Membership Growth Lags Despite FOM Growth; Industry Already has 225 Fewer CUs This Year

MADISON, Wis. – Even as the industry sees solid showings in lending and savings, the number of credit unions and more importantly member count, continues to fall. That is according to the latest CUNA Mutual Trends Report. The CU count is down 225 YTD, compared to a decline of 103 CUs through the first four months of 2003. Current estimates show a total CU count of 9,484 at the end of April reflecting a net loss of 454 CUs over the past 12 months. April saw a decline of 249,000 members even as YTD membership is up 824,000. There are now roughly 85.7 million members according to the latest CUNA Mutual Trends Report. “This trend of slower growth is concerning, especially with the high number of field-of-membership expansions granted over the past couple of years,” said Dave Colby, CUNA Mutual’s chief economist, adding “membership is probably the most difficult piece of information to capture from the limited market sample CUNA uses, so monthly variations are just that and not new trends.” Colby said looking at the NCUA’s Regional Director’s Actions Taken report, “we are hard-pressed to find justification for this decline in the mergers section of the report.” Indeed, some note that an exact membership count is difficult to pinpoint because members are sometimes counted more than once if they belong to more than one credit union. Colby said most people like to stick with their core financial services provider during a recession but coming out of a downturn, they tend to shop around. “Historically, credit unions have not been big promoters of themselves, they don’t like to toot their own horns,” Colby said. “For the members that they currently have, I would ask members if they have loan needs elsewhere” and use this as an opportunity to build that relationship. Colby said most credit unions see growth when there is an actual branch present so credit unions that have been granted FOM expansions should be encouraged by the `if you build it, they will come’ notion. In other trends, credit unions’ record real estate secured lending helped contribute to the bulk of year-to-date lending growth with gains at their highest level since early 2001. According to the report, 58% of the YTD gain and even over the past year is attributable to real estate secured loans with solid home equity growth supplying a 22% increase. At $178 billion, real estate secured loans represent 27.2% of assets and 44.8% of all loans, which is a new high. Home equity loans are showing the strongest performance, up 7.5% YTD followed by adjustable rate loans at 4.4%, said Colby. “Loan sales are off 48% as credit unions try to gain loan yield as long as possible before interest rates go up,” Colby said, adding first mortgage portfolio growth should decline to about 10% by year-end due to increased loan sales while home equity and other mortgage portfolio gains should finish the year up 12.5%. A steady, consistent, year and a half improvement for car loans show a 2.5% YTD increase even as car manufacturers pull back on incentives, Colby pointed out. “Used vehicle growth continues to recede, but an 11.1% gain is considered good by almost any measure,” Colby said. “Our (forecast) of just under 10% for total vehicle loan growth in 2004 is intentionally conservative. With a forecast of 3% new vehicle sales growth (in units) and significantly fewer refinance payoffs, credit unions may easily exceed our forecast of $163 billion at year-end.” On the savings side, a combination of a payday late in April and larger tax refunds helped to slightly reverse a slowing trend, according to the report. Member savings grew by $8.1 billion as 90% of deposit inflows were steered into regular shares, share drafts and money markets since April 2003. Overall, total savings are up 4.6% YTD and 8.3% over the past year. “Our forecast of savings growth in 2004 assumes improving employment and equity market results will drive the annual gain down to about 7%,” Colby noted. In other areas, credit card portfolios are down 5.1% YTD including a 1.3% decline in April, due to seasonal payoffs and whole portfolio sales. At $21.3 billion, credit cards slipped to just 5.3% of all CU loans outstanding with annual growth of 1.7%. First quarter NCUA data indicates 4,823 CUs had outstanding member credit card loans, but 500 CUs held over 72% of all balances, according to the report. The CU share of this $747 billion market declined to 2.8% as the rest of the market was growing at a 3.3% annual rate. CUNA Mutual forecasts that with an improving economy and fewer refinance payoffs, credit cards should generate 4% of growth this year. Annual capital growth has slipped to 7.3% and YTD capital is up just 1.9% with a return on assets of 0.90% in the first quarter, down from 0.98% in 2003,being a “key contributing factor.” With slower capital growth and a savings surge in the past three months, the capital-to-asset ratio fell to 10.5% as the loan-to-share ratio also declined at 69.8%, down 153 basis points YTD. “Our (forecast) shows both key measures improving by year-end, primarily due to much slower savings and asset growth,” Colby said. “We expect the loan-to-share ratio to climb above 72% by the end of 2004 from a combination of solid loan portfolio growth and reduced deposit inflows later in the year.” If credit unions want to finish the year with a 1.0% or better ROA, they will “really need to boost lending and non-spread revenue sources,” Colby said. [email protected]