Credit union revenue drops, expenses rise; shares could jump by double digits again

WASHINGTON – Credit unions took some bumps during the first quarter 2002 as a result of the state of the economy and world events. Despite that, first quarter 2002 Trend Watch data from Callahan & Associates showed credit unions with over $50 million in assets enjoyed strong share growth and solid earnings, though relatively softer loan growth. In a teleconference on June 12, Callahan President Chip Filson, gave CUs a detailed analysis of some of the latest credit unions trends and an insight in to what they can expect to see. Also on hand to speak to credit unions about their investment portfolios and the outlook for the market was John Olivio, investment portfolio manager for Goldman Sachs. The U.S. economy has improved in recent weeks, but it's still not strong enough, Olivio opined. He said Goldman Sachs is calling for 50 bp of tightening in the fourth quarter 2002, but he noted that with risk being skewed the way it is currently, he wouldn't be surprised if the Fed tightened rates by 25 bp or even zero. What the Fed is seeing is a lot of mixed data in areas such as the economy, consumer spending and employment figures. "This one step forward, one step back trend will keep the Fed patient to tighten interest rates," he offered. Credit unions showed strong balance sheet growth over the past 12 months – assets increased 14.9%, shares were up 15.3%, and net worth up 10.0%. Loans were also up but only by 9.9%. Despite these increases, CUs' total income dropped for the first time in recent history – down 1.5%. This was offset by an increase in earnings of 20.4%. At the same time, credit unions' 12-month growth compared to 2001 showed their loans increased 9.9%; shares, 15.3%; net worth, 10.0%; and members, 3.7%. Filson expects this momentum to continue through the end of the year. In fact, he said, credit unions may be heading for another year of double digit growth in share accounts this year. If that happens, Filson said CUs' investment growth could reach $200 billion this year. CUs currently have $180 billion in share accounts. The results of Callahan's 2002 auto lending and mortgage lending surveys support these trends. Mortgage activity in 2001, for example, reached a record level of over $2 trillion among credit unions. In addition, the dollar amount increase in first mortgage originations by all CUs was 128%, but some survey respondents indicated they had experienced increases of 154%. Looking ahead to the rest of 2002, credit union CFOs forecast higher share growth (47%), higher ROA (52%) and higher charge-offs (46%) than in 2001. One area though that remains uncertain for credit unions is loan growth for the remainder of the year. There are too many unpredictable factors that could affect credit unions' loan portfolios. -