Are Your Members Sending You A Signal?
According to NCUA’s first quarter data, shares grew an average of almost 11% (annualized) while loan growth declined 4.76% (annualized)─over a 15% differential. Funds not loaned out are sitting in investments (generally not earning very much) and are putting a squeeze on the margin. With loan demand down, many of our clients are requesting what-if scenarios on purchasing longer-term investments with these “excess funds” to pick up a little extra yield.
While running what-if scenarios on the asset side of the balance sheet is a good idea, don’t forget the other half of the equation. Another common theme we are seeing is an increase in non-maturity shares and a decrease in CDs. This certainly takes some pressure off the cost of funds today, but it could be costly to mistake a potentially short-term member adjustment to current market conditions for a long-term trend.
At many places today, the rate differential between a money market and a CD is not that big—so it seems that members are willing to give up a few basis points. But for what? Are your members sending you a signal that they are positioning themselves to move to the stock market as soon as “things turn around?” Or back to CDs when rates tick up some? We recommend that you test out these potential scenarios, and more, to help you get a better handle on how things could possibly play out in the future.
