State of the Credit Union Industry as of December 31, 2004

Dear Board of Directors:

Enclosed is a report highlighting credit union financial trends for 2004. The analysis is based on data compiled from the year-end 2004 call reports submitted by all federally insured credit unions.

The financial strength of the credit union industry remains strong despite a decline in the return on average assets. The 2004 performance in lending, delinquency and overall net worth accumulation reflects the strength of credit unions while a decline in the net interest margin indicates the challenges credit unions face.

Success in 2005 will depend on how well the individual credit unions have positioned their balance sheets. Credit unions are encouraged to assess their net worth level as it relates to their risk profile and business needs, and recognize lower levels of profitability may occur for those credit unions taking action to reduce interest rate or other types of risk.

I want to thank you for your diligence and cooperation in submitting your financial and statistical data in a timely manner.