CUs' Second Quarter Loan Growth Remains Solid Despite Concerns of Rising Rates

WASHINGTON – Despite hints of possible inflation and accompanying higher interest rates, credit unions’ loan growth in the second quarter 2004 – 4.4% – outpaced first quarter’s loan growth of 1.7%, Callahan & Associates’ First Look program shows. The report based on data collected from 475 participating First Look credit unions shows CUs’ mortgage balances increased by 5.6% during the three-month period, benefiting said Callahan & Associates from a drop in mortgage rates in March. That translated to additional origination dollars which the company said was the “primary catalyst” for the 50% growth in dollar originations during the second quarter compared to the first three months of the year. In addition, CUs saw a 3.5% growth in auto loans over the third quarter. Callahan & Associates EVP Jay Johnson noted that First Look credit unions tend to be larger credit unions with about half a billion or more in assets – their combined assets are $159 billion which represents about 25% of the industry’s total assets. “So the numbers would go down a bit if you brought all credit unions into the mix,” he said. “Still this gives an idea of credit unions’ general growth.” Even so, said Johnson, “Second quarter results should not come as a total surprise since we still remain in a historically low interest rate environment, but with escalating inflationary concerns on the economic horizon, credit unions will be challenged with rising rates and balancing their loan and share growth objectives.” He added that, “We’re in an environment now where the gross domestic product isn’t as strong as economists predicted for this quarter, and that’s partly due to a slowdown in consumer spending. Still, looking at these numbers, credit unions had some success.” In the second quarter, First Look credit unions reported an increase in service income of 8.9% and a 1.2% decrease in operating expenses compared to the first quarter. Their loan-to-share ratio continued to climb, reaching 74.6%. Share growth was 2.0% for the second quarter. Those numbers are particularly noteworthy to Johnson since CUs’ total revenue was flat or declined slightly last year. “The growth in total revenue and decline in operating expenses for the quarter was a very good sign to me that credit unions are responding to the economic environment,” said Johnson. Looking ahead, the Callahn EVP said the challenge for credit unions will be balancing the lending and saving sides of the balance sheet. Credit unions are still operating in a historically low rate environment so they might see some growth in lending. But on the savings side, credit unions will have to decide if they want to raise rates to attract deposit. Consumers may be backing off from investing in the stock market because of some recent volatility, said Johnson, but that’s a business decision credit unions will have to make. -