2007 Year in Review
Credit Union Advisor, 2008 Winter

2007 will be a year to remember for the entire financial institution industry. While several national institutions grabbed a lot of negative publicity with their loan portfolios, positive stories emerged as well. Credit unions participated in national media in new methods as well, frequently receiving praise and positive recognition as viable (and even desirable) alternatives to banks for many consumers. Here are summaries of several noteworthy events in 2007:

• After several years of significant merger activity and increases in numbers of mergers, 2007 saw a decline in the number of credit union mergers approved by the NCUA. Through September 30, 2007, mergers were down 18 percent compared to the same nine months in 2006.
• 2007 also saw merger activity among corporate credit unions. Among the notables, Northwest Corporate Federal Credit Union merged with Southwest Corporate Federal Credit Union, creating a $14 billion credit union. $12 billion Members United and $265 million Central Credit Union Fund combined, and in April, WesCorp and SunCorp announced plans to merge.
• Within the merger arena, the story with arguably the most impact on the credit union industry was a merger that did not happen. On March 9, $1.8 billion Wings Financial FCU expressed an interest in merging with $178 million Continental FCU. What was unique about this merger offer was the $200/member payment that Wings offered each of Continental’s members. While Wings had approached Continental several times in the past, this was the first “hostile takeover” attempt that had been presented. Further, this introduced the term “hostile takeover” into the credit union industry for the first time. Other offers from Wall Street started coming in at up to $1,700 per member, opening eyes to the potential value of credit unions.
• While there was no shortage of media coverage of the real estate troubles in many of the large national banks’ lending portfolios, four credit unions also grabbed lesser headlines with real estate lending problems as well. These credit unions, two in Colorado, one in California, and one in Michigan, all suffered damaging losses — in part due to the downturn in the mortgage market. Losses in these credit unions reminded all credit unions to keep their focus on appropriate lending decisions, proper ALM, and proper risk management. Boards were reminded of their fiduciary role to oversee the actions of management.
• On March 8, Comerica Bank, the largest bank headquartered in Michigan, announced that it was moving its headquarters to Texas. Comerica, with over 250 branches and over $23 billion in deposits in Michigan alone, made a symbolic statement with this move out of the Midwest. While Comerica decided to pursue growth in another region, credit unions had a real opportunity to send their own positive message in the state of Michigan.
• Credit unions received news coverage and publicity in an unprecedented way during 2007. Positive news stories were broadcast on The Bloomberg Report and Fox Business News. The New York Times and USA Today ran stories featuring the credit union movement. A survey put out by CUNA regarding consumer spending plans coming into the holiday season received national coverage by all major networks. Internet headline stories written by nationally acclaimed finance writers Liz Pulliam Weston of MSN Money, and Jean Chatzky of MSNBC.com praised credit unions as “ideal for small savers” and in Weston’s case, raised eyebrows for her headline “Ditch your bank for a credit union.” Widely read Money Magazine published a story “5 Reasons You Belong in a Credit Union” in its December 2007 issue, discussing the advantages to credit union membership.
• According to CUNA Mutual Group’s Credit Union Trends Report, during 2007, the industry’s membership has climbed to an estimated 90 million for the first time in history.
• In spring of 2007, the Internal Revenue Service (IRS) released a series of Technical Advice Memoranda (TAMs) concerning credit union liability for UBIT (unrelated business income taxes) (25 to date). Identified sources of unrelated business income included ATM fees, sale of insurance products, interchange fees, and the sale of checks to members. As more of these TAMs were issued, it became clear that the IRS was most concerned with non-member ATM fees and revenue from certain insurance products.
• On September 18, the Federal Open Market Committee agreed to cut the Federal Fund rate by 50 basis points. This decision was the first reduction in the Fed Funds rate since June 2003. Credit unions had become accustomed to dealing with flat or slightly rising interest rates over the past four years, but now have to begin modeling with decreasing rates.
• During 2007, Capital One announced a program in which it would issue debit cards that could be linked to any checking account at any bank or credit union. While other institutions had unsuccessfully attempted this in the past, Capital One paired with MasterCard and has received much broader acceptance. Historically, debit cards have always been issued where the checking account was held. This move has added a new competitor in an area where credit unions have not previously feared competition.
• The woes of the Midwest’s mortgage industry came to the forefront in October when Fannie Mae released its list of states with the largest credit losses through September 30. Michigan and Ohio ranked number 1 and 2, respectively. Home foreclosures reached an all time high nationwide in the third quarter, with Ohio the top state in percentage of loans in foreclosure and ninth in delinquencies not yet in foreclosure. Michigan ranked second in delinquencies and third in foreclosure inventory.
• Despite the general public perception that it is harder to get a mortgage, credit union mortgage volume of $28.9 billion through the first six months of 2007 is the highest in four years. Credit unions and their generally liquid balance sheets put them in a unique position to capitalize on this available market.
• Unlike the liquid credit union balance sheets that were able to respond, the Federal Reserve in August was forced to inject $62 billion into the banking system for the first time since 9/11. Subsequent injections followed in an attempt to ease the volatility of the markets and to assist banks with liquidity issues caused by the sub prime mortgage market.
• VISA, Inc. announced in the fall that it would be issuing stock shares to all members of VISA USA based on fees generated by members. While credit unions have not historically been permitted to hold individual shares of stock, the NCUA issued a legal opinion on November 1 permitting federal credit unions to hold their VISA stock following the conversion. This conversion is expected to take place during early 2008.
• While the stock market had an impressive first six months of the year, the latter half experienced unprecedented volatility. This volatility provided many credit unions a golden opportunity to market to their members the safety and security of depositing funds into their credit unions.