US credit unions had one of the strongest recent quarters of loan growth, with used car loans returning as a major force.
New data released by the National Credit Union Administration showed total loans outstanding rose 11.7% year-over-year to $1.30 trillion at the end of the first quarter. . Used auto loans increased 13.4% year over year to $272.9 billion in the first quarter, and new auto loans increased $5.0 billion, or 3.6% to $145.0 billion.
It’s a stark contrast to the early months of the pandemic, when chip shortages, economic uncertainty and supply chain issues combined to reduce demand for car purchases.
But as those pressures eased, the Arkansas Federal Credit Union in Little Rock, for example, saw used-vehicle loans rise 26% year-over-year to around $631 million. dollars in the first quarter. The $1.9 billion-asset credit union continued to focus on lending even during the darkest times of the pandemic, and that strategy is paying off now, says Arkansas CFO FCU, Eric Mangham.
“We knew we had to stick to our bread and butter,” he said. “Internally, we have a posture to make loans instead of making investments.”
And while auto loans are strong, Mangham said one thing to watch would be how difficult it might be for the credit union to recoup the value of large SUVs and trucks it might be forced to repossess if the economy was struggling. Skyrocketing gasoline prices will make it difficult to find buyers for less fuel-efficient vehicles, he said.
“Inflationary issues are going to hurt the bottom of the economic scale the most. Food prices are up, gas prices are up, and there will be fewer shoppers who will need a truck,” did he declare.
Auto loans weren’t the only lending line to show strength in the first quarter.
Industry-wide, credit card balances rose 9.8% to $64.4 billion year-over-year in the first quarter, according to the NCUA.
Mangham said home equity lines of credit are also in vogue. “A lot of people are doing more home renovations — swimming pools or back patios — because they’re staying put due to the pandemic,” he said.
But the rising tide of lending has not necessarily lifted all boats.
At Nutmeg State Financial Credit Union in Rocky Hill, Connecticut, for example, loan growth was relatively flat at around 0.4% year-over-year in the first quarter, bringing its total loans to 373 million. of dollars.
Nutmeg’s $532 million asset loan growth was nominal primarily because the credit union produced an abundance of Paycheck Protection Program loans — more than $24 million in recent years. – which have since been reimbursed, according to John Holt, president of Nutmeg. and CEO.
“I suspect that if other credit unions didn’t make PPP loans or the repayment period for forgiveness of PPP loans was timed differently, that makes a difference,” he said.
Used-vehicle loans were up about 2% year-over-year at the end of the first quarter for Nutmeg, and Holt said that’s an area the credit union will focus on. accent.
“Our focus for 2022 so far has been automotive and household products, as these products are important to members and our local community,” he said.
The credit union has also begun measuring its success on “new business revenue” that is supported in part by new loan production and credit and debit card redemption revenue, Holt said.
The strategy emphasizes areas where the company has greater near-term control and overall earnings and loan quality, not just generated balances, Holt said.
Credit unions continue to experience strong workforce growth, which often results in loans, according to Jim Adkins, managing partner of consultancy Artisan Advisors. And loan growth from existing members is also increasing.
Most of the growth came from mortgages and consumer lending, Adkins said.
“Credit unions continue to leverage their strength with consumers. However, business loan growth is also on the rise as more and more [credit unions] entering the space – a trend that will continue at higher and higher levels as credit unions step up their own business creations and continue their community banking shopping spree“, Adkins said.
Banks also saw strong loan growth in the first quarter, although that was only about half of what credit unions saw on a percentage basis.
According to the Federal Reserve, US bank loans and leases totaled $10.96 trillion at the end of the first quarter, up 6% from a year earlier and 1% from the previous quarter.
The Fed’s periodic surveys of bankers show lending activity accelerating through early June. For the week ending June 1, banks’ loan portfolios grew nearly 9% year-on-year, driven by commercial lending momentum.
Loan demand “remains quite strong” despite “high macroeconomic uncertainty” fueled by soaring inflation and rapidly rising interest rates, said Piper Sandler analyst Scott Siefers.
Laurie Stewart, president and CEO of Seattle-based Sound Financial Bancorp, which has $959 million in assets, said banks are watching closely for potential impacts from soaring costs and rising rates. . Demand for mortgage refinance fell, as expected, in the face of rising rates.
But at this point in the second quarter, she said, businesses and consumers are otherwise continuing to borrow in most other categories.
“Business-wise, the pipeline continues to be quite robust” and “the consumer side is quite stable,” Stewart said in an interview. “We’ve had solid year-to-date loan growth, and we continue to be moderately optimistic about growth for the remainder of the year.”
At the same time, she said, borrowers are in good health and are repaying loans as scheduled. “Our credit quality is really strong,” Stewart said. “Counts are non-existent.”