Too Much Cash. An Enviable Dilemma?

How two credit unions accommodated increased shares and decreased loan demand.


The spike in share balances over the past two years combined with the recent softness in loan demand presents a challenge for credit unions – how to deal with the excess cash entrusted to them by members.

As the financial crisis progressed and saving rates bottomed out between 2005 and 2008, Americans began saving more of their income. Meanwhile, the demand for loans – in particular the consumer loans that represent the bulk of credit unions’ business – dropped. In December 2008, for the first time in roughly five years, share growth exceeded loan growth.  

Americans are deleveraging and concentrating on saving money rather than on consumption-focused-borrowing. For credit unions, their traditional method of generating income is increasingly becoming inadequate. Additionally, alternate sources of income, such as from investments, have also declined because of the record low rate environment.

Dealing with “excess” deposits, and its ramifications on earnings and capital, has become a concern for credit unions nationally.

Elevations Credit Union ($937M) has 9 branches and more than 80,000 members in the greater-Bolder, CO area. With an unemployment rate of 5% and relatively stable home prices, Elevations’ home region is doing economically better than much of the country but not excessively so.

In an ALM webinar Callahan & Associates hosted earlier this year, Michael Calcote, CFO of Elevations, explained the credit union’s three-point strategy. It focuses on paying off borrowings, adjusting rates to stay competitive regionally, and pro-actively addressing the wealth management needs of members. According to Calcote, wealth management activities are especially attractive to the credit union as they allow increased funding off balance sheet and often generate attractive fees.

Fort Knox Federal Credit Union ($830M, Radcliff, KY) is paying close attention to its balance sheet as well. According to Ray Springsteen, senior vice president, the credit union’s home region in central Kentucky has fared worse than much of the nation economically, with an unemployment rate of 11-12%. The region avoided the housing bubble, however, and is expected to benefit from a panned influx of federal government employees from St. Louis and Washington, DC.

During the webinar, Springsteen acknowledged the recent challenges in achieving loan growth and noted Fort Knox’s focus on expanding its loan offerings to target the auto and business markets. The credit union is also trying to change member behavior in ways that will give the credit union’s portfolio a longer-term focus. According to Springsteen, increasing the average maturity of share certificates – currently 16 months – is a key goal.

Credit union leadership can take pride in the fact that consumers’ recent flight to quality resulted in a flood of funds into cooperative institutions. Effectively managing the challenges of those influxes, however, will be a key challenge for credit unions nationwide.