Loan Growth Momentum Continues in Third Quarter

Loan growth continues to outpace slowing share growth in the third quarter. Learn how home equity line of credit (HELOC) and mortgages are fueling loan growth and one credit union experienced 44.6% quarterly loan growth.

 
 

Sustaining a strong lending program was a top priority for credit unions in the third quarter – and they succeeded, said to Chip Filson, president of Callahan & Associates, Inc.

“In the past 12 months, the most dramatic occurrence is the takeoff of lending,” said Filson. The continuation of annual double-digit net loan growth continues to outpace slowing share growth (see chart below for quarterly comparison).

 
9/03
12/03
3/04
6/04
9/04
Qtrly Loan Growth
3.78%
2.52%
1.13%
4.10%
3.12%
Qtrly Share Growth
1.03%
0.51%
2.94%
1.37%
0.61%
Qtrly Investment Growth
-2.91%
-2.47%
6.04%
-3.00%
-3.13%

Though the Federal Reserve raised the overnight rate twice during the third quarter, the quarterly yield on loans continued to fall for the fifth straight quarter. The rising rates have not squelched the momentum in net loan growth.

Filson and three other speakers presented their analysis and predictions last week at Callahan & Associates’ quarterly Trendwatch call. The interactive, complimentary call and slide presentation began with an economic update and outlook by Goldman Sachs. Three separate presentations outlined third quarter trends:

  • State of the industry
  • Home equity line of credit (HELOC) and Mortgages fueling loan growth
  • Increasing importance of borrowings

HELOCs Lead Third Quarter Loan Growth

The monthly rate on 30-year fixed rate home loans are lower now than they were 16 months ago. The proportion of real estate loans to the industry total loan portfolio increased by nearly 10%, specifically influenced an increase in HELOC and second mortgages. As a percentage of total real estate, HELOC loans outstanding growth is outpacing fixed rate equities

Credit union loan growth was up 3.12% from the previous quarter, lead by second mortgage and HELOC balance increase of 3.88%. At Sept. 30, 14.6% of the credit union loan portfolio was comprised of HELOCs and second mortgages.

Cal State 9 Credit Union Builds Strong HELOC program

Cal State 9 Credit Union in Concord, CA, with $260 million in assets had an astounding third quarter loan growth of 44.6%. According to Jackie Wong, president of Cal State, they wanted to develop a more aggressive lending program. Previously, having little success with a sub-prime indirect auto lending program.

In May of 2003, Cal State executives partnered with a local broker who specialized in working with credit unions to begin their new program. Since the program’s conception, they have experienced over $125 million growth in the HELOCs they funded, a 91% growth since May. They have managed their growth in volume averaging between $8-9 million a month in originations.

One challenge that faced Wong and his staff was simply maintaining basic loan services amidst the rapid takeoff if their HELOC program. The swift growth was beyond their initial projections.

To order a streaming webcast of the entire Trendwatch presentation please click here.

 

 

 

Dec. 13, 2004


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