2005 Marks Strong Year For Loan Growth; But Savings Also Decline
Unless December is marked by a large sell-off of fixed-rate first mortgage loans, or some data revisions must suddenly be done, 2005 will go down as the best year for loan growth in more than a decade.
According to analysis done by CUNA Mutual economist Dave Colby, total loans are up year-to-date 9.9% and 11.2% over the past year. The ten-year average annual growth rate among credit unions has been 9.0%.
Overall, Colby noted, the economy has remained stronger than many forecasts, which he called remarkable given the two major hurricanes and high energy costs. "Looking forward, reconstruction in the South, lower energy costs and employment gains, lead us to be cautiously optimistic," Colby said. "Credit unions remained strong in 2005, building capital and generating loan growth well above long-term averages. In 2006, reigniting deposit inflows, adequate liquidity and maintaining ROAs will be key challenges."
Here's a more detailed look at the credit union balance sheet as of November:
At $471 billion, total loans equal 67.4% of assets, Colby noted, up from 63.6% last year. "Given the average loan yield is roughly 300 basis points above the average investment yield (mid-year 2005 data), a higher ratio implies better net income," he said. Real estate-secured loans supplied 57% of all loan growth, followed by new vehicle loans, which accounted for another 31% of the gain.
Within installment lending, credit unions saw a small portfolio gain in October, but the "bigger story was the outright decline in the rest of the market," Colby said. Colby is projecting a conservative forecast for installment credit in 2006 due to overall weakness in consumer spending, particularly for "big ticket items."
Vehicle loans were feeling the slump of the "hangover" from the employee-pricing deals from the manufacturers earlier in the year, Colby noted. While sales were down, credit unions did manage to generate a small total vehicle portfolio gain despite a reduction in used vehicle loans outstanding. YTD, total vehicle loans are up 9.8% with the year-over-year gain coming in at 10.1%. New vehicle portfolio increases have accounted for over 82% of the total vehicle portfolio gain YTD and over the past year. Colby expects growth will retreat on new vehicles.
In real estate-secured lending, a 1.1% month-only gain in October pushed the annual growth rate for total real estate secured loans to 14.3%.
At $202 billion, surplus funds fell 2.2% in October and are now down almost $26 billion (11.3%) from their April 2005 peak and $17 billion (7.7%) below the October 2004 level, according to CUNA Mutual.
The analysis noted that as expected, CU savings declined $2.9 billion (0.5%) in October due to payroll deposits in late September. The $2.5-billion month-only decline in share drafts supports this observation. Overall, the slowing savings growth trend remains intact, and annual growth has now slowed to just 3.4%, the slowest rate since July 2000 (one month prior to the peak in the S&P 500 stock index).
CUNA Mutual's analysis showed that both the capital-to-asset ratio and the loan-to-share ratio improved in October. Strong loan growth YTD and over the past year combined with weak share savings gains has boosted the L/S ratio to 79.4%.