FirstLook: Loan Portfolio Remains A Mixed Bag

Second quarter data highlights areas of loan opportunity within an otherwise flat-growth portfolio.


As we move closer to NCUA’s official 2Q data release, Callahan’s FirstLook program builds steam. As of this writing, FirstLook data includes 6,812 credit unions, representing 96% of industry assets.

Loan Demand An Issue

At the beginning of 2010, a common top priority for credit unions was “consumer lending,” and rightly so. Over the past 18 months, slowing loan demand has noticeably affected credit union balance sheets. 

Even as demand slows, however, credit unions have avoided contraction in the loan portfolio. Through midyear, FirstLook credit unions reported a 15 basis point increase in total loan balances. This is down from the 5.3% increase FirstLook credit unions reported in June 2009, but the fact credit unions have been able to originate enough loans to maintain balances is a positive trend.

FirstLook 12 Month Loan Growth

Overall growth remains flat, but there are components of the loan portfolio that have proved lucrative. Member business lending remains the high point in the portfolio, with balances increasing 9.7% over the past 12 months. Credit cards also proved strong, with balances up 6.7% from the previous June.

These successes were unfortunately offset by loan components with struggling balances. New auto loans suffered the largest decline, as increased market competition and declining vehicle sales drove balances down 13.6% from the previous year. Additionally, although first mortgages increased 3.0% annually, other real estate loans slipped 2.9% during the year, the second of two portfolio components to report an annual decline.

Changing Portfolio Composition Impacts Loan Yields

While stagnant loan balances impact credit union interest income, historically low interest rates are suppressing credit union investment income. Total investment income declined 9.6% annually. The average yield on investments fell to 2.10% in June 2010, down 46 basis points over last year. 

FirstLook Loan & Investment Yields

A reduction in interest income generated from investments makes loan portfolio earnings even more critical. The average yield on loans is traditionally a stable metric; however, over the past year it has fallen 20 basis points to 6.10% at midyear, holding steady from first quarter reporting. Changes in the composition of the loan portfolio adjusted the average yield, and total income from loans also fell 2.0%. This decline in income from the loan portfolio is a major factor in the 3.9% decline in total revenue credit unions reported at midyear. However, as mentioned in a previous article, credit unions have managed expenses and are reporting a strong ROA in the second quarter, even as they continue to set aside funds for the forthcoming stabilization expense.




Aug. 9, 2010



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