MADISON, Wis. — Membership gains for the remaining three months of the year will likely be slower due to indirect loan runoff and membership management, industry data shows.
According to CUNA Mutual Group's July Credit Union Trends report, at the end of July, there were 88.5 million members, roughly 553,000 above the total gain for all of 2005.
The 500 largest credit unions, as measured by total assets as of mid-year, held 52% of all members, said Dave Colby, CUNA Mutual chief economist, who compiled the report. These credit unions have accounted for 86% of the total increase membership over the past year. Still, not all credit unions are generating membership growth. NCUA data show that 4,694 of them reported no gain or a loss in membership over the past year. Through the first half of 2006, 4,247 reported a loss of members and 228 reported no gain.
NCUA source data show a year-to-date membership gain of 1.2 million. Gains in the second half of the year will likely be slower as indirect loan runoff and membership management reduce the total count.
Meanwhile, there were 8,826 credit unions at the end of July representing a net decline of 351 over the past year and the loss of 22 for that month, according to the report.
"Looking forward, we see rising operational and compliance expense burdens driving further consolidation," Colby said, adding smaller credit unions will be hit hardest here.
"The nation's smallest CUs will continue to be the hardest pressed in affording compliance costs and the technology to operate efficiently, while meeting an ever expanding array of member financial services needs," Colby pointed out.
Still, Colby said it's important to remember that almost 61% of all credit unions or 5,474 had assets of $20 million or less at year-end 2005, but "competitive conditions will add the additional pressure of declining spread."
Colby emphasized that current data does not reflect the impact of semi-annual benchmark data revisions based on mid-year 2006 NCUA 5300 Call Report information.
In other areas, surplus funds were down at $8.0 billion in July as credit unions needed to fund loan demand despite deposit outflows, Colby said. Over the past year, surplus funds were down 9.2%. This $19.6 billion decline funded 48% of the lending increase. Credit unions also increased borrowings by $3.0 billion to meet this demand.
"At this point, liquidity is not a movement-wide problem as surplus funds equal 27% of assets, but this share is trending down from 31% in July 2005," Colby said.
Currently, 58% of surplus funds are classified as "liquid," meaning they will mature in one year or less. On average, investment portfolio durations are shorter than in 2005, but given the shape of the yield curve, this has not hurt credit unions returns, Colby said. Through mid-year, the average investment yield was 3.88%, a 68 basis point improvement over 2005 results, he added.
Overall, most indicators point to a significant slowdown in the U.S. economy through 2007, the report noted. The housing and consumer sectors have driven economic expansion in the past, but over the next 12-18 months they are forecast to restrain overall growth.
"The current direction of inflation and short-term interest rates suggests consumers will retreat from spending [and] borrowing and focus on personal balance sheet strengthening." Colby said.
In the near-term, higher interest rates will increase credit unions' cost-of-funds as "lazy money" isn't as lazy as it used to be, Colby said.
"Economic conditions will not provide a lift to credit unions' growth indicators nor their bottom-line," he suggested. "To prosper during this slowdown, credit unions will need to be more aggressive promoting their benefits on both sides of members' balance sheets." –msamaad@cutimes.com
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