This is the time of year when many credit unions are finalizing strategies, goals, and budgets for the upcoming year. And, as loan growth is typically the key component of all three of these activities, consideration must be made for how these assets will be funded. While member deposits and net worth remain the primary funding source for assets, credit unions are increasingly using non-member deposits.
According to call report data, non-member deposits reached $9.2 billion as of mid-year. This is up from $2.7 billion in 2013. Given the growth, it is not surprising that the quarterly year-over-year growth rates have exceeded 15% during that span. A couple of primary conditions driving the growth in non-member deposits include the following:
- Loan growth is outpacing share growth, and credit unions can’t seem to bring in money fast enough from members to maintain liquidity targets.
- Credit unions have access to external funding sources, but they want to leave those resources available for more tactical uses.
Because of increasing use and acceptance in the market, right now is a good time to explore why non-member deposits are great funding options for your credit union. Two channels in particular that provide credit unions good opportunities and are viable options are public fund deposits and SimpliCD Issuance.
Public Fund Deposits
The traditional thought process is that public fund deposits, or deposits for government entities, are not available for most credit unions. However, per Call Report data, public fund deposits now exceed $5 billion and have become an important funding source for credit unions. Admittedly, a portion of these public fund deposits are classified as member government deposits and are symbolic of the mutual support of credit unions and their local communities, but most are classified as non-member deposits.
There are several beneficial opportunities for credit unions with public fund deposits. First, these deposits offer diversification and are an additive funding source as they do not cannibalize existing deposits. They are also stable funding sources for credit unions and can serve as a hedge against the typical seasonal liquidity swings.
Here’s how public fund deposits work: An administrator of government investment pools or a preferred partner will work with you to source deposits, which mainly comprise local school districts in 11 states across the country. While many of these states’ school districts may only invest intra-state, there are a few that allow placement of funds across state lines. Credit unions can work directly within their communities or engage with an established corporate partner to determine funding needs, acquire market rates, and post rates attractive to depositors.
SimpliCD Issuance is another viable channel in the non-member deposit market, which now exceeds $4 billion from more than 1,200 credit unions. Growth in this funding channel continues at a very healthy pace while the growth of direct borrowings has waned as credit unions are becoming more reliant on non-member deposits over borrowings.
Beneficial opportunities for credit unions with SimpliCD Issuance include the ability to easily generate liquidity quickly by issuing CDs to a nationwide market of potential investors, diversifying your funding sources, and bolstering your contingency funding plan by preserving other sources of liquidity for more tactical use.
Here’s how SimpliCD Issuance works: Primary Financial Co. the CUSO that manages the SimpliCD program, works with your established corporate partner to analyze the market to set a rate to attract the deposits you need. Your credit union’s offering will then be published to SimpliCD’s nationwide network of more than 6,000 credit union investors. You select the amount, the funding date, and the maturity date. Primary Financial will act as custodian on your behalf and handle the paperwork and deposit servicing. You set up one deposit account as opposed to multiple accounts for each depositor.
Supporting Your Core Competency, Positioning Your Credit Union For Growth
Deposit acceptance is a core competency of credit unions. Expanding your deposit base to include non-member deposits leverages this core competency and diversifies your funding sources. And, with a regulatory limitation of 20% of existing share balances, non-member deposits could comprise a substantial portion of deposits that would allow continued growth of assets and membership.
As the founding corporate of Primary Financial and a direct partner with PMA Funding, an administrator of government investment pools, Corporate One assists credit unions nationwide with non-member deposits. And, no membership paperwork or capital investment is required to access these sources of liquidity. Contact us today for a strategic consultation on funding your assets in 2018.
Perry Jones, VP/Portfolio Manager, manages Corporate One FCU’s loan products and a full suite of funding solutions including non-member and public deposit services, and loan participation services. Member Business Solutions, LLC, a MBL service provider, is a wholly owned corporate CUSO of Corporate One FCU.