The second quarter of 2004 marks a pivotal point in the landscape of the yield
curve and the Federal Reserve's monetary policy stance. After 9/11, interest rates
tumbled to new lows, but the majority of economists projected recovery by year-end
Every year since 2002, all the experts expected interest rates to rise. Each
year credit unions, as well as the majority of most financial institutions,
positioned strategies for a rising-rate environment. Instead, plagued by the
earnings scandals and world security concerns, interest rates remained at these
low levels from 2002 through the first quarter of 2004.
Now reality has struck. Treasury rates began to ascend in April following the
news of economic growth in the first quarter and concerns of inflation began
Though credit unions reported a solid quarter of growth and earnings, challenges
lie ahead as the economic environment changes shape. America's 9,406 credit
unions reported a rise in loans outstanding of 4.1% from the first quarter 2004.
Led by real estate and auto lending, the loan portfolio topped $403.4 billion
with assets reaching $649.7 billion at mid-year.
Share growth at 1.4% for the quarter continued to lag behind loan growth resulting
in an increase of 1.9% to the loan-to-share ratio of 71.75%. Cash and investments
declined by 3.0% from the first quarter, with liquidity tightening as share
growth lagged behind loan growth.