Savings Surge Continues While Strong Mortgage/Used Auto Lending Buoys Still Sluggish Lending

ALEXANDRIA, Va. – Savings growth for federally-insured credit unions continues its upward trend thanks to a surge in mortgage and used auto lending during the first six months of 2003 as the economic landscape prepares itself for a recovery expected by the first quarter of 2004. NCUA’s midyear 2003 figures compiled from the agency’s June 30 call report data show that although lending is growing at a slower rate than savings, there is a marked 3.25% increase in lending, “which is quite difficult in a challenging economic period as well as today’s competitive rate environment,” said NCUA Chairman Dennis Dollar, adding credit unions are managing growth “quite effectively.” Midyear data reveal member business loans grew 13.42% in six months, up from $6.66 to $7.56 billion, while dividend expense declined 15.13%, down from $10.38 to $8.81 billion as credit unions paid lower rates on savings to reflect the lower interest rate environment currently taking place. Even though “we’re still in a period characterized by uncertainty,” said Mike Schenk, CUNA Vice President, Economics and Statistics, the industry data is “consistent with the picture coming out of the last three recessions.” “It’s not surprising that people are still being cautious (with lending),” Schenk said. “The unemployment rate stayed high well after the last recession that ended in 1992. When the economy does pick up, it won’t be as robust but it’s the normal course of events coming out of a recession – savings will slow and loans will pick up.” Share account categories across the board continue to expand, with a significant 10.46% increase, up from $57.97 to $64.04 billion, while regular shares grew 9.78%, up from $172.16 to $188.99 billion. Money market shares expanded 9.68%, up from $86.35 to $94.72 billion, while share certificates grew 1.73%, up from $118.28 to $120.32 billion. In the first six months of 2003, federally insured credit unions Individual Retirement Accounts (IRA) grew 5.76%, up from $42.85 to $45.32 billion. All these healthy savings jumps increased federally-insured CU assets to $599 billion. The $600 billion mark has undoubtedly already been eclipsed as the mid-year numbers are only as of June 30. Real estate loans, being the largest lending category for credit unions, increased 7.13% to $107.91 billion in the first six months of 2003, while used auto loans expanded 7.01% to $77.22 billion and new auto loans dropped 0.33% to $60.26 billion. Unsecured credit union loans declined 5.0% to $20.48 billion. “Normally, during a recession, people stop spending but clearly people are doing just that,” Schenk said. “Loan growth going forward won’t be spectacular because a lot of what was driving that growth are lower mortgage rates. Rates have gone up and people probably won’t seek out those higher rates.” As saving growth continues to outpace loan demand, credit union investments flourish. The largest investment category, federal agency securities, grew 13.6%, up from $84.7 billion. Funds in corporate credit unions grew 18.3%, up to $70.4 billion while investments in banks and savings and loans expanded 12.1% to $26.2 billion. Schenk said with the $7 trillion decline in wealth and a wide variety of demographics inching towards retirement, many might be reluctant to go back into the stock market. And, while equity markets are “coming back fairly well,” many investors “will remain on the sidelines and keep their money in relatively safe credit-union products.” Still, 2002 “looks very similar in savings and loan growth for credit unions to 2003, but the first quarter of 2004 will really start to feel like a recovery,” Schenk said. Membership grew to 81,791,715 individuals, marking a 1.05% increase in the first six months of 2003 and continuing a steady pace of credit union membership growth. Statistical data was submitted by the nation’s 9,529 federally insured credit unions. -