WASHINGTON – As chief executive officers and others continue toweigh in on the magnitude of small credit unions to the movement,the latest industry figures revealed a pressing area of concern:many had negative share growth and member growth in 2004. This wasone of the startling findings highlighted at a March 8 Callahan& Associates Inc. Webinar on 2004's fourth quarter data. Thenews is somewhat bittersweet because the largest credit unions havethe strongest share growth at 10.7% but the group at the bottom –3,300 representing $74 billion in assets – had negative sharegrowth and member growth. Despite the tendency of smaller creditunions to have slower rates of growth, there are many doing verywell, said Chip Filson, Callahan president/CEO. “I would call itsingle digit momentum,” Filson said. “The credit union industry isslowing down – in shares, members, and on the total balance sheet.”Indeed, 3,756 credit unions actually lost assets, Filson said.Still, 2004's last quarter wasn't all doom and gloom. The mostpositive news for credit unions in the last quarter of 2004 was thedouble-digits in loan growth even as total dollar volume dippeddown. Total revenue was slightly positive at 2% while operatingexpenses continued to rise and non-interest income was up 10%. Netincome remained flat and return on assets was at 92 basis points,said Chip Filson, Callahan president/CEO. Yields on investmentscontinued to stall and yields of loans followed suit, Filson said.Loans exceeded shares and as a result there's been a drawdown oninvestments. Looking at the competition, credit unions hold 6.1% ofall financial institution assets, up from 5.7% in 2003, accordingto Callahan. “It's not as high as it has been in other cycles,”Filson said. “Banks have been the big winners.” Indeed, creditunions trail other competitors “often by substantial amounts,”Filson said. The net interest margin is narrower and as a result, a“slowdown” period for credit unions has occurred even thoughfinancial services have not had a similar slowdown in profitabilitygrowth. There were 31 credit union mergers in 2004 accounting for$3.8 billion compared to 258 bank mergers accounting for $838billion. “Credit unions are in a period of transition from limitedto open charters,” Filson said. “Many of the transition factors arestill being learned.” One community charter veteran highlightedduring the Webinar was $128 million First American Credit Union inBeloit, Wis. It expanded to a four-county regional charter in 1982and touts its lending programs for much of the success it had in2004, said Thomas Barnes, president/CEO. “We've always donecommercial lending, always done real estate lending and got intoindirect lending in 1994,” said Barnes, who's been with the creditunion for 17 years. First American's indirect lending programbrings in about $1 million per month and is a “fairly sizeable”portion of the loan portfolio, Barnes said. Thanks to a waiver fromits state regulator that eased lending limits, First American'scommercial lending program did big business in 2004. The division'sstaff of four includes a seasoned lending executive from thebanking industry, Barnes said. It sells off about $6 million inloan participations. On the commercial deposit side, First Americanis averaging $3 to $4 million and its merchant card programcurrently has 300 installations. An account analysis program wasdeveloped to give large commercial depositors a credit for theirdeposits and relief on all transaction fees and number of checkswritten, Barnes said. The credit union is also servicing $60million in Fannie Mae loans in addition to its own $30 million.First American's loan portfolio is “balanced by design,” Barnessaid. “We didn't want to be dependent on one category,” Barnesexplained. “Our ratios are self-imposed – 30% asset limit oncommercial; 30% on real estate and 25% on indirect lending.” Tostand out in the aggressively-competitive marketplace here, Barnessaid First American is highly visible in the community throughUnited Way functions, serving on the Chamber of Commerce, Boy andGirl Scouts and having representation on school boards among otherinvolvements. Filson pointed out that “mergers really matterbecause they bring in more members,” but in 2004 more than half ofall credit unions lost members. One credit union, $371 millionFirst Commonwealth Credit Union in Lehigh Valley, Pa., grew itsmembership by 20% in 2004. NCUA approached the credit union inmid-2004 as a possible partner with a financially troubled one,said Jo Ann Broderick, president/CEO. The Easton, Pa.-based creditunion had 8,000 members and $35 million in assets. “We were havingsome membership growth challenges,” Broderick recalled. “Over thelast year, we saw some membership outflow and share declines. Wewere very interested and put in a bid along with 19 other creditunions.” In the end, despite not being the highest bidder, themerger went through, Broderick said. While 8,000 members was astrong number to bring over, one of the challenges was educatingthem on how the change would benefit them. “We had some runoffs thefirst few months,” Broderick said. “We kept both of (their)branches open, hired all of their employees and got new checks andcards out to (members) quickly.” The members had some idea of whatwas going on because they had been in conservatorship, Brodericksaid. But First American could not share any specific information.“Had it been a merger, we would have had to take the balance sheetas it was, which was negative $6 million,” Broderick said. “We gotto choose which assets and liabilities we wanted to take.” Sheadded that despite not “seeing the fruits of your labor” the firstfew months after the transition, it was all worth it in the end.“We got more new members rather quickly and (members) got more loanchoices and more services,” Broderick said. John Olivo, seniorportfolio manager at Goldman Sachs, provided an economic updateduring the Webinar saying the nation's strength has been in capitalspending, the labor market and steady home building activity. Healso commented on Federal Reserve Chairman Alan Greenspan's recent“conundrum.” “It's the decline in bond yields over the past fewmonths,” Olivo said. “He expressed uncertainty about productivitygrowth.” Still, the Fed is seeing the “ideal economic environmentit's been shooting for,” Olivo said. [email protected]