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CUs loan volume drops--1st time since early 1980
MADISON, Wis. (2/1/11)--Credit union loan portfolios nationwide collectively declined by 1% in 2010--the first time in roughly 30 years that their loans declined, according to a Credit Union National Association (CUNA) economist’s analysis of December’s monthly estimates of credit unions. “Full-year 2010 operating results at credit unions were a mixed bag,” Mike Schenk, CUNA vice president of economics and statistics, told News Now. “The 2010 results reflect some substantial operational improvements, but also reveal that credit unions have not fully recovered from the effects of the economic downturn.”
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Used-auto loans (4%), fixed-rate first mortgages (2%) and credit cards (2%) all showed increases in the year, but most other areas of loan portfolios eked out marginal gains or reflected outright declines, Schenk said. “Indeed, in the aggregate, credit union loan portfolios declined by 1% during 2010--the first year since 1980 that the portfolio shrunk,” he added. “This is a clear reflection of weak labor markets, a general nervousness on the part of many consumers and, as a consequence, members who are focused on paying down debt to manageable levels.” Credit union loans outstanding decreased 0.2% during December, the same decline as in November. Credit card loans led loan growth, increasing 1.5%, followed by fixed-rate mortgages, unsecured personal loans, and used-auto loans, which rose 1.0%, 0.7% and 0.3%, respectively. Meanwhile, home equity loans declined 0.1%, adjustable-rate mortgages dropped 1% and new-auto loans fell 1.8%. Credit union loans in December totaled $579.1 billion, compared with $587.4 billion in December 2009. Credit union savings balances grew 0.6% in December 2010, compared to a 0.5% decrease during November. Share drafts led savings growth, increasing 2.8%, followed by regular shares (0.9%) and money market accounts (0.3%). Individual retirement accounts rose 0.3%, while one-year certificates decreased by 0.3%. Credit union savings in December totaled $804 billion--or $34.6 billion more than the $769.4 billion in December 2009.
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“Credit union savings balances increased by a modest 4.5% in 2010, led by an 11% increase in regular shares and a 10% jump in money market accounts,” Schenk said. “Share drafts and individual retirement accounts grew by 6% and 4% respectively, but certificates--which account for one-third of total credit union savings--declined by 5% in the year. Members have clearly decided that with market interest rates stuck near 0% it makes more sense to pay down debt than to build savings balances.” The combination of declining loans and growth in savings account balances pushed the movement-wide loan-to-savings ratio down to 72% at the end of 2010--a significant decline from readings of 76% at year-end 2009 and 83% at the end of 2008, Schenk said. While a steep yield curve undoubtedly helped to buoy credit union earnings low loan growth and the resulting relatively fast growth in investment portfolios put pressure on credit union earnings during the year, he added. The liquidity ratio--the ratio of surplus funds maturing in less than one year to borrowings plus other liabilities--remained constant at 19%. Credit unions’ 60-plus-day loan delinquencies, which started the year at 1.9% and drifted down to 1.8% during most of the rest of the year, decreased slightly to 1.7% at the end of December. The trend in asset quality is positive, but the speed of the return to normalcy is reflecting the speed of the economic and labor market recoveries--essentially long, drawn-out affairs, Schenk said. The movement’s overall capital-to-asset ratio remained at 10% in December 2010. The total dollar amount of capital is $93 billion. The combination of more modest increases in savings balances, higher asset quality and firming earnings helped to keep the movement’s overall capital-to-asset ratio at 10%, Schenk said. “Looking forward, results will be greatly influenced by labor market improvements,” Schenk said. “The economy is likely to grow at a decent rate in 2011--3% or a bit more--but the big dislocations in labor markets and continued softness in real estate will virtually guarantee that our members’ cautious behavior seen in 2010 will be a defining characteristic of the recovery in 2011 as well. “That will mean that the Federal Reserve will be apt to stay on the sidelines in 2011. And while we expect loan growth to pick up during the year, the increase will be modest, will lag the increase in savings, and will moderate the beneficial effects of a steep yield curve,” he concluded.


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