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MADISON, Wis. – Credit unions are poised to carry the increase in membership momentum into 2006, which could see numbers top the 89 million mark by the end of that year. The latest CUNA Mutual Group Credit Union Trends Report shows that at the end of September, total membership was estimated at 87.4 million. There was a minor downward revision of roughly 100,000 members based on CUNA Mutual’s mid-year true-up with NCUA Call Report information, according to Dave Colby, CUNA Mutual chief economist, who compiled the Trends report. The revision did not impact the stronger membership growth trend credit unions are generating, he added. Roughly 350,000 members were added in August and September. Much of this increase reflects new members gained due to the surge in indirect vehicle lending over the course of the third quarter, the report noted. CUNA Mutual sees membership remaining above forecast through the end of 2005 and may “carry strength into 2006.” The industry could see membership above the 89 million mark by the end of 2006, Colby said. “If CUs are to turn these increases into meaningful, mutually profitable relationships, they will have to convert a much larger share of indirect borrowers into multiple product (and) service users,” Colby offered. Meanwhile, the year-to-date decline in the credit union market is below trend results for the previous four years, according to the report. At the end of September, the industry estimated having 9,125 credit unions. CUNA’s semi-annual benchmark revisions showed there were 27 more credit unions in August than previously reported. The 332 credit union year-over-year market contraction at the end of September is also well below 2004 results, the report read. “Our current forecast that calls for a net decline of 371 CUs in 2005 appears high at this point, but over the past two years, 30% of our market consolidation has occurred in the fourth quarter,” Colby said. “Add to this the Hurricane Katrina impacts in Mississippi and Louisiana, and I believe our forecast will be very close by year-end.” CUNA Mutual is forecasting a net decline of 361 credit unions in 2006 “as the escalating costs to compete, comply and meet member product (and) service needs and expectations is pushing small CUs out of the market.” In other areas, there were no significant changes in surplus funds, which are cash and investments, for credit unions in September, according to the report. At $206 billion, surplus funds were up 1.9% in that month due to a temporary deposit surge but the trend of annual contraction remains intact, as loan demand continues to exceed deposit inflows, Colby said. Surplus funds are down 4.0% over the past year and 9.6% ($22 billion) from their peak in April. At the end of September, surplus funds equaled 29.5% of CU assets versus 32.5% at this time last year. In September 2004, 47.5% of surplus funds were classified as liquid (maturities of one year or less). “Given the tighter liquidity we are now experiencing, CUs have moved up their liquid share to 52.8%,” Colby said. “With the recent rise in short-term interest rates, relative to yields on longer duration investments, CUs’ average investment yield shouldn’t suffer too much.” While semi-annual data revisions boosted estimates for both savings and assets by about $4 billion, which translated into a 0.6 percentage point improvement in annual growth, at 6.1% for assets and 4.7% for savings, annual gains remain “well below historical averages,” the report indicated. Savings deposits were up a “strong” 1.3% in September, but the increase likely reflects two factors: payroll timing and members depositing insurance settlements in hurricanes Katrina and Rita impacted areas. Colby said “month-only growth of 6.4% for share drafts leads us to this conclusion.” “Credit unions, and banks as well, have yet to significantly adjust deposit yields to match the rate changes in the broader capital markets,” Colby said. “Many CUs are using “odd maturity CDs” (such as) 13-month and 25-month with aggressive pricing to acquire deposits (and) to fund loan demand.” This use is reflected in the 19.8% annual growth rate for CDs, which have accounted for 94% of all deposit growth over the past year and almost 100% YTD. Total assets are just fractionally below $700 billion. “We anticipate both savings and asset growth trends to improve as CUs raise deposit yields to manage liquidity, and consumers work to rebuild savings,” Colby noted. -

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