Credit Union Loans Increase, While Asset and Share Growth Slow in 1999

The nation's 10,860 credit unions ended the millennium with $418.1 billion in assets, more than 76.6 million members, a record 76.1 percent loan-to-share ratio, but single-digit growth in other key operating areas.

 
 

Washington, D.C. (January 20, 2000) - - - The nation's 10,860 credit unions ended the millennium with $418.1 billion in assets, more than 76.6 million members, a record 76.1 percent loan-to-share ratio, but single-digit growth in other key operating areas.

Asset and share growth in the 12 months ending Dec. 31 were only 5.9 percent and 5.1 percent, respectively. Both are less than half the growth rate in 1998. Even though total income only grew 5 percent, credit unions still saw their net income grow by 7.2 percent to a total of $3.8 billion, the highest total of the last three years.

One area where double-digit growth occurred was in loans, which increased 10.6 percent to $276 million, compared to a record 14.7 percent increase in the previous year. The double-digit loan growth led to a decade high loan-to-share ratio of 76.1 percent at yearend.

While all of the traditional measures of safety and soundness are very strong (capital-to-assets at 11.6 percent, delinquency at 0.75 percent of loans, and return on assets at 94 basis points), the slowing balance sheet suggests the broader challenge facing credit unions.

Even as membership grew by almost 1.8 million, many members are finding insured deposits less relevant to their financial needs. "Savings are going directly to the market," said Chip Filson, president of Callahan & Associates. "Credit unions' role in the future will be different. They may not provide all the options on their balance sheet, but they can be involved in helping their members find good solutions."

Traditional credit union business is being superseded by firms offering a wide variety of financial products with the Internet becoming an increasingly important influence. "Looking at growth rates by asset size, smaller credit unions have had negative or zero share growth for all of 1999," Filson said. "These credit unions have the least amount of resources to compete. But the changes limiting their growth will also begin to impact larger credit unions. There was no growth in savings for the entire system the second half of 1999."

Total capital of $48.5 billion, investments of $128.6 billion and a membership base of 76+ million provide credit unions a strong financial base. "The key will be how fast credit unions can adapt their business to the new expectations of members and the demands of the marketplace," explained Filson.

A key indicator of credit unions' successful transition will be revenue growth. "Right now 90 percent of a credit union's total revenue is from interest income," Filson said. "In the future, that percentage will decline as credit unions find new ways, such as mutual funds, to bring services to members. Last year's 5 percent growth in revenue was significantly less than the 9.1 percent increase in operating expenses. That difference can't continue if credit unions are going to compete."

Complete financial results for every credit union over $20 million in assets are in Callahan's four-volume Financial Yearbook Series. In addition, complete credit union financial results for the last ten years are included in Callahan's Peer-to-Peer software and database program.

 

 

 

March 13, 2000


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