<p>WASHINGTON – If you're not careful, analyzing statistics can be downright boring. But in the case of recent credit union statistics, they tell a very interesting story of a more resilient credit union industry. CUNA's year-end statistics show assets up 14.5%, loans up 6.8%, member growth up 2.8%, and shares up 15.7%. The trend in these numbers is nothing new for 2001. The story last year was an increase in shares, and decline in loans. But what's interesting is CU balance sheets seem almost shielded from turbulent economic times, said CUNA Chief Economist Bill Hampel. "Credit unions now have pretty forgiving balance sheets. As long as they appropriately manage dividend rates, it's possible for them to get by only earning 1 3/4% on their funds," said Hampel. Hampel said when loans began to fall off there was a lot of talk about CUs getting into riskier and longer-term investments to off-set the drop in loan income. That's not a practice Hampel advocates, and he said credit unions didn't either in 2001. Although CU investments grew by about 40% last year because of the flood of deposits, about 60% of credit union investments were liquid (meaning shorter term, less risky investments), close to the 58% figure at the end of 2000. Credit unions have kept ROA solid (.96% as of June 2001 and expected to come in about that level for year-end) despite falling loans and are not getting overly aggressive with investments. How are they doing it? Hampel said mortgage lending helped carry the day in 2001. A flood of refinancings and just the fact that more CUs are involved in mortgage lending helped keep loan growth at 6.8%. He said loan growth would have been around 0% without the strong mortgage lending. But there are other internal board/management factors as well that CUs weren't as good at say just 10 years ago. For example, Hampel said CUs overall have improved in keeping their dividend rates more in line with Fed cuts. In the past CUs have lagged banks in cutting dividend rates. They still do, but not by as much. NAFCU Economist Jeff Taylor believes that CU shops are just being managed better overall. "Credit unions have done a real good job of keeping up profitability. With the things they can't control – interest rates and loan demand – they've made up for with things they can, like fee income and expenses," said Taylor. "Data were seeing show non-interest expenses declined." He said CUs should be commended for keeping expenses down last year. "Their margins are being sustained by cutting costs, and they're using fee income to make up for some of the shortfall," said Taylor. At press time Callahan's First Look data for fourth quarter 2001 showed a thriving industry with assets up 18.4%, loans up 12.0%, and ROA at a whopping 1.13% But Taylor and Hampel pointed out that this data is based on a sample group of CUs with over $50 million in assets. They tend to be of the larger variety, which almost always outpace their smaller counterparts in growth. These numbers do show something though, said Taylor – that there is still a pretty big performance divide between large and small CUs. CUNA recently made an interesting recommendation to the House Financial Services Committee that could economically affect all sizes of CUs depending on their lending situation at any given time. CUNA recommended eliminating the requirement for CUs to have to keep at least 10% interest of a participation loan. Loan participation can be a boon for CUs that have strong loan demand, but don't have the capital to support it. Hampel believes if done right, participations without the 10% retention make sense. "If a credit union has access to a large loan demand, and not enough savings internally, why not let some other credit union who has additional savings meet that loan demand?" Hampel said. He said it may be particularly helpful for CUs that are bumping up against the 12.25% MBL cap. Due diligence will be key to participation, Hampel said. The smaller amount the originating CU wants to keep on its books, the more due diligence the participating CU should do. [email protected]</p>