Mortgage Volume Is Behind Record CU Profitability In '02

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Record mortgage lending helped raise credit unions' profitability last year to its highest in six years.

Net income soared by 14% in 2002, pushing average return-on-average assets (ROA) for all credit unions to 1.07%, the highest since 1996, according to NCUA. Fee income, much of it generated from new and refinanced mortgage loans also climbed 14% to a new high of $3.7 billion.

At the same time, average cost of funds to assets plunged to just 2.29%, the lowest in decades, as credit unions slashed their savings rates to five-decade lows.

Still, funds kept pouring into the nation's credit unions, which reported another $47.1 billion in new shares-on top of the record $58 billion of new savings the year before. The $105 billion in new share over the past two years means that credit unions have grown almost 30% during that time.

The data is based on year-end 5300 call reports submitted to NCUA by the nation's 9,688 federally insured credit unions.

Bill Hampel, chief economist for CUNA, said he expects the funds to continue flowing into credit unions this year. "A lot of the savings that have flown into depository institutions is going to stay there. People have learned the lesson of the stock market that it's not such an easy place to make money," said Hampel, who predicted continued double-digit growth in savings, at least for this year.

The flow of new funds diluted net capital ratios, but only slightly, to 10.7% from 10.8%, and lowered the average loan-to-share ratio, the key liquidity indicator, to 71% from 74% at year-end 2001.

Mortgage lending exploded for many credit unions taking advantage of the decades-low rates last year. First- mortgage, fixed-rate loans granted soared by 34%; while adjustable-rate loans granted surged by 29%. Home equity lines of credit, growing in popularity as homeowners take advantage of rising home values, skyrocketed 44% last year.

Used car loans grew a healthy 9% in 2002, while new car lending, hurt by auto finance companies 0% specials, stalled out at just 0.4% growth.

Member business lending, still just 2% of credit union portfolios, soared by 23% to $6.6 billion last year.

Total lending grew a healthy 6% for the year.

Member bankruptcies continued to take their toll on credit unions, as the amount of credit union loans subject to bankruptcy proceedings rocketed by 44% to a record $1.5 billion. At the same time, loans charged off due to bankruptcies climbed 12% and members filing for bankruptcies increased by 6% to 240,495.

Asset quality remained high, with the delinquency ratio dropping to just 0.80%, from 0.82% at year-end 2001; and the net charge-off ratio rising slightly to 0.51%, from 0.46%.

Memberships rose 2% last year to 81 million nationally, while field of membership, or potential members continue rising in double digits, increasing by 34% in 2002. FOM has more than doubled in just the past three years and now amounts to almost 600 million, more than twice the U.S. population (counting many overlaps).

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