Credit Unions Shed Loans Again

Loans continued to run off the books faster than credit unions originated new ones in February, the first consecutive pair of monthly drops in balances in at least 10 years, according to the latest report from America’s Credit Unions.

The trade group’s Monthly Credit Union Estimates released Monday showed a continuing deterioration in auto loans, while residential real estate again outperformed winter averages.

Credit unions held $1.63 trillion in total loans Feb. 29, up 5.5% from a year earlier, but down 0.1% from January to February, compared with an average February gain of 0.3%. It followed a similar drop in January.

January and February are slow months for loan growth, but balances are still typically growing. The trade group’s records showed the only month-to-month drop in total balances in the last 10 years was from December 2020 to January 2021.

The deterioration in auto lending also set a record as balances fell for the third month in a row — a streak also unmatched in at least 10 years.

High interest rates are contributing to the malaise, and the group’s Chief Economist Mike Schenk said Wednesday’s report of lingering high inflation means relief is likely to be delayed.

“Victory in the Federal Reserve’s inflation fight remains elusive with a stubbornly high headline Consumer Price Index increase of 0.4% in March, matching February’s disappointing result,” Schenk said.

Investors are already recalibrating as they now expect the Fed to wait longer on cutting rates and making fewer this year than they previously believed.

“Average consumers will continue to wrestle with already-stressed household budgets, and borrowing costs will remain high. Savers, on the other hand, will almost certainly enjoy high yields for longer,” Schenk said.

New car loans fell for the second month in row, while used balances fell for the third month in a row.

Credit unions held $174.4 billion in new car loans Feb. 29, down 1.9% from January, compared with an average February gain of 0.7%. New car loans were 1.8% lower than a year earlier.

Used car loans grew 1.9% to $327.5 billion from a year earlier, and fell 0.1% from January, compared with an average February gain of 0.7%.

Consumer lending also fared poorly with unsecured term loans, while the post-holiday drop in credit card balances was slightly deeper than average.

Unsecured consumer term loans grew 7.4% to $70.9 billion from a year earlier, and fell 0.7% from January, compared with an average February gain of 0.2%.

As reported April 5 by the Fed, credit cards grew 8.1% to $80.7 billion from a year earlier, and fell 1.5% from January, compared with an average February drop of 1.1%.

The Monthly Credit Union Estimates found first mortgages also fell from January to February, but at a slower pace than usual, while home equity lines of credit and other second liens continued to grow robustly.

First mortgages fell 0.1% from January, compared with an average February drop of 0.5%. They grew 5.2% to $586.6 billion from a year earlier.

Second-lien mortgages grew 24.5% to $138.5 billion from a year earlier, and rose 1.1% from January, compared with an average February gain of 0.5%.

The trade group’s report, which covered 4,751 credit unions with 142.1 million members, also showed that as of Feb. 29:

• Assets were $2.31 trillion, up 4.7% from a year earlier, and rose 1.1% from January to February, compared with an average February gain of 1.5%.
• Savings were $1.93 trillion, up 2.4% from a year earlier, and rose 1.6% from January to February, compared with an average February gain of 2%.
• Borrowings and other liabilities were $169.3 billion, up 31.6% from a year earlier, and fell 3.1% from January to February.
• The 60-day-plus delinquency rate was 0.81% as of Feb. 29, compared with 0.58% a year earlier and 0.87% in January (which was revised up by 4 basis points from last month’s report).
• The loans-to-savings ratio was 84.2% as of Feb. 29, compared with 81.8% a year earlier and 85.6% a month earlier.