Current Industry Levels Vary
By Joyce Moed

As the first half of 2007 comes close to ending, credit unions leaders are getting a better idea of what they can expect for the remainder of 2007.  And opinions of the current industry levels vary.

"The basic economy is not real robust," said Dave Colby, chief economist of CUNA Mutual Group, "but credit unions are performing really well. While the economy is presenting challenges, credit unions are doing really well."

But that does not come as a surprise to Colby, who said that traditionally he finds that credit unions do well in bad times, due to opportunities that the market brings during those lulls, such as refinancing needs.

But something that has surprised Colby this year so far is credit union deposit growth.

"We’ve seen a pleasant surprise there," he said.  "It’s been a significant improvement trend. I am very positive about that."

As for what credit unions can expect in the future, "it really depends on what credit unions want to do," Colby said. "It’s going to vary a lot by institutions."

But he expects to see some asset growth by year-end.

"Consumers are engaging in balance-sheet repair," he said. "I continue to see a ton of competition on both the deposit and lending sides. Also, expenses are probably going to be fractionally higher by year-end."

What Colby doesn’t expect to grow for credit unions this year, is the number of members.

"I don’t expect more than a million new members," he said, which is slightly less than the 2006 level, which was about 1.2 million. "We’re also going to see sharper declines," he said, because as people pay off their loans they will cease their relationships with their credit unions.

Ron Koza, chief investment officer for Members United Corporate Federal Credit Union, said that this year is showing a 2 to 3 percent growth.

"Nothing super strong," he said. "We came out of a very weak first quarter."

He said that is typical due to reduced inventory throughout businesses in first quarters and then the cost of restocking inventory in the second quarter.

"It’s been very good historically to be able to track that," Koza said.

And Koza expects inflation to stay at a consistent rate. 

For later this year, Koza expects there to be a lot of pressure on housing during the later part of 2007.
"There are tons of properties for sale, and some foreclosures," he said.

He explained that the housing market loosened its lending standard in the recent past.

"So there’s probably a lot of people out there that got loans that shouldn’t have," he said. "So now we are facing a market with higher lending standards."

Koza said he has seen only once surprise this year, so far.

"The only surprise is that the economy is doing a little better than expected," he said.

In the near future, Koza expects to see more loan-participation programs from credit unions.

"I think credit unions are going to raise fee incomes, in a wide range of ways," he said.

Dwight Johnston, vice president of economic and market research for WesCorp, said the first part of 2007 has been somewhat bleak.

"We’ve been experiencing a slow-down during the first half of the year," he said, especially within the housing market.

"We think in the second half of the year, those things might be accelerated," he said. "We’ve also seen a softer job market, and lower retail sales. The housing thing has spread, offsetting what has been potentially strong global growth. We think the news on the housing is going to get progressively worse."

Johnston said that the traditional outflow of liquidity usually seen, has not been seen in the first half of this year. He predicts it will be seen in the second half.

"Right now we’re really in the process of sorting what’s been going on globally," he said.
Dr. Tun Wai, chief economist and director of research for the National Association of Federal Credit Unions, said that comparing the first half to the second half of the year is not always the best way to look at things.

"In reality, the better way to look at things is year-over-year," he said.

This year, Wai said, the "first quarter was rather insignificant in savings." He said that traditionally, the second half of the year brings more lending opportunities, mainly due to the Christmas holiday and students going back to school.

"The seasonal pattern is still holding," he said.

Wai expects the economy to pick up during the second half of 2007.

"My forecast is loan growth will increase 5.5 percent, and share growth 4.5 percent," he said, which shows a slight increase from last year.

Wai stressed that what’s very important is how real estate loans are handled, as they are long-term loans. As for automobile lending, Wai said "a lot has to do with what is going on auto sales," which were negative in the first half of the year. "Energy prices will probably influence automobile sales, which will influence the credit-union industry."

On the savings side, Tai has seen many credit unions with more Certificate of Deposit accounts, which used to be seen more in banks and very little in credit unions, he said.

As for the rest of the year, Tai said "it looks pretty good." And he that he hasn’t seen any surprises within the credit-union industry.

What he has seen though are hidden opportunities.

"There is a demand for the services [credit unions] are offering," he said. "Members want more services, and members want these services at a cheaper rate."

Therefore, the perfect opportunity is for any type of cost-savings offer. "Any cost savings would be a very good thing," he said.

The one thing credit-unions leaders do agree on this year is that there are opportunities out there for the industry.

Colby thinks the best opportunity for credit unions at present is attracting younger members.

"The great challenge credit unions have is being relevant to the next generation of borrowers," he said. Credit unions can attract younger members by offering them services to help clean up their credit scores, and by doing some "hand-holding," Colby said.

"This high-tech generation knows what they can do," Colby said. "They just don’t know what they should do." And because of that, Colby said, sometimes their credit suffers without them understanding the longer-term effects such as "the pain of paying a percent more on a mortgage loan."

One hidden opportunity credit unions have, Johnston said, is to help people refinance their homes. There are many people who need their homes refinanced, and many who are upside-down on their mortgages. "People who never should have gotten into the amount they have," he said.