MADISON, Wis. - CUNA Mutual, the largest vendor serving thecredit union industry, had a solid financial performance last year,but that's not the only story it tells in its just released 2003annual report. The company used the annual report to tout howvaried and deep its relationships with the credit union industryare, and not just on the product side. CUNA Mutual spokespersonSydney Lindner said in years past the company did not really layout its role in the industry in its annual report, and wanted thisyear to be different. The report starts out talking about CUNAMutual's behind the scenes efforts to promote the "credit unionidea" and defend it. For example it notes that it spent $225,000last year fighting the IRS on its Unrelated Business Income Tax.UBIT really came on the radar screen last year after a number ofUBIT audits in states such as Connecticut and Alabama attractedheadlines, but CUNA Mutual has been on top of UBIT for years.According to its annual report, not including the $225,000 spentlast year, it has spent more than $1 million over the last decadeon the UBIT front, much of that in legal costs. CUNA Mutual clearlywanted to show an awareness of bigger issues other than just itsfinancials in its annual report, talking about banker attacks oncredit unions' tax-exempt status, secondary capital, and RESPA.Some may not know, but CUNA Mutual has a lobbying presence inWashington with long time executive Larry Blanchard working out ofWashington to advocate CUNA Mutual's position. The report statesthe company has "been shoulder to shoulder with credit unions inlobbying for bankruptcy reform and pension reform and regulatoryrelief." It also states that it is working with others in theindustry "in response to banker attacks at the state and federallevel." The company touched on just some of its financial backingof the industry, noting its support of the National Credit UnionFoundation (which it gave $100,000 last year), the Filene ResearchInstitute, the National Federation of Community Development CUs,WOCCU and others. Partnering With Products You can't be a creditunion partner like CUNA Mutual likes to call itself without theproduct menu to back it up. The annual report lays out just howmany levels of products and services the company now has. Forexample, its CUNA Mutual Mortgage Corp., celebrating 25 years,issued more than 30,000 first mortgages through 600 credit unionslast year. Its MEMBERS Capital Advisors investment subsidiaryreached a new record of $11 billion assets under management lastyear, up from $9.5 billion. The subsidiary manages MEMBERS MutualFunds (mutual funds for members); Ultra Series Funds (fund CUbenefit plans, annuities, etc.); and CUNA Mutual Group Notes, aproduct for corporates to invest. In the emerging trust servicesarea, CUNA Mutual is a key player and part owner of MEMBERS TrustCompany. On the lending side it partnered with leagues, and techvendor APPRO to offer a 24-hour lending call center, Loan LinkCenter, which processed 300,000 applications worth $890 millionlast year for some 265 credit unions. The report also highlightswhere it has tried to respond to a pressing industry need such asits Capital Notes program which is a secondary capital tool to helpgrowing credit unions raise capital. The company also partneredwith Primary Payment Systems for identity theft solutions, and it'sonly been a few years since it came out with a debt cancellationproduct. Looking at the financials shows the company's revenueswere up from $2.28 billion in 2002 to $2.41 billion last year. Themost dramatic number comes in net income, which was negative $9million in 2002, jumping to $134 million in 2003. CUNA Mutual CFOJeff Holley said as a financial pro, the number he looks at mostclosely every year is operating gain. That went from $47 million in2002 to $113 million in 2003. So what's behind the strong year? "Itwas a huge year for mortgage operations. They grew by 40%," saidHolley crediting much of the growth to the low interest rateenvironment. He said the company's servicing block of business wasup to $12 billion last year. "It's kind of feast or famine, whenrates are low it does really well, when they tick up it's not asprofitable." Already this year 60 new credit unions have signed upwith CUNA Mutual Mortgage, said Holley. Another growth area lastyear was its international business. The company attracted a lot ofattention for its recent move into China, but that business hadlittle to do with the international results for 2003. Holley saidoperations in Australia and the Caribbean drove the 30% increase ininternational business. The company's retirement benefits businesswas also strong, said Holley, noting 98% retention. 401kExchange, aWeb-based information provider on 401ks ranked CUNA Mutual No. 1 inclient satisfaction for plan administration/record keeping and forfund management among small firms. Holley said he's particularlyproud of last year because the company, for the first time in 25years, reduced its expenses year over year by 2%, going from $954million in operating expenses in 2002 to $933 million last year."In some cases we just took costs out of the operation byautomating, utilizing new technology, redeploying resources fromacross our operation," said Holley. This was accomplished despiterising health costs for the company which is trying to get its1,400 unionized employees on the same health care plan managementis on to gain some economies of scale and stem the rising tide ofhealth care costs. At press time, the company had still not reacheda contract agreement with its union employees. It may come as asurprise to some in the industry that CUNA Mutual's biggest blockof business is in lending protection not credit union protection.The company's credit union protection products, which includes bondinsurance, director liability and others, accounts for about 15% ofrevenue, while lending solutions business, including creditlife/disability and lending products, accounts for 45% of business.Holley said the company also judges itself on how much it givesback to members. Last year it paid out more than $330 million toindividuals in the form of whole and term life, auto, andhomeowners claims. Life insurance has been a core product for CUNAMutual for years, but it entered the home and auto protectionmarket more seriously about five years ago through a partnershipwith Liberty Mutual. It also piad out $475 million in creditlife/disability. "2003 was a good year. We worked extremely hard tomake sure we were efficient and customer focused. We still have aways to go to reach our performance targets that we'veestablished," said Holley. He noted that return on equity forexample was about 9.5%, and the company shoots for between 10-12%."We're owned by our credit unions and sometimes we get thequestion, `why do you guys need to make money.' We need to continueto reinvest in our business, need to continue to have a strongrating," and continue to be able to give credit unions solutionsthey need, he said. [email protected]