While money market account have increased by $29 billion, their sister accounts, certificate of deposits, have declined by $10 billion since February 2009.
That's according to the April "Credit Union Trends Report" from CUNA Mutual Group, which tracked data through February. Through the first two months of 2010, deposits were up almost $12 billion (1.5%), but due to very strong deposit inflows in early 2009, annual growth slowed to 6.9%.
On a year-to-date basis, regular shares were up 3.7% as are MMAs at 3.0% and CDs were down 1.3%. Estimates of current deposit yields continue to fall, and CUNA Mutual Chief Economist Dave Colby expects first-quarter cost-of-funds to decline to record lows.
"We have likely passed our peak deposit surge for this economic cycle. Many credit unions are discouraging deposit inflows, because when you net out the cost of funds from investment returns, the 89 [basis point] spread leaves little room for expenses and the additional assessments," Colby noted.
The continued surge in MMA activity along with low deposit rates may have an impact on long-term membership growth. Consumers having less of a need for a safe haven and tightly managed membership rolls could drive increases going forward. Meanwhile, CUNA Mutual said as expected, semiannual benchmark data revisions significantly reduced membership growth estimates. The original 2.0 million member net gain was revised down by 732,000, which were consistent with traditional seasonal growth patterns, Colby pointed out.
At 92 million, CUs generated a net increase of 1.3 million members in 2009. Through the first two months of 2010, total membership was up 230,000 to 92.3 million. This reflects a 1.1 million year-over-year net increase.
"Looking forward, we see annual gains averaging slightly more than one million over the next couple of years. This translates into annual gains of 20%-25% below the 10-year average," according to the report.
It remains to be seen how lending could impact deposit and membership growth. Through the first two months of 2010, all major loan portfolio segments, except member business loans, were down, the data showed. Forty-seven percent of all CUs or 3,609 of them, reported declines in their loan portfolios in 2009. These CUs held 42% of industry assets. Given that the yield on investments barely covers the cost of funds, CUs will need to generate more loans to grow the bottom line and replenish capital, Colby said.
The year-to-date decline in loans of 1.1% is significantly more than the expected seasonal reduction, Colby said. At the end of February, total loans were fractionally below the prior year level. Vehicle loans were down 3.0% over the past year and real estate secured loans were up by less than 1%.
"Cautious consumers and subsidized new vehicle financing imply little or no growth for consumer installment credit in 2010. First mortgage originations have slowed, and credit unions are selling a large share to avoid interest rate risk," Colby said. "Basically, credit unions will struggle to grow loans in 2010."