, which exclude the support to GDP from inventories, were even stronger, rising 4.2 percent.

Rick and the economists at CUNA Mutual expect the economy will grow more than 3 percent in 2015, above its 2.5 percent long-run average rate.

Other report highlights include:

  • At the end of September, CUNA's monthly estimates reported 6,590 CUs in operation, down 63 CUs from one month earlier. During the last year the number of credit unions declined by 274, similar to the 275 lost for all of 2013.
  • Credit union savings and assets both fell by approximately 0.7 percent in September, historically a weak month for deposit growth. Savings balances are up only 3.7 percent during the last 12 months due to members desire to spend rather than save. Credit union total assets now stand at $1.130 trillion, a 4.8 percent increase over September 2013.
  • Credit union memberships rose 470,000 in September to reach 101.4 million, a 0.5 percent increase from August. Year over year, memberships are up 3.4 percent, the fastest growth rate since July 2003. Credit unions with assets greater than $1 billion reported membership growth of 6.3 percent, while credit unions with assets less than $20 million reported memberships declining by 1.6 percent.
  • Credit union financial performance improved in the third quarter. The movement's return-on-asset ratio rose to 0.89 percent, up six basis points from the second quarter and up from the 0.69 percent in the third quarter of 2013, according to recently released NCUA call report data. Credit union total capital reached $122 billion in September, pushing the capital-to-asset ratio to 10.8 percent, the highest in six years.

Credit union loan balances rose 0.8 percent in September, slightly better than the 0.7 percent pace reported in September 2013. In the last year, credit union loan balances rose 10.1 percent, the fastest pace since March 2006.

The increase in borrowing pushed the loan-to-asset ratio to 63.1 percent, up from 60 percent one year earlier. The report noted for the first time since the onset of the great recession, every major loan category tracked by CUNA's monthly survey posted positive year-over-year growth in September.

Rick said there were a number of factors driving the surge in credit union lending: rising household expectations for future income growth, improved consumer balance sheets, lower debt burdens, rising consumer confidence, rising job creation, faster wage growth, and credit unions picking up a larger share of the consumer credit market.

Credit unions' consumer installment credit balances were unchanged in September due to what Rick termed a "surprisingly weak" retail sales number. Total retail sales fell 0.3 percent, with falling gasoline prices a major contributing factor. However, less spending on gasoline means more household disposable income becomes available for spending on other goods and services. The drop in gas prices also allowed some credit union members to pay down their credit card balances.

The net effect, Rick wrote, was a zero growth rate for credit union credit card loan balances in September. During the last 12 months retail sales are up 4.3 percent and credit union consumer installment credit is up a very strong 11.9 percent.

Rick predicted that as the job market strengthens and consumer confidence increases in 2015, members' desire for revolving credit will increase over 10 percent next year.

For more on this report, go to the CUNA Mutual website.