Mortgage and Consumer Lending Opportunities Highlighted for Credit Unions in 3Q Results

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Callahan & Associates Third Quarter Credit Union Industry Update

Consumers are back. Auto sales are at pre-recession levels, helping to pace a core lending product for credit unions. With the economy expected to be led by consumers in 2014, credit unions can build on the momentum of the past five years.

Every quarter, Callahan & Associates hosts a review of credit union performance that gives context to the industry’s successes and challenges. Trendwatch attendees walk away with an understanding of the industry’s role in the larger sphere of financial services, as well as strategies to strengthen their own position in the credit union market. Callahan EVP Jay Johnson and chairman Chip Filson hosted the first of two webinars on Wednesday, Nov. 13. Dwight Johnston, chief economist for the California and Nevada Credit Union Leagues, and Mary Beth Wilcher, CEO of Erie Federal Credit Union also joined the call.

Three key takeaways for credit union executives and industry suppliers are: the mortgage environment is changing from refinance to purchase-driven, consumer lending—a credit union strength—is growing, and the industry’s balance sheet is positioned to capture opportunities.

Mortgage Lending at Record Pace As Market Shifts

During the economic overview, Dwight Johnston stated, “the Fed will likely taper its quantitative easing within the first few months of 2014, causing rates to rise. As rates increase, refinances will shrink, and credit unions will need a mortgage strategy in place that accounts for the different way of thinking that purchase mortgages require.” According to year-to-date first mortgage origination data, credit unions are well on their way to adapting to this new environment.

As of September 30, credit unions have originated $96.6 billion in first mortgages, an 8.2% increase from YTD 2012, when credit unions originated $89.3 billion. This is the highest volume ever for credit unions in the first nine months of the year. Year-to-date national market share for the industry is 6.6% based on Mortgage Bankers Association (MBA) data, but the industry captured a 7.6% share in the third quarter, just below its all-time high. This comes as the MBA estimates refinances fell to 51% of the activity in the third quarter from 66% in the second quarter. One strategy for credit unions to prepare for the shift from a re-fi market to purchase one, which is expected in 2014, is to build on external relationships with realtors.

Consumer Lending Is Growing

Consumer lending is poised to rebound, so credit unions need to build on their traditional sweet spot. According to Peer-to-Peer data as of September 30, consumer loans grew 3.1% year-to-date and accounted for $135.9 billion, or slightly more than half of credit union loan originations. New and used auto loans outstanding have increased 12.2% and 10.3% respectively and credit card lending has increased 8%. There are now more than 14.9 million active credit union credit card accounts and over the past five years, credit unions have grown credit card market share by 50% while bank market share has shrunk.

“Consumers are back. Auto sales are at pre-recession levels, helping to pace a core lending product for credit unions. With the economy expected to be led by consumers in 2014, credit unions can build on the momentum of the past five years,” states Callahan’s Executive Vice President, Jay Johnson.

Credit Unions Balance Sheet Well Positioned For Interest Rate Shifts

Liquidity rules, stress and shock tests, and attention to interest rate risk are just some of the regulatory changes that are aimed at maintaining credit union solvency should another economic downturn hit. Fortunately, credit unions’ balance sheets are well positioned to handle a new interest rate environment. Rising long-term rates plus steady shorter-term rates means a more stable future for credit unions’ net interest margins, which stabilized in 2013. Core deposits, including regular savings, checking, and money market balances, make up 70.1% of total deposits, so although rates might rise, the majority of members are unlikely to move their money. Cash and equivalents account for 23% of the investment portfolio, indicating a solid liquidity profile for the industry.

“Credit unions demonstrated their resiliency and adaptability during the Great Recession by posting record member and deposit growth as well as new highs in loans originated to members. The industry’s balance sheet is well positioned for a rise in rates, with stable funding sources and available on-balance sheet liquidity,” remarks Callahan’s Board President, Chip Filson.

A recording of the Trendwatch webinar will be available on beginning the week of November 18th. You can view the webinar at this link:

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About Callahan & Associates
Callahan & Associates is an independent voice within the credit union industry providing trusted industry expertise to drive credit union prosperity.

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Carissa Heckathorn
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