First Look: Positive PR Leads to Growth at Credit Unions

A higher profile for credit unions in 2009 drove growth in membership and share balances, giving credit unions ample liquidity headed into 2010.


Credit unions have been promoting their public image in 2009, and as the crisis in the financial markets begins to shake out, they now find themselves resting atop the pile. From credit union-focused stories running in the Wall Street Journal and USA Today, to positive commentary on CNN and Fox News, the public is seeing the credit union difference reported in a number of major news outlets, and the results of that exposure speak for themselves.

Stronger Market Presence Drives Increase in Deposits
According to Callahan & Associates’ FirstLook data, this increase in public awareness had a measurable effect on credit union membership. The 7,288 credit unions comprising the FirstLook group reported an increased rate of membership growth in December 2009, up 2.9% over the past twelve months. And these new members are bringing deposits with them.  FirstLook credit unions also reported share balances of $740.0 billion through the fourth quarter of 2009, up an astounding 11.5% from the previous December.

With more than $75 billion in new money coming into the credit union industry, where did members invest that money? Not surprisingly, money market shares grew at the fastest pace on a year-over-year basis, up 24.6% as of December. This growth was the result of members looking for higher returns in this zero-percent interest rate environment, without having to tie up their funds long-term. Share drafts also increased at an above average rate as these members opened new checking accounts, with balances increasing 16.4% annually.

All components of the share portfolio grew in 2009, but share certificates, the largest component of the share portfolio, grew at the slowest pace. Members remained liquid and avoided locking in low rates on their investments, so share certificate balances increased just 47 basis points over the past twelve months.

Credit Union Investment Totals Grow Rapidly
As shares flow into credit unions, the industry finds itself with ample liquidity as it uses these investable funds to drive additional revenue. Credit unions are using a large percentage of the increase in share balances to expand their investment portfolio. The 11.5% increase in share balances fed into a 28.7% increase in investment totals through the end of 2009. Similar to the trends in the share portfolio credit unions also stayed short in their investments to avoid losing money when interest rates rebound.

Investments with maturities of less than one year now make up 50% of the total investment portfolio; balances in that category increased nearly 40% over the past year. Small declines notched in the longer term investment categories are nominal, as a majority of those investments were made prior to the recent financial crisis. Overall, investments have increased over the past year, but the driver of that growth has been investments with maturities less than one year. Because of the low interest rate environment, long-term investments have become a less desirable option. Through the end of 2009, income from investments represented just 11% of total income for these FirstLook credit unions. This is a 19.4% decline from the previous December.

Lending Becomes More Critical
As investment income struggles, loan income, another major source of revenue, becomes even more important in helping credit unions stay in the black. Despite the current interest rate environment, record-high demand for loans helped loan income remain stable during 2009. However as other lenders return to the market, credit union loan growth began to slow from the highs experienced at the beginning of the year.  So how is the credit union loan portfolio faring in the fourth quarter? Keep it tuned to in the coming weeks, and we’ll have an in-depth analysis of the credit union loan portfolio through the end of 2009. Can’t wait to get a jump start on your year-end analysis? Download the data yourself using the FirstLook functionality in either Peer-to-Peer or CUAnalyzer.