August 26, 2014

Credit union lending heats up in May and June

Credit union lending ramped up in May and June, according to recent reports from the Credit Union National Association.

May highlights
During May, every lending category expanded, with the exception of second mortgages. As a result, this extension of credit rose at the fastest rate since before the Great Depression. In addition, these credit unions sharply improved their capital, which combined with higher loan quality to make it easier for lenders to become more aggressive in their lending. These developments could easily support more robust loan origination going forward.

In addition to generating these successes, credit unions boosted their membership to 99.99 million in May, after adding an average of 300,000 new members in every month of 2014.

June progress
Credit unions made progress in several key areas in June, breaking past 100 million members. They reached this key figure by picking up 274,000 new members during the month, expanding this base 2.9 percent from the same period in 2013.

The financial institutions enjoyed sharp improvements in member business loans, vehicle loans and first mortgage loans. Credit unions also bolstered their loan portfolios.

Loan balances grow sharply in May
In terms of specific details, the loan balances of credit unions rose at an annualized rate of 1.2 percent in May, nearly twice as fast as the 0.65 percent average gain experienced during the same month in 2013 and 2012. Auto loan origination experienced the most remarkable improvement, rising 17.3 percent year-over-year. This sharp uptick represented the fastest growth this measure experienced since 1995.

As a result of this rapid increase, there was a 2.6 percent gain in new auto loan balances, which helped total loan balances to rise 3.3 percent from the year before. The report noted that competitive loan pricing helped drive this improvement, as five-year new auto interest rates averaged 2.61 percent in May.

Secured real estate lending also helped push credit unions' loan balances higher during the month. This trend was also enjoyed over the last several months, as adjustable-rate mortgages rose 8.7 percent from December through May, and first mortgage loan balances increased 2.5 percent.

Credit unions improve key measures in June
Credit union's total lending rose 1.4 percent in June, a sharp increase from the 0.9 percent annualized rate of the same month last year. New auto loan origination continued to be a major contributor to this uptick, rising 3.3 percent during the month. This figure was more than twice as high as the 1.5 percent improvement in June 2013.

In addition to bolstering these lending figures, and pushing their membership above 100 million members, credit unions improved their loan portfolios in June. These holdings rose 4.8 percent year-to-date and 9.7 percent from the same month in 2013. Member business loans helped create this improvement, rising 12.8 percent year-over-year. Vehicle loans surged 15.4 percent during the period, and mortgages increased 9.3 percent.

At a time when credit unions are experiencing sharp growth in their portfolios, financial institutions might consider participating in loan sales to free up their balance sheets and take advantage of high asset prices.

Financial institutions that want to learn more about taking part in such transactions may want to contact Garnet Capital Advisors, which has significant experience in this space.