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WASHINGTON – As personal savings continues its descent, credit unions are increasingly finding themselves with less money to lend. As a culture, personal savings has changed in size and shape. “Credit unions are certainly feeling the pinch themselves with savings at 3.4% year-over-year growth,” CUNA Mutual Chief Economist Dave Colby said. By not increasing their share yields, credit unions are protecting their return on assets, which has hovered below 1% in recent years, he explained. “You certainly can’t blame them.” “My big concern is that credit unions will see a net outflow. I had hoped consumers would become more conservative,” Colby added. That has not happened thus far, he observed. With credit union regular shares paying “next to nothing,” Colby said, what could be dangerous is if people with home equity loans begin using those shares to pay the loan off. Asset-Liability Management is crucial here, he emphasized. According to a recent creditunions.com article by Callahan & Associates Executive Vice President Jay Johnson, credit unions are beating out banks left and right on loans but credit union share growth trails well behind. Johnson was not available for comment at press time. Savings in the consumer’s mind is not what it used to be. Many are taking funds that in the past would have gone into low-yield savings accounts and putting them into 401(k)s, money market accounts and other instruments that produce a better return on the investment, Colby explained. These are not included in recent savings data that shows personal savings in the negative. According to a report from the Bureau of Economic Analysis (BEA) of the Department of Commerce, disposable personal income minus personal outlays was a negative $19.1 billion in November. This is even further down from the $18.3 billion in October. Personal savings as a percentage of disposable income came to negative 0.2% in both November and October even though personal income, disposable personal income and personal consumption were all up 0.3%, the BEA said. Things have become so tight, credit unions have begun borrowing from the Federal Home Loan Bank or their corporates to continue making loans. Bruce Beaudette, CEO of Sunmark Federal Credit Union, said his credit union has taken on non-member deposits to help fund more loans. The credit union is still 104% loaned out. Sunmark did a couple of things in 2005 to not only try to reverse the personal savings trend, but also ease its liquidity situation. The credit union offered three financial literacy courses directed toward the underserved “to promote thrift and saving, very basic, for people who have not had a formal relationship with a depository institution.” Additionally, on Labor Day, Sunmark launched a fully electronic product called RateEdge (www.rateedge.com) that offers 4.25% savings accounts with no minimum deposits or time requirements. These accounts can only be accessed online, which saves the credit union money in order to be able to offer such a high rate. RateEdge is only being marketed for new deposits and, since its launch has attracted 54 new accounts for about $393,000 in deposits. The goal for 2006 is $6 million in deposits, according to Beaudette. “It’s an interesting experiment to see if we can attract new deposits,” he commented. “Based on our deposits, we have a general idea of how much our members are saving and it’s not very much,” Beaudette surmised. Sunmark’s savings growth was at 5.4% in the third quarter versus the 3.8% national trend NCUA stated in its third quarter data (See related story on page 4). “Consumers just keep spending, spending, spending,” CUNA Mutual’s Colby warned. “You can’t stay in a dis-savings mode for an extended period of time.” He guessed that the savings mentality of mid-century America will probably never return and the continuously dropping savings rates will take some time to steady or reverse course. All the debt will take a while to pay down, Colby said. One anomaly, he pointed out, is occurring down South where hurricane victims have received the funds from their insurance claims but no one is around to build their homes so they are sitting on large deposits that need to remain liquid. The ultimate impact on the macro level, on credit unions, and on consumers is impossible to predict. “From an economic standpoint, it depends on who you talk to,” Beaudette said. “I’m a saver, but we’ve created this culture of being in debt and they don’t know any other way.It has to be a good balance and we (as a society) don’t have that right now.” Sunmark provides its employees with a defined benefit plan, a rarity these days, as well as offering a 401(k) with 50% matching up to 6% of income. As for his own employees, the CEO said he is constantly surprised that many of the younger people do not take advantage of the “free money” from the 401(k) match. However, Beaudette said he is working hard to impress upon his 20-year-old daughter the importance of saving for the future. “It’s hard to predict 30 years down the road. From a savings perspective, it really does not look good,” Beaudette concluded. -

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