Skip to main content

Is Loan Growth Keeping Pace With Deposit Growth At Your Credit Union?

Tim Kelly of AFG is a featured speaker at NCOFCU"s New Orleans Annual Conference October 5-8,2022

Record-Setting Deposit Levels Since 2020

Since the start of the pandemic, deposits at credit unions have risen at unprecedented levels. According to data from NCUA, credit union account balances have risen nearly 60% in the past five years. With loan demand lagging, credit unions have had to pivot to lower yielding investments, which may ultimately strain capitalization requirements.

The pandemic created an odd combination for credit unions. On the one hand, many members found themselves with more savings since travel and other restrictions kept them from spending money on services and leisure and therefore their deposits increased.

On the other hand, with vehicle prices being at all-time highs due to shortages, some borrowers may have pulled back from the market, causing auto loan portfolios, which have traditionally helped credit unions serve their members and grow, to shrink.

State Of The Vehicle Market

Discounts and incentives that were common in pre-pandemic times have all but disappeared in the current market. Dealers can add $2,000 to $3,000 to the list price given the continuing high demand for vehicles, especially as consumers continue to look for private forms of transportation in the midst of another wave of a more contagious variant of the coronavirus.

Many manufacturers are looking at ways to increase chip production domestically. Ford, for example, announced an agreement with a U.S.-based semiconductor supplier in November of 2021 to help increase its control over both supply and design of chips. This, however, will be a longer-term endeavor, and it will take time to see the impact on vehicle production.

Used vehicles, which were once a more affordable option for consumers who couldn’t manage the price tag of a new vehicle, have also been impacted by the chip shortage and seen unprecedented increases in value.

According to Cox Automotive, used car vehicle prices will remain high well into 2022. High prices will be driven not only by vehicle shortages, but also by high demand due to an expected record level of tax refunds this year.

In addition to the shortages, amid rising inflation, the Federal Reserve is expected to raise rates at least four times in 2022, which will impact auto lending and increase monthly payments for most borrowers, potentially leading auto lending at credit unions to grind to a halt and causing them to continue to “drown in deposits.”

Implications For Auto Lending

Offering residual-based financing can help financial institutions stay competitive and offer borrowers the affordability and flexibility they need in light of rebounding demand for vehicles coupled with shortages in inventory and high prices.

Lenders should offer all affordable payment options to their borrowers. With residual-based financing, credit unions can provide a low monthly payment alternative for their members while earning higher yields than with a conventional loan.

Auto Financial Group’s Residual Based Financing programs can help navigate the current challenges in auto lending. With lease and balloon loan programs on new vehicles and vehicles up to five years old, shorter lease/loan terms and, lower monthly payments compared to the conventional long-term loans, this is a consumer win.

Would you like to learn more about auto lending trends and how you can position your credit union for success be sure to stop by AFG's booth at our New Orleans conference, October 5-8, 2022 

Tim S. Kelly
President/COO
tkelly@autofinancialgroup.com
5555 San Felipe St. Suite 2100 Houston, TX 77056
Cell: 713-817-5858
www.autofinancialgroup.com

Comments

Post a Comment

Please no profanity or political comments.

Popular posts from this blog

The Skills Board Chairs Need Now: Leading Through Complexity, Not Control

NCOFCU Podcast   Grant Sheehan CCUE | CCUP | CEO-NCOFCU The role of the board chair has quietly—but fundamentally—changed. A decade ago, success was defined by experience, authority, and strategic judgment. Today, those traits are still relevant—but no longer sufficient. The modern board chair operates in a world shaped by competing stakeholder demands, technological disruption, geopolitical uncertainty, and increasing scrutiny. What emerges is a role that is less about control—and more about navigating complexity. Below are the core capabilities that now define effective board leadership. 1. From Authority to Orchestration The most important shift is conceptual. Board chairs are no longer expected to be the smartest voice in the room. Instead, they are expected to make the room smarter . This requires the ability to: Synthesize large volumes of information Reconcile conflicting perspectives Facilitate high-quality dialogue Traditional strengths like executive experience matter les...
Post a Comment
Read Complete Article HERE>»

On Stablecoins, NCUA Has Opportunity to Strike Right Balance and Get it Right

By Grant Sheehan As digital payments continue to evolve, the National Credit Union Administration’s (NCUA) efforts to establish a regulatory framework for stablecoins mark an important step forward. For credit unions, especially those serving mission-driven communities like firefighters and first responders, access to emerging financial technologies is not just an opportunity but a necessity to remain competitive and relevant. The  National Council of Firefighter Credit Unions  (NCOFCU) appreciates the  thoughtful input  provided by both America’s Credit Unions and the Defense Credit Union Council (DCUC) on the NCUA’s proposed stablecoin framework. We find strong merit in the recommendations of both organizations and believe their combined perspectives offer a constructive roadmap for getting this right. Important First Phase, But… At its core, the proposal represents an important first phase in implementing the stablecoin provisions of the GENIUS Act. Establishing a...
Post a Comment
Read Complete Article HERE>»

It All Starts in the Boardroom

It all starts in the boardroom—but the consequences are felt far beyond it. When Governance Breaks Down, Members Pay the Price Credit unions are built on a simple but powerful idea: they are owned by their members. Unlike traditional banks, where shareholders drive decisions, credit unions are meant to operate democratically—guided by a volunteer board elected by the very people they serve. But that model only works when participation exists. A governance breakdown happens when the people elected to oversee an institution stop truly representing the people who own it. In credit unions, this breakdown doesn’t usually come from scandal or sudden failure. It happens quietly, over time—through disengagement. The Root of the Problem: Low Engagement Most credit union members don’t vote. Board election turnout is typically in the low single digits. In some cases, it’s barely measurable. That means a very small percentage of the membership is effectively deciding who governs an institution th...
Post a Comment
Read Complete Article HERE>»

Sunday Reading - Why the IRS is necessary

  'Taxman'   Why the IRS is necessary The Internal Revenue Service, or IRS, is a division of the US Treasury Department created in 1862   that enforces the Internal Revenue Code —Title 26 of the US Code, a compilation of federal statutes—and, effectively, oversees tax collection. In 2024, the IRS's roughly 75,000 employees collected roughly $5T in tax revenue.   Given its role in diverting household income streams, it also has a bad reputation. Half of Americans had an "unfavorable view" of the IRS as of 2024 ( see data ). In a ranking of 16 well-known federal agencies by popularity that year, t...
Post a Comment
Read Complete Article HERE>»

It's Financial Literacy Month

April is Financial Literacy Month—a time dedicated to empowering individuals and families with the knowledge and tools needed to make informed financial decisions. Whether you're budgeting, saving, managing debt, or planning for the future, improving your financial literacy can have a lasting impact on your well-being. We invite you to explore our Consumer Education website, where you'll find helpful resources, tips, and guidance to support your financial journey. If you find it valuable, please share it with your family and friends—because financial knowledge is even more powerful when it’s shared. https://www.ncofcu.org/financial-literacy  ================================================= Remember, you're not alone with  NCOFCU.org Join/Upgrade Check out some of NCOFCU's additional features: Annual Conference First Responder Credit Union Academy Financial Literacy Podcasts YouTube Mini's Advocacy  
Post a Comment
Read Complete Article HERE>»

Growing Use of Stablecoins Could Reshape How FIs Manage Liquidity, Allocate Assets, NY Fed Report Suggests

NEW YORK — The growing use of stablecoins tied to the U.S. dollar could reshape how banks manage liquidity and allocate assets, potentially leading institutions that support the digital tokens to hold more reserves and make fewer loans, according to a new study from the  Federal Reserve Bank of New York . The paper, titled “ Stablecoin Disintermediation ,” was authored by economists Michael Junho Lee and Donny Tou and examines how stablecoin activity affects the balance sheets and liquidity management of banks that partner with stablecoin issuers. The researchers found that while stablecoins rely on traditional banks to function, the relationships can alter the liquidity demands placed on those institutions. Banks serving stablecoin issuers tend to hold larger reserve balances and reduce the share of assets devoted to lending, shifting toward a more reserve-heavy banking model. Focus of Study The study focused on developments following the March 2023 collapse of...
Post a Comment
Read Complete Article HERE>»

Why is NCUA Overlooking the Biggest Fee of All?

By Frank J. Diekmann NCUA has made a priority out of the F word in 2024—fees--announcing a special focus on NSF and OD fees this year.  And yet the agency seems to have little interest in the biggest and most egregious fee of all—the “merger” fee that comes when net worth isn’t returned to the people whose money it is in the first place, and it instead goes to insiders—often in amounts a multitude larger than any bounced check fee. It's sadly ironic that NCUA seems bothered by fees members opt into, but not by a merger fee they don’t seem able to opt out of. The merger fee is a hidden-in-plain-sight cost to members that is so brazen and increasingly occurring it has entered that dangerous territory of almost being taken for granted, wi...
Post a Comment
Read Complete Article HERE>»

The Federal Open Market Committee Up's Rates

WASHINGTON–As expected the Federal Open Market Committee at its meeting today moved to increase rates by a quarter-point to a range of 1.25% to 1.50%. In a statement accompanying the announcement, the Federal Reserve said data from November indicate the labor market has continued to strengthen and that economic activity has been rising at a solid rate. “Averaging through hurricane-related fluctuations, job gains have been solid, and the unemployment rate declined further,” the Fed said. “Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters. On a 12-month basis, both overall inflation and inflation for items other than food and energy have declined this year and are running below 2%. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.” The Committee said it continues to expect that, with gradual...
Post a Comment
Read Complete Article HERE>»

One Proposed LIBOR Replacement Has ‘No Clothes,’ Says SEC Chairman

WASHINGTON–Gary Gensler, chairman of the Securities & Exchange Commission (SEC), believes one of the benchmarks being proposed as a replacement for LIBOR has “no clothes.” Gary Gensler In remarks before the Alternative Reference Rates Committee’s SOFR Symposium, Gensler said he was sharing his own views and not those of the SEC, and his view does not align with many of those backing a move to the Bloomberg Short-Term Bank Yield Index from the London Interbank Offered Rate (LIBOR). “As some of you may know, when the topic of LIBOR comes up, I sometimes find myself thinking about Hans Christian Andersen and Warren Buffett. Others of you might be wondering why I’d mention these two men — born 125 years and an ocean apart — in the context of LIBOR,” Gensler told the meeting. “Well, as Hans Christian Andersen wrote in his famous folktale, ‘The Emperor’s New Clothes,’ the emperor has no clothes.” And who is the emperor? It’s many of the replacement rates being suggested to fill LIBO...
Post a Comment
Read Complete Article HERE>»

Newly Released Fed Minutes Show Policymakers Seeking to be Flexible on Rates

04/13/2023  Tweet WASHINGTON — Newly released minutes from the Federal Reserve’s March meeting show officials are seeking to remain flexible when it comes to future rate decisions. The paradox for the Fed remains that the labor market remains strong, even as inflation continues to be high, although it cooled in March, according to new data from the Bureau of Labor Statistics. “Central bankers have spent more than a year waging a battle against the most painful burst of price increases in decades, raising interest rates to slow the economy and to wrestle price increases under control,” noted the Wall Street...
Post a Comment
Read Complete Article HERE>»