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<p>NORTHVILLE, Mich. – Credit unions in the Midwest benefited substantially from the flight to quality that occurred among investing members in 2001. While both banks and credit unions saw significant increases in savings inflows during the year, credit unions saw member accounts rise more substantially than did the banks for their customers. In a spot check, Midwestern credit union leagues reported increases in the 10-20% range from year-end 2000 to year-end 2001, consistent with the national figures reported by NCUA, which showed a 15.2% increase in savings from $379.2 billion to $437 billion. With most credit unions showing membership rises in the low single digits, it’s clear the money is coming from existing members. In Michigan, for example, share balances rose 14.2%, to $21.89 billion. Michigan Credit Union League President David Adams described the increase as “strong but moderate in historic terms” in his year-end report, compared to the average annual growth of closer to 10% for the previous decade. The number of credit union members in Michigan rose 2.6% during the year, from 4.27 million to 4.31%. At the same time, banks saw slightly lower increases in savings, according to Chief Economist William Emmons of the Federal Reserve Bank of St. Louis. According to Emmons’ review of Federal Reserve and Federal Deposit Insurance Corp. data, large banks showed a 7% increase in savings from Dec. 31, 2000, to Dec. 31, 2001, while medium and small banks, which he described as community banks, saw savings increase 12.2% year-to-year. Emmons said that the advantage to credit unions was due in part to the generally better savings rates offered by credit unions and the better image credit unions and smaller banks have among the rate conscious. “Its not so much a flight from banks, but credit unions learning to capitalize on their advantage,” he said. “Even if it’s small, the rate advantage credit unions have is significant.” That spread became more significant as the year progressed, said Bill Hampel, chief economist at CUNA. While credit unions had a fairly constant 1% advantage in rates over banks, it’s important that the difference early in the year fell from between 4% and 5% early in the year, to between 3% and 4% before ending the year at between 2% and 3%, a larger percentage spread. The credit union community understands these numbers and is buoyed by the prospects. “This year we’re starting to be a place of choice, not just a safe harbor,” said Leslie Latsch, a consultant with the Wisconsin Credit Union League. “I want to believe our credit unions are so cutting edge they’re attracting (people interested in) wealth management.” Lori Bahnmueller, vice president for association services with the Michigan league is less sanguine. “We’re not out there campaigning for people to save their money,” she said. “People are fearing for their jobs, people are reluctant to spend money.” The data also show that the inflow is going into large denomination money-market accounts. NCUA reports that money market shares grew 37.4%, share certificates grew 12.5% and regular share accounts grew 13.8%. David Weichand, president and CEO of First Resource Federal Credit Union in St. Joseph. Mich. says he’s seen considerable activity in money market share accounts with high minimum deposits that pay higher interest, reinforcing the notion that the deposits arrived from the stock market. First Resource is currently offering 3.5% interest on its $25,000-minimum money market account and 2.25% for a $75,000 money market and 1.5% for a $1,000 account. Share certificates and regular share accounts are drawing less interest. “With equities being fairly volatile, (members are) comfortable staying with something that’s short term,” Weichand said. Mark Solarz, senior manager of finance at Dearborn Federal Credit Union in Dearborn, Mich., sees a similar trend. Dearborn FCU, the largest credit union in Michigan, is offering 2.75% for its $25,000 money market account. His concern, and others think the same way, is whether or not they can hang on to the savings. “How long will they (stay) with us?” he asked. “I’d like to see people purchasing CDs, but they think rates are going higher.” Hampel of CUNA has the same question. “How much of that will stick?” he said. “Certainly some of it will.” Alan Cameron, president of the Idaho Credit Union League, agrees. “A lot of people are chasing rates, pulling money out of the stock market,” he said. “That’s probably some hot money sitting there.” Idaho’s 73 credit unions saw savings increase 19.6%, according to a league press release. Which brings up another question: Is there loan demand to allow credit unions to capitalize on the savings inflow? That answer is harder to come by. Murray Williams, director of public affairs for the Iowa Credit Union League, observed that loans at his state’s credit unions grew at a slower pace than savings. Members, he said, are not interested in taking on more debt. “That makes asset/liability management much more important.” Nationally, loan to share ratio dropped from 79.5% to 73.8%, according to NCUA. Dave Shoup, director of research and information for the Ohio Credit Union League, sees the same thing in Ohio, and he’s concerned that, “Credit unions don’t tend to respond” well to asset-liability mismatches. “We would like to see credit unions respond quicker to these types of changes,” he said. One problem is the heavy competition for auto loans in particular. “Consumer loans are hard to come by,” said Solarz of Dearborn CFU. -</p> <p>[email protected]</p>

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