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Credit unions have posted 17 consecutive quarters of double-digit growth in auto lending. Annual growth for third quarter 2017 was 12.4%, with loans totaling $329.6 billion.
Used auto loans accounted for 60.7% of the auto portfolio. Although new auto loans trailed used in total balances, their growth has outpaced used since fourth quarter 2012, and they have expanded 14.3% in the past 12 months alone. Used balances increased at a strong annual rate of 11.2%.
Growth in the auto portfolio has decelerated for the past four quarters. This quarter, it was 1.3 percentage points slower than this time last year. Used balances have grown at a slower rate than the previous year for the past five quarters, whereas new balance growth slowed for the first time in the third quarter after three quarters of accelerating growth.
As of Sept. 30, 2017, auto loans accounted for 34.8% of the total loan portfolio second only to first mortgages. The auto share of the loan portfolio was up 58 basis points year-over- year and up nearly 6 percentage points since a low of 28.8% in June 2011.
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Indirect lending expanded 19.4% annually. This marks only the second time in 15 quarters that annual indirect growth was less than 20.0%. By comparison, total direct loans total loans less indirect increased 8.5%. This shows how credit unions are funding total balance sheet loan growth using the indirect channel. Indirect loans accounted for 20.1% of the total industry loan portfolio in the third quarter and have increased their share every quarter since March 31, 2012, when indirect balances accounted for 12.3% of the loan portfolio.
Auto loan penetration expanded 1.1 percentage points annually to 20.3%. Auto loan delinquency, however, increased just 2 basis points annually to 0.65%. This shows how credit unions are extending credit and serving members’ needs while generally not taking unnecessary risks. Losses and recoveries provide more evidence of sound underwriting standards. Auto net charge-offs increased just 6 basis points annually to match the 0.65% delinquency rate.
Click the graphs below to enlarge and then continue reading to see why auto draft program is better for business than indirect lending at Johns Hopkins, a Maryland credit union with a closed membership.
Auto loans expanded 12.4% annually for credit unions nationally. That’s 6.2 percentage points higher than the median auto growth rate of 6.2%.
JOHNS HOPKINS FEDERAL CREDIT UNION
Johns Hopkins Federal Credit Union is open only to students, teachers, and alumni of the university, employees of the hospital system, and other select groups.
Because JHFCU has a limited field, the unlimited reach of indirect lending is less than appealing. Seven years ago, the credit union joined a large auto lending network but quickly found that existing members were driving production.
We were paying the dealership money for a loan that we were probably going to get anyway, says Sharon Battaglia, JHFCU’s assistant vice president of lending.
To reach auto borrowers, the Baltimore credit union started offering a blank check program in January 2016.
Members with a credit score higher than 670 qualify for a pre-approval check for an amount delineated by the member, not more than 75% of their yearly income.
The credit union encourages members to request an amount that will accommodate dealer fees and other costs that otherwise could make the total balance greater than the sticker price.
Check in hand, the member has a 60-day window to negotiate with the dealership before the check expires. Then, the member simply endorses the check for the purchase amount.
Because the credit union checks credit worthiness and verifies income before writing the check, the final approval is quick, which is good for both member and dealer.
As of Oct. 13, Johns Hopkins FCU had issued approximately 737 blank checks totaling nearly $18 million.
For many years we spun our wheels on how could we get more auto loans, Battaglia says. I think we’ve found our sweet spot.
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Strategy Performance 3Q 2017
Credit unions have made significant gains since the Great Recession started 10 years ago. Third quarter credit union growth trends surged past that of community banks and the overall banking industry. Measures such as loans, shares, capital, and membership have all reached new levels. These gains are all notable and meaningful; however, they are backward-looking. The important question to ask is: Where will credit unions be in the next 10 years? In this issue of Strategy Performance, learn why now is the time for credit unions to challenge themselves.
RETURN TO INDUSTRY PERFORMANCE BY THE NUMBERS 3Q 2017