Quick Response to 4th Quarter Interest Rate Cut Helped Credit Unions

An early sample of credit union 4th quarter data shows that quick action kept interest income declines to a minimum despite a Federal Reserve rate cut of 50 basis points in November. The 1,055 credit unions participating in Callahan's First Look program were quick to respond to the most recent interest rate decline, making immediate changes in their cost of funds as well as investment composition, helping them maintain a strong ROA.

 
 

An early sample of credit union 4th quarter data shows that quick action kept interest income declines to a minimum despite a Federal Reserve rate cut of 50 basis points in November. The 1,055 credit unions participating in Callahan's First Look program were quick to respond to the most recent interest rate decline, making immediate changes in their cost of funds as well as investment composition, helping them maintain a strong ROA.

The credit unions in the sample have a total of $172 billion in assets and represent approximately 30% of the industry. Their swift efforts helped limit the decline in their annualized yield on investments from 3.32% in the third quarter to 3.08% at year-end. To accomplish this, they changed their investment composition to reduce the percent of investments they hold in cash and cash equivalents from 30.2% to 28.4%. They also increased the percentage of investments held for at least a year from 43.9% to 46.0%.

During the same period, the annualized Return on Assets for the credit unions slipped just four basis points, returning 1.24% of their average fourth quarter assets. They maintained a strong bottom line amid their loss in interest income by lowering their cost of funds slightly, from an annualized rate of 2.68% in the third quarter to 2.56% in the fourth quarter. The major cost of funds is dividends paid on shares, but these credit unions had some help lowering their ratio by paying less on borrowings from 4.04% in the third quarter to 3.68% in the fourth.

In past quarters, First Look data has provided accurate insight into the industry's final results weeks before official figures are available. Any credit union can participate in Callahan's free First Look program every quarter by e-mailing their 5300 Data-Charter#.XML files to 5300@callahan.com
 

 

 

Feb. 10, 2003


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