Mortgages lead loan growth for CUs in May

MADISON, Wis. (7/1/08)--Credit union loans outstanding increased 1% in May, and 2.8% so far this year, with fixed-rate first mortgages leading loan growth, rising 2.6%, according to the Credit Union National Association (CUNA) monthly sample of credit unions.

The 2.8% rise in loans outstanding year-to-date 2008, compares with a 1.6% rise for the comparable five-month period last year.

"Credit union real estate lending is the main factor driving the surge in loan balances," Steve Rick, CUNA senior economist, told News Now. "The exodus of lenders and the tightening of lending standards by other real estate lenders is providing credit unions an excellent opportunity to increase market share."

Credit union fixed-rate first mortgage loan balances rose 10.4% in the first five months of 2008, compared with 6% for the 2007 similar period, he added.

"With the mortgage securitization market still froze up, portfolio lenders such as credit unions are increasing their market share in the real estate space," Rick said. "We can expect this scenario to continue to play out as long as home prices continue to fall across the U.S."

Following the rise in fixed-rate mortgages were home equity (1.8%), credit card (1.2%), and used auto loans (1%). Unsecured personal loans, adjustable rate mortgages, and new auto loans declined 0.7%, 0.5% and 0.3%, respectively.

May is the fifth consecutive month in which used-auto loans as a percentage of total loans increased. During the same period, new-auto loans as a percentage of loans have decreased.

Click for larger viewCredit union savings balances increased 1.9% in May, and 6.7% year-to-date. With payday falling on the last Friday of the month, share drafts led savings growth, increasing 7.9% in May. "For the year, we expect credit union savings balances to grow over 10% because of the tax rebates, slowing economy, falling home prices, and further deleveraging of household balance sheets," Rick said.

Money market accounts (2.9%), regular shares (2.5%), and individual retirement accounts increased, while one-year certificates declined 0.47%.

With savings growth outpacing loan growth, the loan-to-savings ratio decreased to 80.4% in May from 81.1% in April. The liquidity ratio--the ratio of surplus funds maturing in less than one year to borrowings plus other liabilities--increased to 19.5% in May from 18.9% in April.

Regarding asset quality, credit union 60-plus-day delinquencies remained at 1% in May, a 0.3% increase from May 2007.

The movement's overall capital-to-asset ratio remains at 11.1%. The total dollar amount of capital is $90 billion.

The fast deposit growth increased credit union balance sheets and lowered the credit union average capital-to-asset ratio to 10.9% from its recent high of 11.5% last October.

"This drop is to be expected during an economic slowdown," Rick explained. "Capital is meant to be an economic stabilizer, rising during an economic boom and reduced during an economic slowdown, protecting credit union members from the vicissitudes of the economy."

courtesy of cuna.org