MBL Increase Not Enough To Drive CU Loan Growth
WASHINGTON-Despite member business lending gains, a stagnant loan portfolio that's shifting in composition is driving down loan income and CU overall revenue through the first half of the year, according to an early look at data.
Lending's mixed bag, which includes MBL balances increasing 9.5% over the past 12 months but new auto balances plummeting 13.6% from the previous year, helped depress loan yields by 20 basis points in the last year to 6.10%, and total income from loans by 2%, according to Callahan & Associates' Q2 FirstLook data. With total investment income declining 9.6% annually, credit unions overall saw a 3.9% decline in total revenue.
Most damaging to the CU loan portfolio are problems with new auto loans. Industry analysts don't see a great deal of relief coming credit unions' way the rest of the year, because captives and banks have become more aggressive lenders even as auto sales increase.
A bright spot is the rise in member business lending, which Callahan & Associates' Senior Industry Analyst Nick Connors attributed to an increase in the creation of small businesses by workers who loast their jobs. "This is a market that is starting to boom and credit unions have been able to tap into it," Connors told Credit Union Journal.
But increased MBLs may bring only minor relief to the problem of growing liquidity--CU deposits are up 6.6% over the last 12 months--and an inability to easily make consumer loans, noted CUNA Mutual Group's Chief Economist, Dave Colby. "Credit union loan-to-asset ratio is 16.9% according to CUNA. But if you look at cost of funds versus overnight, you are negative. So we need to make loans and it is harder than heck to make consumer loans right now."
Credit cards are providing some relief, with balances up 6.7% from the previous June, according to FirstLook data. But Colby fears credit card revenue may decline by year's end. "That may slide as people look at their balances and say they'd rather pay off a 12% credit card than earn 40 basis points on a regular share account."
Rates Suppressing Investment Income
Add to stagnant lending historically low interest rates that are suppressing credit union investment income. According to Callahan & Associates, the average yield on investments fell to 2.10% in June, down 46 basis points over last year.
Still, credit unions appear to be managing expenses well. "ROA has actually been relatively strong from what we have seen over the last few quarters, even with credit unions setting aside for the next assessment. We show annualized ROA of 41 basis points," said Connors. "This is up from both the 31 basis points FirstLook credit unions reported in the previous June, and up from the 21 basis points they reported at the end of 2009."