...Good News Also Emerging
WASHINGTON-The third quarter revealed some positive signs for CUs, including the best third quarter for loan activity in the last five years and net income growing to $3 billion, well above the $1.2 billion net income tallied in all of 2009.
The analysis provided by Callahan & Associates contrasts the third-quarter report recently released by NCUA (see related story). The CU consulting company suggested during its Q3 Trendwatch webinar that credit unions are "improving their fundamentals and adapting to a changing environment."
"There were some surprising numbers," said Callahan & Associates EVP Jay Johnson. "The lending activity jumped out-the highest third-quarter lending activity in five years and one of highest quarters in the last four years."
The $69.9-billion third-quarter lending total, more than a billion dollars a business day, was driven by consumer lending (37.5%) and first mortgage activity (24.6%). Net income is $3 billion, the highest total since 2007 according to Callahan & Associates President Chip Filson. "Compare that to 2008 when the industry lost money for the first time and to the $1.2 billion credit unions made all of last year. Very surprising."
Driving net income were increases in non-interest income and net interest income, and declines in loan loss provisions and stabilization expenses.
More Positive Outlook For 2011
Those positive signs, along with an improving economy and rising consumer confidence, suggest a more positive outlook for 2011 than many credit unions may have had during this year's strategic planning sessions. "The economy is gaining traction, and we are seeing some surprises in the credit union space," Johnson stated.
Jon Olivo, VP, Goldman Sachs Asset Management, noted the economy has recently demonstrated significant improvement. "Our team just revised our forecast for 2011, calling for 2.7% GDP growth for the year and 3.6% for 2012."
The revised outlook, according to Olivo, implies a "meaningful" drop in unemployment, to 8.5% by the end of 2012. "But still high by historical standards."
Olivo predicted that inflation will remain low, at .5% by the end of 2012. "We still think it is unlikely the Fed funds target rate will increase in 2011 or 2012."
Risk still exists with declining home prices, which Olivo said Goldman Sachs predicts will fall another 5% over the next year and may cause another round of consumer retrenchment. "But overall, prospects for U.S. growth are improved, and we think that will be reflected in longer-term rates as we start to get some more clarity regarding European issues," Olivo said. "So near-term volatility with potentially rates shifting a little lower from a near-term perspective. Ultimately, we think growth in the U.S. will push rates higher in the long run."
Olivo added that CU will find that short-term investing will remain "challenging" for a while.