Credit unions are competing in new ways and realizing new opportunities in the current low interest rate environment. On December 5th, credit unions and credit union suppliers from across the country joined in on Callahan’s Third Quarter Trendwatch Call, as Chip Filson highlighted the ongoing opportunities in the low interest rate environment, such as money market accounts and mortgage lending. During the call, one credit union outlined their success in developing a new lending channel. In addition, Goldman Sachs provided their outlook on the economy saying that it is expected to continue to be characterized by slow GDP growth and low interest rates.
Members continued to move more money into short-term savings in the third quarter, with money market shares growing at almost three times the rate of total shares. “Credit unions have been more than competitive based on the rates that they pay. As of September money market mutual funds were paying between 130 and 150 basis points whereas credit unions on average were paying 194 basis points. Money market accounts are a critical product for new member retention and growth in this environment”, said Filson.
Low investment yields are also impacting credit union income, making lending even more critical. Loan yields are averaging more than 2.1 times investment yields through the third quarter, an all time high. Neil Timson, SVP Lending GTE FCU, discussed their alliance with AAA of the South as an example of channel expansion to generate higher loan volume. Timson stated, “Developing a program tailored to this SEG has resulted in $59 million in new auto loans through November. This has been an effective way to realize a large opportunity as opposed to growing one loan at a time.”
Such strategies are key to continued credit union success, particularly in growth areas such as mortgage lending. Although credit unions are becoming more active mortgage bankers, selling approximately $5 billion in first mortgages each quarter this year, there is still more potential. According to a recent survey of 30,000 members at 19 credit unions by Callahan’s Survey Consortium, only an average 25% of online members used their credit union for their mortgage. Filson said, “38% of members weren’t aware that their credit union makes mortgage loans. Just by increasing communication, credit unions can tap into this opportunity to increase their mortgage portfolios.”
John Olivo, senior portfolio manager at Goldman Sachs, indicated that low interest rates will likely continue in the near term with the Fed essentially putting monetary policy on hold following last month 50 basis point cut. “The Fed will need one positive quarter of strong growth and prospects for a strong following quarter before rates start to rise. We expect tightening to begin in May at the earliest”, stated Olivo.
Callahan & Associates’ Trendwatch call is held each quarter following the release of call report data. For more information on how you can be a part of future calls click here.