Hunt for Best Rates May Set the Stage for a New-Member Growth Repeat
If consumers continue looking outside of banks for the best rates on products like money market accounts, credit unions could gain another 1.7 million new members as they did last year.
According to CUNA Mutual Group's January 2010 "Credit Union Trends Report," at the end of November, the latest period tracked, total industry membership was 92.8 million. Membership gains are likely to be revised lower when final NCUA year-end data is reported, the report read.
"When the final data is in, we think CUs will have grown membership by more than 1.7 million in 2009 and the 2010 environment will be favorable for similar results," according to CUNA Mutual Chief Economist Dave Colby.
A number of factors helped boost membership nationwide, including consumers seeking the safety of insured and local depository institutions and rate shopping for deposits and loan refinancing, the trends report noted. Still, CUs continued to post lower deposit yields. CUNA estimates showed national average share draft rates of 0.39%, regular shares of 0.54% and MMAs at 0.99%.
When you combine these rates with the fact that 80% of deposit growth over the past year is attributable to these three account types, the industry can expect an even lower cost of funds than the 1.81% reported by the NCUA in third quarter 2009 data, Colby said.
"This will help offset the adverse bottom line impact of lower yields on surplus funds," Colby said.
In spite of historically low deposit yields and an equity market gain in excess of 26% for the S&P 500, CUs have seen their savings portfolios increase 10.4% over the past year, the trends report data revealed. Colby said to help put current results in perspective, the year-to-date savings increase of $69 billion is almost double the average full-year gain over the past decade. Total assets at CUs reached $903 billion in November, 8.7% above prior year levels. Savings per member rose 8.1% over the past year to $8,254. This average increased $617 despite membership.
"Members concerned about their financial and employment futures will continue to add to their balances until we see several months of improving economic and employment results," Colby said.
At the end of November, CUNA estimates showed 7,853 CUs, which reflected a net loss of 30 CUs during the month, 235 YTD and 274 over the past 12 months. Colby said industry data pointed to a historical trend in industry consolidation and how current results are well below long-term trends. Given the harsh economic and credit market realities throughout 2009, last year's consolidation activity was focused on financially challenged CUs, he pointed out.
Why is there below-trend consolidation? Colby said discussions with CU leaders indicate their attention was focused on assisting members through these challenging times and managing their own safety and soundness through the economic, write-off and assessment challenges. While many noted good opportunities for strategic mergers, the time and dollar resources to successfully complete mergers were committed elsewhere.
Meanwhile, CUNA Mutual is forecasting a net reduction of just over 270 CUs in 2009 with industry consolidation moving above 300 institutions in 2010 and 2011.Colby said small CUs, who are traditional merger candidates, appear to be more than adequately capitalized. The weighted average capital-to-asset ratio of the 4,243 CUs, which is 54% of all CUs, with assets of $20 million or less, is safely above 15%, he added.
"Most of these CUs are in no hurry to merge," Colby said.