MADISON, Wis. — It appears that stronger deposit relationships are fueling membership growth these days as credit unions continue to come off the indirect lending wave that brought in new members a few years ago.
According to the June Credit Union Trends Report from CUNA Mutual Group, in the first six months of this year, the nation's credit unions added 153,000 more members than they did in all of 2006. The 259,000 net member gain in June brought the year-over-year gain to 1.7 million and annual growth improved to 1.9% as total membership reached 89.6 million.
"It appears much of the recent growth is from deposit relationships versus the gains from 'indirect loan only' members over the past couple of years," said Dave Colby, chief economist at CUNA Mutual and author of the report. "Despite strong membership gains and relatively low deposit yields, growth in savings-per-member has improved to a healthy 4.0%."
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Meanwhile, the industry can expect more mergers of credit unions with assets in excess of $100 million going forward, Colby said. CUNA Economics & Statistics showed 8,504 credit unions at the end of June, reflecting a net decline of 158 credit unions for the six-month time period. June saw an estimated net loss of 31 credit unions.
If the current trend of stronger deposit inflows and receding loan demand continues, credit unions may need to get more "aggressive" in investment management especially if lending spreads further erode, according to Colby. Credit unions increased surplus funds by just over $1 billion in June. The nation's credit unions currently hold $208 billion in surplus funds, an increase of $9.2 billion (4.6%) over the past year.
"Liquidity in the credit union system is more than adequate as surplus funds equal 27.2% of assets," Colby said. "This measure has drifted lower over the past few years as loan demand has outpaced deposit inflows. Credit unions have additional liquidity options in borrowing."
Colby said given the current shape of the yield curve and uncertainty of deposit inflows, credit unions are intentionally keeping surplus funds in short duration investments. At the end of June, 60.2% of all surplus funds had a duration of one year or less.
"In an era where every basis point counts even more, squeezing additional basis points out of investments helps cover rising expenses and eroding net interest margins," Colby said.
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