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Loan-to-share growth trends and your liquidity options

By Perry Jones, VP, Portfolio Manager

Perry Jones

In the big picture, credit unions across the country continue to increase their loan-to-share ratios. For the most part, this pace of growth has been measured as credit unions seek to increase yield by rotating out of lower-yielding investments into higher-yielding loans. However, the pace of growth at the largest credit unions is occurring faster than other credit unions, as evidenced in the chart below. This faster pace has pushed the industry loan-to-share ratio to a recent high of 78% in September of 2015, which is typically the seasonal high point.

Loan to Share Ratio

When looking at this trend, which is highly impacted by seasonality, the most interesting take away is what occurred in the fourth quarter of 2015. The industry loan-to-share ratio, as well as the ratio for all credit unions with less than $500 million in assets, actually contracted slightly between September and December. This is interesting because during the last stretch of growth in the loan-to-share ratios from 2003 to 2007, the ratio typically reported a healthy growth rate. Any number of factors could have caused the small decline to occur in late 2015, and the primary factor may have been the increase in interest rates by the Federal Reserve Bank.

While the June Call Report data is not yet available, I expect that the loan-to-share ratio growth will resume and not yet re-enter a period of contraction. This has many positive effects for credit unions, but a higher loan-to-share ratio could place pressure on your liquidity measures. Rest assured that Corporate One is prepared to serve all of your liquidity needs.

First, we can assist with your liquidity and contingency funding plans. We have several ways to serve your liquidity needs on our balance sheet, as well as assisting you with non-member deposit issuance, brokerage services, asset transfers and emergency liquidity sources. We continue to assist credit unions large and small with these liquidity options, and all of these options are streamlined and very efficient at raising funds when the need arises.

Once again, we will be offering a number of term loan specials to help our members through the summer liquidity season. Our most recent loan special was a one-year term loan at 1.00%. If you are not yet in need of liquidity, make sure you are checking our liquidity rates when you are evaluating your sources of external funding. The loan specials will be shaded in gray and offer easy comparison to other sources of liquidity.

As always, we stand ready to serve all of your needs. Please contact me or your senior investment representative if you would like to speak about your liquidity options with Corporate One.