ALEXANDRIA, Va.-If NCUA's mid-year report on federally-insured credit unions is any indication, credit unions have a pretty bright future ahead of them. For the most part, the numbers that should be up were up and the others that credit unions like to see heading downwards did just that. NCUA reported 9,210 federally insured credit unions in operation as of June 30 with 83.3 million members, up 1.1% from 82.4 million at year-end 2003. Assets were up 4.2% to $635.6 billion. Loans increased 5.0% to $394.9 billion, while delinquencies dropped from 0.76% to 0.67%. Net charge-offs declined from 0.56% to 0.53%. All the major loan categories, except unsecured loans were up. First mortgages jumped 6% in the first six months, followed by new cars at 5.7% and used cars at 3.2%. Unsecured credit cards declined 3.8%. At the same time delinquencies are subsiding with delinquent loans to total loans at 0.67%, the lowest level in a number of years. Loans 60-90 days past due plummeted 8.3% in the first six months of the year and credit card delinquencies dropped just over 10%. Net charge-offs to average loans fell from 0.56 to 0.53%. On the savings side, regular shares increased 5.8%, money market shares grew 3.8%, and share certificates gained 1.1%. Non-member deposits, though a smaller category, skyrocketed 38.1% from $1.3 billion to $1.8 billion. Overall, shares were up 4.0%, which allowed the loan-to-share ratio to grow from 71.2% to 71.8%. "The loan-to-share ratio went from 71.2 to 71.8% and that's because obviously the lending growth has outpaced the saving growth, which is a little unusual in some sense because normally, the first half of the year, you don't have lending outpacing savings," NAFCU Chief Economist Tun Wai commented. Several investments demonstrated increases as well. U.S. Central's deposits grew 11.0% during the same period. Bank and thrift deposits were up 1.9%, from $26.3 billion to $26.8 billion, while federal agency securities jumped 3.9%, from $88.6 to $92.0 billion. "America's credit unions are strong and positioned for continued growth," NCUA Chairman JoAnn Johnson. "However, maintaining due diligence and effectively managing risks will be vital in ensuring solid financial performance." While credit unions' average return-on-assets has been steadily declining for some time-it fell from 0.99% to 0.92% in the first half of 2004-CUNA Chief Economist Bill Hampel said this is not necessarily a negative thing. "It's a noticeable drop. It's not all that unexpected," he said, adding that he expects continued "downward pressure" over the next 18 months. Hampel is forecasting credit union ROAs of 80 to 100 basis points over the next year and a half. The economist said the credit unions' falling ROA are in response to the short-term rates rising faster than the longer term ones flattening the yield curve. Additionally, credit unions' bottom lines have benefited considerably from the refinancing boom, which is now behind us, so those associated fees are going away. "For smaller credit unions, this could be a problem because their net income is already low," Hampel said, emphasizing that this was a generalization. "The good news for smaller credit unions is, one reason their net income is not as high is because they are not as likely to be involved in mortgage lending," he added, so they will not be as affected by the slowing mortgage market. Generally, larger credit unions, Hampel continued, do not need as much net income as they have already. The only reason to keep a 1% ROA is to build or maintain capital ratios and the bulk of credit unions will not be growing extremely fast in the near term to warrant a higher ROA. "Credit unions could maintain 1%, but the things they would need to do to members would be unnecessary," he said. To increase net income, credit unions can either become even more efficient-which Hampel said is not much of an option for many credit unions, raise loan rates, increase fees, or lower dividends. "If you really need the net income that's one thing, but why take more money out of the members to maintain an artificially high net income?" Hampel reasoned. Credit unions typically like to have a little higher capital because of the buffer it provides for the unexpected, which fits in with their conservative, cooperative philosophy of running things, he explained. [email protected]