Different Strategies to Achieve Growth in 2004

Chip Filson provided an analysis of the past year accompanied by two firsthand case studies and an economic overview in last week’s year-end Trendwatch call.


“With over 9,200 credit unions reporting, loan growth continues to be the most positive news,” said Chip Filson, president of Callahan & Associates, Inc. “Loans kept on a double-digit pace for the second straight year, up 10.4% at year-end.” Callahan hosted its year-end Trendwatch call last week, hosted by Chip Filson and Jay Johnson, executive vice president.

Much of the year was characterized by slowing growth or as Filson phrased it “single-digit momentum.” Share growth was at 5.4% and membership grew at only 1.5%. However, Filson pointed that shares are showing positive momentum, growing by $4.3 billion in the fourth quarter 2004 versus $2.3 billion in the fourth quarter 2003. Going forward, membership growth continues to be the most critical growth issue. Community charters and new SEGs, which should bolster membership growth, have not had the effect that credit union leaders had expected.

ROA finished the year at 92 basis points but the quarterly ROA for the fourth quarter was at 90 basis points, which reflects the year-end payouts of dividends and salary bonuses.

Filson broke out different peer groups based on asset growth. The group that exceeded the industry average of 6.2% outperformed those credit unions with asset growth less than 6.2% in several key metrics, such as ROA, share and member growth. One of those credit unions, First American Credit Union (WI) with assets of nearly $128.7 million, posted strong asset growth of 12.2% during 2004.

“We have been effectively growing our assets through indirect lending and member business products,” said Thomas Barnes, president of First American. “Recently, we have been able to grow our commercial base substantially.”

The Trendwatch touched on the growing merger issue that has garnered attention over the past several years. Filson explained that even though there were 331 mergers during 2004, the assets represented by those mergers represent one-half of one percent of the total credit unions industry's assets. On the other hand, there were 258 bank mergers during the same period. Those mergers represented over 9% of banking industry assets.

Jo Ann Broderick, president of First Commonwealth FCU (PA) spoke on their recent purchase and assumption of an ailing credit union. Broderick explained that First Commonwealth's strategy has been expansion through new SEGs versus a community charter.

A brief overview of the economy was presented by Joe Olivo, vice president of Goldman Sachs Asset Management Group. Olivo featured comments on Alan Greenspan's “conundrum” on long-term bond yields. “Over the past two weeks, there has been 34 basis point rise in the 10-year and this could be an indication that the yield curve may steepened,” Olivo said.

Goldman Sachs expects the Fed to continue to raise the overnight rate by at least 25 basis points each quarter in 2005. “We are not ruling out that the overnight Fed Funds rate could reach 4.00% by year-end 2005,” said Olivo. The current overnight Fed Funds rate is 2.50%.




March 14, 2005


  • Chip- Why do cu commentators ignore the fact that the thrift industry (OTS regulated) grew by 19.6% last year and commercial banks grew by more than 11%? Was this a one year abberation orare there major flaws in the credit union business model? This would be a worthwhile analysis and debate.