MADISON, Wis. - CUNA Mutual, the largest vendor serving the credit union industry, had a solid financial performance last year, but that's not the only story it tells in its just released 2003 annual report. The company used the annual report to tout how varied and deep its relationships with the credit union industry are, and not just on the product side. CUNA Mutual spokesperson Sydney Lindner said in years past the company did not really lay out its role in the industry in its annual report, and wanted this year to be different. The report starts out talking about CUNA Mutual's behind the scenes efforts to promote the "credit union idea" and defend it. For example it notes that it spent $225,000 last year fighting the IRS on its Unrelated Business Income Tax. UBIT really came on the radar screen last year after a number of UBIT audits in states such as Connecticut and Alabama attracted headlines, but CUNA Mutual has been on top of UBIT for years. According to its annual report, not including the $225,000 spent last year, it has spent more than $1 million over the last decade on the UBIT front, much of that in legal costs. CUNA Mutual clearly wanted to show an awareness of bigger issues other than just its financials in its annual report, talking about banker attacks on credit unions' tax-exempt status, secondary capital, and RESPA. Some may not know, but CUNA Mutual has a lobbying presence in Washington with long time executive Larry Blanchard working out of Washington to advocate CUNA Mutual's position. The report states the company has "been shoulder to shoulder with credit unions in lobbying for bankruptcy reform and pension reform and regulatory relief." It also states that it is working with others in the industry "in response to banker attacks at the state and federal level." The company touched on just some of its financial backing of the industry, noting its support of the National Credit Union Foundation (which it gave $100,000 last year), the Filene Research Institute, the National Federation of Community Development CUs, WOCCU and others. Partnering With Products You can't be a credit union partner like CUNA Mutual likes to call itself without the product menu to back it up. The annual report lays out just how many levels of products and services the company now has. For example, its CUNA Mutual Mortgage Corp., celebrating 25 years, issued more than 30,000 first mortgages through 600 credit unions last year. Its MEMBERS Capital Advisors investment subsidiary reached a new record of $11 billion assets under management last year, up from $9.5 billion. The subsidiary manages MEMBERS Mutual Funds (mutual funds for members); Ultra Series Funds (fund CU benefit plans, annuities, etc.); and CUNA Mutual Group Notes, a product for corporates to invest. In the emerging trust services area, CUNA Mutual is a key player and part owner of MEMBERS Trust Company. On the lending side it partnered with leagues, and tech vendor APPRO to offer a 24-hour lending call center, Loan Link Center, which processed 300,000 applications worth $890 million last year for some 265 credit unions. The report also highlights where it has tried to respond to a pressing industry need such as its Capital Notes program which is a secondary capital tool to help growing credit unions raise capital. The company also partnered with Primary Payment Systems for identity theft solutions, and it's only been a few years since it came out with a debt cancellation product. Looking at the financials shows the company's revenues were up from $2.28 billion in 2002 to $2.41 billion last year. The most dramatic number comes in net income, which was negative $9 million in 2002, jumping to $134 million in 2003. CUNA Mutual CFO Jeff Holley said as a financial pro, the number he looks at most closely every year is operating gain. That went from $47 million in 2002 to $113 million in 2003. So what's behind the strong year? "It was a huge year for mortgage operations. They grew by 40%," said Holley crediting much of the growth to the low interest rate environment. He said the company's servicing block of business was up to $12 billion last year. "It's kind of feast or famine, when rates are low it does really well, when they tick up it's not as profitable." Already this year 60 new credit unions have signed up with CUNA Mutual Mortgage, said Holley. Another growth area last year was its international business. The company attracted a lot of attention for its recent move into China, but that business had little to do with the international results for 2003. Holley said operations in Australia and the Caribbean drove the 30% increase in international business. The company's retirement benefits business was also strong, said Holley, noting 98% retention. 401kExchange, a Web-based information provider on 401ks ranked CUNA Mutual No. 1 in client satisfaction for plan administration/record keeping and for fund management among small firms. Holley said he's particularly proud of last year because the company, for the first time in 25 years, reduced its expenses year over year by 2%, going from $954 million in operating expenses in 2002 to $933 million last year. "In some cases we just took costs out of the operation by automating, utilizing new technology, redeploying resources from across our operation," said Holley. This was accomplished despite rising health costs for the company which is trying to get its 1,400 unionized employees on the same health care plan management is on to gain some economies of scale and stem the rising tide of health care costs. At press time, the company had still not reached a contract agreement with its union employees. It may come as a surprise to some in the industry that CUNA Mutual's biggest block of business is in lending protection not credit union protection. The company's credit union protection products, which includes bond insurance, director liability and others, accounts for about 15% of revenue, while lending solutions business, including credit life/disability and lending products, accounts for 45% of business. Holley said the company also judges itself on how much it gives back to members. Last year it paid out more than $330 million to individuals in the form of whole and term life, auto, and homeowners claims. Life insurance has been a core product for CUNA Mutual for years, but it entered the home and auto protection market more seriously about five years ago through a partnership with Liberty Mutual. It also piad out $475 million in credit life/disability. "2003 was a good year. We worked extremely hard to make sure we were efficient and customer focused. We still have a ways to go to reach our performance targets that we've established," said Holley. He noted that return on equity for example was about 9.5%, and the company shoots for between 10-12%. "We're owned by our credit unions and sometimes we get the question, `why do you guys need to make money.' We need to continue to reinvest in our business, need to continue to have a strong rating," and continue to be able to give credit unions solutions they need, he said. [email protected]