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WASHINGTON – As chief executive officers and others continue to weigh 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 was one of the startling findings highlighted at a March 8 Callahan & Associates Inc. Webinar on 2004′s fourth quarter data. The news is somewhat bittersweet because the largest credit unions have the strongest share growth at 10.7% but the group at the bottom – 3,300 representing $74 billion in assets – had negative share growth and member growth. Despite the tendency of smaller credit unions to have slower rates of growth, there are many doing very well, said Chip Filson, Callahan president/CEO. “I would call it single digit momentum,” Filson said. “The credit union industry is slowing 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 most positive news for credit unions in the last quarter of 2004 was the double-digits in loan growth even as total dollar volume dipped down. Total revenue was slightly positive at 2% while operating expenses continued to rise and non-interest income was up 10%. Net income remained flat and return on assets was at 92 basis points, said Chip Filson, Callahan president/CEO. Yields on investments continued to stall and yields of loans followed suit, Filson said. Loans exceeded shares and as a result there’s been a drawdown on investments. Looking at the competition, credit unions hold 6.1% of all financial institution assets, up from 5.7% in 2003, according to Callahan. “It’s not as high as it has been in other cycles,” Filson said. “Banks have been the big winners.” Indeed, credit unions 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 though financial services have not had a similar slowdown in profitability growth. There were 31 credit union mergers in 2004 accounting for $3.8 billion compared to 258 bank mergers accounting for $838 billion. “Credit unions are in a period of transition from limited to open charters,” Filson said. “Many of the transition factors are still being learned.” One community charter veteran highlighted during the Webinar was $128 million First American Credit Union in Beloit, Wis. It expanded to a four-county regional charter in 1982 and touts its lending programs for much of the success it had in 2004, said Thomas Barnes, president/CEO. “We’ve always done commercial lending, always done real estate lending and got into indirect lending in 1994,” said Barnes, who’s been with the credit union for 17 years. First American’s indirect lending program brings in about $1 million per month and is a “fairly sizeable” portion of the loan portfolio, Barnes said. Thanks to a waiver from its state regulator that eased lending limits, First American’s commercial lending program did big business in 2004. The division’s staff of four includes a seasoned lending executive from the banking industry, Barnes said. It sells off about $6 million in loan participations. On the commercial deposit side, First American is averaging $3 to $4 million and its merchant card program currently has 300 installations. An account analysis program was developed to give large commercial depositors a credit for their deposits and relief on all transaction fees and number of checks written, Barnes said. The credit union is also servicing $60 million in Fannie Mae loans in addition to its own $30 million. First American’s loan portfolio is “balanced by design,” Barnes said. “We didn’t want to be dependent on one category,” Barnes explained. “Our ratios are self-imposed – 30% asset limit on commercial; 30% on real estate and 25% on indirect lending.” To stand out in the aggressively-competitive marketplace here, Barnes said First American is highly visible in the community through United Way functions, serving on the Chamber of Commerce, Boy and Girl Scouts and having representation on school boards among other involvements. Filson pointed out that “mergers really matter because they bring in more members,” but in 2004 more than half of all credit unions lost members. One credit union, $371 million First Commonwealth Credit Union in Lehigh Valley, Pa., grew its membership by 20% in 2004. NCUA approached the credit union in mid-2004 as a possible partner with a financially troubled one, said Jo Ann Broderick, president/CEO. The Easton, Pa.-based credit union had 8,000 members and $35 million in assets. “We were having some membership growth challenges,” Broderick recalled. “Over the last year, we saw some membership outflow and share declines. We were very interested and put in a bid along with 19 other credit unions.” In the end, despite not being the highest bidder, the merger went through, Broderick said. While 8,000 members was a strong number to bring over, one of the challenges was educating them on how the change would benefit them. “We had some runoffs the first few months,” Broderick said. “We kept both of (their) branches open, hired all of their employees and got new checks and cards out to (members) quickly.” The members had some idea of what was going on because they had been in conservatorship, Broderick said. But First American could not share any specific information. “Had it been a merger, we would have had to take the balance sheet as it was, which was negative $6 million,” Broderick said. “We got to choose which assets and liabilities we wanted to take.” She added that despite not “seeing the fruits of your labor” the first few months after the transition, it was all worth it in the end. “We got more new members rather quickly and (members) got more loan choices and more services,” Broderick said. John Olivo, senior portfolio manager at Goldman Sachs, provided an economic update during the Webinar saying the nation’s strength has been in capital spending, the labor market and steady home building activity. He also commented on Federal Reserve Chairman Alan Greenspan’s recent “conundrum.” “It’s the decline in bond yields over the past few months,” Olivo said. “He expressed uncertainty about productivity growth.” Still, the Fed is seeing the “ideal economic environment it’s been shooting for,” Olivo said. [email protected]

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