Lending and membership growth highlighted CUNA’s July Monthly Credit Union Estimates.
Loans grew 1.1% in July, compared with a 1.2% increase in June. Mortgage loans led loan growth during the month, rising 2.7%, followed by home equity loans at (2.4%), unsecured personal loans (1.8%), used auto loans and credit card loans (both rising 1.2%), new auto loans (0.7%), and fixed-rate mortgages (0.4%). Adjustable-rate mortgages declined 0.5%.
“Since April of this year, loans have consistently grown at a monthly rate of more than 1%,” said Samira Salem, CUNA senior economist. “In July, they were up 1.1% for an annual pace of 10%. Home equity lines of credit (HELOCs) and second mortgages grew at a healthy rate of 2.4% for the month, representing the fastest monthly growth since October 2016. While interest rates are higher than they have been in the last few years, the likelihood that they will increase further in the short-term may be driving increased demand for HELOCs as members try to beat expected rate increases.”
Auto loan growth decreased to 1% in July from 1.6% in June, Salem noted. “The decrease in auto loan growth was due to the decline in new auto loan growth from 2.1% last month to 0.7% in July,” she said. “This decrease reflects the auto industry trend reported by Cox Automotive, which estimated a 3% decrease in new vehicle sales in July. Used auto loan growth remained steady at 1.2% in July.“
Salem said historically high consumer confidence and strong consumer sentiment may be behind the 1.2% growth in credit card lending in July. “This is the highest monthly increase since the holiday season last year,” she noted.
Total credit union memberships grew 0.4% during July. “As of July, credit union memberships have grown for 69 consecutive months, reaching 116.8 million memberships, for an annual pace of 4.8%,” Salem said.
Credit union savings balances declined 0.8% in July, compared with a 1.1% increase in June. One-year certificates led savings growth during the month, rising 0.9%, followed by individual retirement accounts (0.3%). On the decline during the month were share drafts (4.3%), regular shares (1.1%), and money market accounts (MMA) (0.03%).
“Consumers are spending so it’s not surprising that savings balances declined in July,” Salem said. “This is down from 1.1% growth in June. It appears that the trend of shifting funds into higher-yield deposit accounts continued this month as growth in regular savings, checking, and MMA accounts was negative while CDs and IRAs grew 0.92% and 0.29%, respectively.”
The decline in regular savings balances and the growth in loans over the last month pushed the loan-to-share ratio to 85.1% in July as compared with 83.5% in June. This is the highest loan-to-share ratio since 1979, when it hit 92%.“It is important to note that this ratio has been on an upward trend since 2011,” Salem said.
“CUNA economists don’t see systemic issues in the increase, but rising liquidity risks are certainly a key concern,” she added. “Expect higher funding costs as credit unions redouble efforts to grow deposits. Importantly, CUNA economists also expect modestly higher interest rates over the next year and that should naturally result in slower loan growth and a modest increase in savings, decreasing this pressure.”
Salem also noted that delinquency rates have shown a steady decline since the beginning of the year, reaching 0.63% in July down from 0.81% at the beginning of the year ago. “An improved labor market characterized by historically low unemployment rates and consistently strong job growth has contributed to improved credit quality,” she said.