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ALEXANDRIA, Va. – Federal credit unions are basking in the glow of a much-anticipated rebound in lending for the first time since 2001. NCUA lending data from Jan. 1 through Sept. 30 shows lending increased 7.09% to $366.98 billion, the most significant expansion in nearly three years. The numbers are based on preliminary call data from 9,458 federally insured credit unions. First mortgage real estate loans and used auto loans showed the most impressive increases with 13.78 and 10.84% respectively. “There’s all sorts of good news here for credit unions,” said Mike Schenk, CUNA and Affiliates Vice President, Economics and Statistics. “We knew about a month ago loan growth would be about 7.02%. When all is said and done, we can anticipate it going 8.5 to 9%, which is a pretty healthy showing.” Throughout 2003, real estate loans poured in but the third quarter easily became the bonanza as lending grew to $162.6 billion and accounted for 44.3% of loans outstanding. Loan originations were also up with first mortgages sold increasing from 29.2% in 2000 to an annualized 43.2% at the end of September, a key finding as credit unions take a proactive stance on expected interest rate rises in 2004. “The amount of loan originations suggests that credit unions are being very careful with their risk management,” Schenk said. “Rates are poised to head up but they’re not stock piling their fixed rate assets and not assuming a lot of interest rate risk.” Schenk said barring any unforeseen catastrophes, credit unions can expect “a complete turnaround.” Meanwhile, the fourth quarter is shaping up to “look good but not nearly as good as the third quarter.” “It will look like the good old days,” Schenk said. “As times goes on, there will be a slow down in first mortgages because most of the refinancing is done and rates are not going to get any lower.” That pull back in real estate will ignite a resurgence in unsecured loans, home equity loans and “especially used auto loans,” Schenk said. As a result, many homeowners who tapped their home equity to refinance first and second mortgages, may seek out other forms of borrowing activity. While loan demand continued to swell, investments edged slightly from $557.1 to $606.13 billion. For the first time in several years, the percentage of loan demand accelerated and investment growth slowed. The net worth ratio in federally insured credit unions dropped slightly, from 10.71 to 10.58% between January 1 and Sept. 30, 2003, primarily due to continued high asset growth. “From an earnings perspective, most credit unions suffered with real fast asset growth and relatively slow loan growth,” Schenk said. “Yields on assets were tumbling and now we’ll finally see yields going up in the very near future.” Not to be outdone, share savings and share drafts continued their ascension with both posting double digit increases at 11.33 and 10.01% respectively. Share savings increased from $484.2 to $526.08 billion even as the loan-to-share ratio declined from 70.77 to 69.76%. Delinquencies also declined slightly from 0.79 to 0.75%. “It remains to be seen what consumers will do when the Federal Reserve Board raises interest rates next year,” Schenk said. “For now, credit unions are in a strong position.” NCUA Chairman Dennis Dollar echoed that optimism saying a renewed faith in lending is a positive sign that the “confidence and improved economic vitality the nation is seeing (is) reflected in other leading indicators as well.” “Along with the continuation of the steady savings and asset growth that we have seen over the past several years, the third quarter performance in lending and overall net worth is indeed a positive development and hopefully reflects the beginning of several quarters of improved lending demand and solid loan performance,” Dollar said. [email protected]

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