WASHINGTON – Members are increasingly moving higher paying savings products with the bulk of activity in share certificates. In the first quarter of 2005, share certificates attracted the largest portion of member savings, accounting for more than 35% of new savings balances, according to Callahan & Associates’ First Look program, comprised of 699 CUs that represent 36% of total industry assets. Members preferred to lock in higher longer-term rates despite the expected continued rise in overnight rates, Callahan noted. “Competitive rates in these deposit products are attracting new balances even as the Fed moves short-term rates higher,” said Jay Johnson, Callahan executive vice president. “As their cost of funds rises, managing the net interest margin is the key challenge for credit unions.” Total share growth in the first quarter slowed for First Look credit unions from 3.2% in 2004 to 2.7% in 2005. Shares typically post their highest growth during the first quarter of the year. CUNA’s March Monthly Credit Union Estimates also noted an upward trend in share certificates in the first quarter with a 4.1% increase. In other areas, lending activity picked up slightly, with a 1.9% growth rate for the quarter versus 1.8% one year ago. Real estate lending was the leader in loan growth through the first quarter, according to Callahan. The net interest margin continues to be “under pressure,” declining 10 basis points from year-end 2004 to 2.98% among First Look credit unions. However, return on assets increased 5 basis points from year-end to 1.07% as higher rates resulted in revenue growth outpacing expense growth.

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