First Look: Growth in Loan Balances and Originations Slowing, but Remains Positive

Thus far, Callahan & Associates has received data from credit unions representing a total of $221.8 billion dollars in assets, or approximately 27.2% of the total industry. From this data, we have the opportunity to see trends that shed some light on credit union performance through the end of 2008.

 
 

Callahan & Associates First Look program provides a sneak peek at what we can expect from year-end trends when credit unions officially report their fourth quarter data later this month.
Thus far, Callahan has received data from credit unions representing a total of $221.8 billion dollars in assets, or approximately 27.2% of the total industry. From this data, we have the opportunity to see trends that shed some light on credit union performance through the end of 2008.

Loan Balances and Originations Continue Growth in Q4
Credit unions continued to originate new loans to better serve their members in the fourth quarter, as loan originations increased 1.0% during the year. At the end of December, total loan balances for these credit unions were up 6.6% from the previous year. This marks another solid period of credit union loan growth, despite a slight slowdown from 8.0% growth these credit unions reported in the third quarter.

With increasing loan balances and originations, this also brings up the key question of loan quality. For the First Look credit unions, delinquencies and charge-offs have been rising, but thankfully remain within manageable levels. As of December, total delinquent loans increased 87.3% to represent a delinquency rate of 1.43%, up from 1.13% in the previous quarter. Similarly, net charge-offs also increased, up 104.6% from year-end 2007 for a net charge of rate of 95 basis points, another increase from the 84 basis points these credit unions reported in the third quarter.

Growth Not Limited to One Component of the Portfolio
Real estate lending remains the largest component of the loan portfolio for these First Look credit unions, representing 58.3% of their portfolios in December. This component notched a slight increase in portfolio percentage over the last year, largely due to an 18.2% increase in first mortgage originations. Total real estate loan balances were also up, rising 10.7% over the last 12-months, with growth in outstanding balances for both 1st Mortgages and other real estate lending.

Auto lending was the only component of the loan portfolio that did not see growth through the third quarter of 2008, and this trend has continued into December. Total auto loan balances for these First Look credit unions slipped 1.2% during the course of the year. Credit unions are still experiencing growth in used and indirect balances, which grew 5.5% and 2.4% respectively during the year. However, these increases were not enough to offset the decline in new auto lending, down 6.8% during the year as vehicle sales saw their lowest volume in more than 15 years.

Other smaller components of the loan portfolio also reported increases during 2008. Credit card loan balances were up 6.7% from the previous year, though their percentage composition of the loan portfolio remained relatively unchanged at 5.5%. Member business loans also continued to experience extremely strong growth during the year, up 11.1% from the previous December. This increase was due, in part, to a larger number of credit unions offering member business services than in the previous year.

Positioned for Success in 2009
These trends continue to highlight the viability of the credit union business model. While the impact of the external financial markets has not left the credit union marketplace untouched, credit unions continue to grow and succeed in a time when many other financial institutions have had to step back from the market entirely. Heading into the new year credit unions are positioned to continue on this path and build on their successes in 2008.

 

 

 

 

Feb. 9, 2009


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