Loan to Share Ratio on the Rise: Environmentally Driven?

Loan production is pushing the loan to share ratio upward. Will shares support this growth? Perhaps. But credit union managers are redefining growth strategies to extend credit to more of its membership.


At year-end, the number of credit unions with a loan to share ratio over 100% surged from 350 in 2003 to 458. This upward trend is largely due to inflow of loan production created by the economic environment.

Recently, there has been a movement by many credit union managers to push this ratio upward, beyond the 100% mark. In other words, an increasing number of credit unions are positioning themselves as “loan shops.”

New England Federal Credit Union (VT) with over $490 million in assets has made its mission to simply “provide credit to its membership.” This year, the credit union pushed its loan to share ratio over 100% to 107% by maintaining its strong mortgage production and decreasing secondary sales.

“We do everything possible to service our membership by granting loans,” said Tim Mashrick, senior financial analyst. “It is more profitable than depositing funds in our investment portfolio. Plus, its more efficient for New England to borrow since it helps keeps us within our ALM guidelines.”

The loan to share ratio for the credit union industry finished at 74.4% for the year compared to 71.1% in 2003.

  • With low rates and a flattening yield curve, loan volume continued to surge, as real estate loans led the way with 14.9% growth and auto loans grew at 7.8%.
  • 12-month share growth was 5.4% with the largest component, share drafts, increasing by 11.1%. Share certificate balances rose by $8.5 billion or 7.0%, indicating a movement in longer-term holdings for the membership.

With short-term rates on the rise, share volume should rebound and pick-up some ground on loans. However, in 2005, the loan to share ratio will most likely continue to rise as rates linger at historical lows and managers base their strategy around loan production.

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Feb. 28, 2005


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