Member Numbers Up Slightly in 2003, CUs Under $20 Million Hit Hardest, Real Estate Lending was Clear Bonanza

MADISON, Wis. – The news is not as bad as expected for member numbers for 2003, but last year still saw a sharp slowdown compared to previous years. Membership was up 909,000 (1.1%) to 84.3 million, according to CUNA Mutual Group’s December 2003 Credit Union Trends Report. Those numbers will likely be revised up when final NCUA 5300 Call Report information is in. The net gain of 909,000 members over the course of 2003 is a little over half the 1.8 million increase in 2002. One explanation for the low member count last year could be that some large credit unions may have purged their membership roles of inactive and low balance members, according to the report written by David Colby, CUNA Mutual Group’s corporate economist and assistant vice president. At year-end, there were 9,729 credit unions, reflecting a net decline of 312 for the year. Barring any major changes in the legislative or economic environments, 2004 will probably see the loss of another 304 credit unions, according to the report. Over the past three years, the average annual rate of CU market contraction was just over 3%. Year-end 2003 data is expected to show that the under $20 million asset class experienced the greatest loss of credit unions. In other areas, total loans were up 10% for 2003, the best showing since 2000. Real estate secured loans accounted for 57% of 2003′s increase followed by new and used vehicle loans with a 34% contribution. Other consumer loans and agricultural/member business loans were up $1.5 billion for the year while credit cards and other unsecured loans were down. No surprise that credit unions finished the year with record first mortgage originations, Colby noted. Still, overall real estate secured loan portfolio growth was “constrained” by record loan sales and declines in second mortgages. Fixed rate first mortgages were up 15.3% even with portfolio sales estimated to be in excess of $40 billion, Colby said. When adjustable rate firsts are included, total first mortgage portfolio growth increased to 16.2% in 2003. Home equity growth dipped mid-year, but has recovered to 17.6%, CUNA Mutual reported. “Expect reduced first mortgage origination volumes in 2004 and escalating activity in home equity lending,” Colby said. “Retention levels based on asset gains will dictate final 2004 real estate loan portfolio growth results.” “With solid momentum carrying over into 2004 we should see total loan growth in the 9%-11% range this year,” Colby said. “Our marketplace continues to achieve loan growth above the 10-year average annual rate of increase.” Colby said consumer installment lending (CUCIC), particularly vehicles, will replace some of the first mortgage growth contributions. Credit unions are expected to hold $35-$42 billion more in member loans by the end of 2004. The combined effects of a seasonal outflow in member savings and deposit yields, which continue to fall, produced a $3.1 billion (0.6%) reduction in total CU savings during December, according to CUNA Mutual. Annual growth finished the year at 8.4%, down from a peak of 12.7% last February while deposit growth slowed sharply from the recession/equity market decline induced results over the previous two years, Colby said. In the second half of 2003, the annualized growth rate for deposits was just 1.4%, down from a high of 15.2% in June while 143% of the gain since June came from liquid deposit accounts as CDs were down $2.7 billion (2.2%) over the same period, Colby said. Positive equity market results in 2003 which are carrying over into 2004 and deposit yields under 1.0% for regular shares, less than 1.2% for money market accounts and one year CDs paying under 1.65% will lead to “continued erosion in savings growth this year,” Colby said. Total assets finished the year at $626 billion, up 8.9% for the year. While 2003′s growth was above the long-term trend rate of increase, credit unions will likely slip below this mark in the first half of the year, Colby noted. He said credit unions will also need to closely manage deposit yields to maintain liquidity flows and gross spreads as interest rates rise. Annual capital growth has slowed since May, but finished the year up a “solid” 8.8% as total assets slipped $2.8 billion in December and the capital-to-asset (C/A) ratio improved to 10.8%. “Given the 7.0% threshold for safety and soundness, a movement average C/A ratio of 10.8% reflects a healthy industry with more than adequate capitalization,” Colby said. The $3.8 billion month-only increase in loans combined with a decline in savings produced a 1.1 percentage point jump in the loan-to-share ratio. This key measure finished the year at 72.2% after bottoming out at 67.5% in May, CUNA Mutual reported. The L/S ratio is now at its highest level since the beginning of 2002. Both the C/A and L/S ratios are forecast to climb in 2004, primarily from slower savings growth. The loan delinquency rate fell below 0.7% in December, down over 12% for the year. [email protected]