WASHINGTON – Credit unions over $50 million appear to be weathering the tough economic times quite nicely. According to NCUA's just-released third-quarter call report data, Return-on-Average Assets (ROA) was a solid 1.01% as of Sept. 30, 2001, down only slightly from 1.03% as of March 31 and from 1.06% at year-end 2000. The ROA was expected to go down this year as it was padded last year by record lending numbers. "That 1.01% is particularly strong because loan growth has been so weak," said Senior CUNA Economist Mike Schenk. He said it indicates that CUs have adjusted their prices on the liability side to offset declining asset yields. Good management on a number of fronts probably helped keep ROA high, said Schenk. Loan growth for the quarter was 2.8%. Looking at the first nine months of 2001, loan growth is about 6.5%. Schenk said lending has been carried by mortgages. First mortgages for the quarter were up 4.6%, outpacing all other lending categories. For the first nine months, first mortgages are up 12.1% to $76.9 billion. Schenk said with a quarter of assets being in real estate loans, he expects NCUA to put CUs heavy in mortgage lending under careful scrutiny. NCUA has already put out a couple of Letters to Credit Unions concerning mortgage lending and balancing risk. NAFCU Economist Jeff Taylor said CUs have to demonstrate they have a strategy for handling a large mortgage portfolio, such as selling some off to secondary markets and limiting adjustable rates vs. fixed rates. "What you don't want is a lot of 30-year fixed-rate mortgages," said Taylor. Also as expected, loan vs. share growth is the complete opposite of last year. While loan growth through three quarters is about 6.5%, it was almost 12% last year. Deposits were up 3.1% for the quarter, making the growth 13.5% for the first three quarters, way up from last year. Money market accounts have seen the largest deposit increase, up 27% through Sept. 30 to $58.3 million. Regular shares, which still represent the largest savings category, were up 11.7% to $104.3 billion through Sept. 30. For the 1,547 CUs with $50 million or more in assets, overall assets were up 3.2% for the quarter to a total of $396.8 billion. For the first three quarters assets were up 12.8%. With the liquidity expansion comes a drop in the loan-to-share ratio. It now stands at 74.6%, down from almost 80% at the end of last year. That 80% number is historically very high, said both economists. New auto loans were up only 1.9% for the quarter, while used autos increased by 2.9%. Unsecured credit card loans were stagnant at 0.2% growth. Schenk said that stat may be affected by members taking out home equity loans and paying off credit card balances, or getting cash back from a mortgage refinance to pay down debt. With deposits flowing in during the first nine months of 2001, credit unions had more money to invest. Investments were up 5.7% for the quarter to about $84 billion. Taylor said CUs have been looking at investments to make up for some yield lost with lending. "I think you want to keep laddering. Don't shorten up completely, don't go long completely because the yield curve is so volatile right now." According to third quarter data from Callahan & Associates, 37.11% of CU investments were in agency securities; 35.03% in corporates; 12.23% in banks/S&Ls; and 5.78% in U.S. Government obligations. (See more investment news on pages 16-18.) Membership was up by 3.2% through three quarters to 57 million people. Schenk said that number isn't the easiest to interpret, because it could be that some CUs reached the $50 million range this year and thus included in the call report data. Knowing how many actual new members there were is difficult to quantify, he said. [email protected]

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