Loan Growth Up, Member Count Still Slow as Capital Rebounds, Credit Union Industry Report Reveals

MADISON, Wis. – Credit union loan growth appears to be edging up thanks in large part to a turnaround in the economy. This, according to the latest CUNA Mutual Trends Report, which is based on CUNA E&S’s Monthly Credit Union Estimates, the Federal Reserve Board (FED) & CUNA Mutual-Business Insight Group – Economics Spring 2004 Forecast. Credit union consumer installment credit growth 4.3 percentage points above the rest of the installment lending market is another positive sign that the economy may be recovering, according to the report. “High energy costs are the primary dark cloud on the economic horizon,” the report read. “If oil remains above $50 per barrel and we have a colder than average winter, we can expect yet another “soft patch” on the road to economic recovery.” July’s savings data had a strong positive influence from an extra pay period, the report indicated. In August, the net effect of this event show with a $6.3 billion decline in savings. Overall, annual savings growth has slowed to 4.2%. Sixty-five percent of the August decline was attributable to the fall in share draft balances -”further evidence of the payroll timing impact.” As for consolidation, there were 9,508 credit unions at the end of August, according to CUNA Economics & Statistics estimates. The current report does not include CUNA’s semi-annual data revisions and adjustments to data from the beginning of the year in their report next month. The net decline in credit unions rose to 201 through the first eight months of 2004. This includes the loss of just three credit unions in August. Over the past 12 months, the industry has lost 335 credit unions, which is just slightly ahead of CUNA Mutual’s forecast. By year-end, the credit union count will be under 9,400 with a forecast market consolidation of an additional 320 credit unions in 2005. Preliminary estimates show the pace of membership expansion slowed in August, according to the report. The net increase of 43,000 members during the month is well below the 183,000 monthly average for the period between January and July 2004. At 86.2 million, total membership is up 1.3 million YTD and the YTD annualized gain is just under 2.0 million. “Data anomalies in 2003 make year-over-year comparisons suspect,” the report read. “We hope upcoming revisions give us a more accurate view of current trends.”At the present rate of expansion, total membership will exceed the 86.7 million member forecast. The outlook for 2005 shows an additional 1.6 million members, bringing the total to well over 88 million by year-end, according to the report. There’s also been “stagnation in regular shares and money market accounts,” with the stall being partly tied to seasonal patterns in consumer savings and spending. Low deposit yields on regular shares and share drafts also help explain the stagnation. National average rates on these two account types are at or below the rates paid prior to the Federal Reserve’s 50 basis point increase (two moves of 25 basis points each) in the Fed Funds target rate. At $661 billion, assets are up just 5.1% YTD and 5.6% over the past year, following the $4.5 billion August decline, according to the report. Savings and asset growth will improve marginally by year-end as liquidity tightens and credit unions may respond with targeted deposit yield increases, “especially odd duration CD promotions,” according to the report. In other areas, early estimates show capital growth rebounding “nicely” at 8.2%. Annual growth is now up two consecutive months from a low of 6.0% in June. CUNA Mutual cautions that the annualized six-month moving average growth rate is 6.6%. The decline in assets in August and the 1.4% increase in capital combined to produce a “solid improvement” in the capital-to-asset (C/A) ratio to a “healthy” 10.7%. The improvement makes this year’s numbers “even with year-end 2003 results,” according to the report. The loan-to-share (L/S) ratio also benefited from the August dip in savings and assets, the report read. When the 1.3% month-only increase in loans is factored in, this key ratio reached 73.9%. This represents a 4.8 percentage point improvement over August 2003. The last time the L/S ratio was this high was October 2001, according to the report. “Barring any economic shocks, we remain confident that the movement will finish the year at a C/A ratio of approximately 10.8% with the L/S ratio above 73%,” the report indicated. The national average loan delinquency rate edged down fractionally to 0.68% in August The rate is based on loans that are two or more months delinquent as a percent of total loans. [email protected]