Callahan & Associates’ FirstLook data set is growing, enabling analysts to offer deeper insight. Currently, the FirstLook program contains data on 6,900 credit unions and more than 96% of the industry’s total asset base. This data set provides a clearer picture of what to expect when the NCUA releases final industry data at the end of November.
Loan Growth Remains a Crucial Issue
Growth in the credit union loan portfolio has been largely stagnant in 2010. This trend, which is partly the result of slowing consumer demand, is amplified when credit unions compare their current portfolio against the record performances of the past two years. Many lenders left the market during the financial shakeup of 2008 and 2009. The exodus provided credit unions the opportunity to develop new business relationships and led to a period of record high originations and market share across several loan categories.
Slowing consumer demand and the return of competition have now contributed to a slight slowdown in the loan portfolio. As of September 2010, loan balances for FirstLook credit unions fell 74 basis points from one year ago. Although balances were down on an annual basis, strong loan originations reported during the quarter contributed to a 34 basis-point increase in the credit union portfolio since June 2010.
From a component standpoint, although growth rates have slowed from the previous year, a majority of loan categories are posting positive growth. The two fastest growing components of the loan portfolio are credit cards, which increased 4.8% annually, and member business lending, which increased 9.1% annually. New auto loans, which fell 16.3% annually, represents the largest decline in the loan portfolio. This is not totally unexpected as competition, in the form of zero-percent financing and the increased presence of captives, returned to the automotive market over the past year.
Share Growth Gives Credit Unions Ample Liquidity
Contrary to trends on the other side of the balance sheet, credit unions are posting strong growth in the share portfolio. Through September, FirstLook credit unions increased their share portfolio balances 6.4% from the previous year. The strongest performers include money market balances, up 14.4%, and share drafts, up 12.2% from balances reported in September 2009. Share certificates is the only share category to post an annual decline, reflecting member hesitation to lock in deposit rates with the Federal Funds Target Rate hovering at historic lows.
The flow of share balances into credit unions is creating an influx of liquidity. Through September, FirstLook credit unions reported a six-year-low loan-to-share ratio of 72.8%.
Increased liquidity provides credit unions with a number of opportunities. Credit unions are using these funds to bolster their investment portfolio, which increased 15.7% annually. The industry is positioned to fund a number of loans in the closing months of 2010, which will reintroduce growth into the loan portfolio. Such growth will help credit unions increase their interest income as they adjust their yield strategies to combat the growing gap between the income earned from the loan portfolio and the yields they receive on their investments.