By Ray Birch
MIDLAND, Mich.—It’s simply a “5% world” right now, according to Dow Credit Union, which recently attracted $3.4-million in overall deposits in one week, with a 5.65% three-month CD drawing the most attention.
The savings inflow also not only continues, it sends a message to credit unions that branches are not dead, according to the $2.13-billion Dow CU, which is reporting its new Saginaw Township, Mich. location led the way in deposits, bringing in most of the dollars through walk-in business.
That, in turn, is driving membership higher.
“Our short-term goal was to start off strong, get well known in the community and maybe get a couple million dollars within the first several months,” said CEO Michael Goad. “But we were very pleased with the reception that we have enjoyed in this community. And, after five weeks of having our branch open, we now have 130 new memberships and over $4.1 million in new deposits.”
‘A Lot of Room’
Why the robust results?
One reason cited by Goad is Saginaw County’s 200,000 residents.
“There was a lot of room for market share growth,” he said. “Our credit union is well known in the region—we have a great reputation for having our member giveback, very strong deposit rates and very affordable loan rates. So, when we started advertising and set up a branch within driving distance of many people, they took the opportunity to look more closely at us, and then many came to join us.”
In addition to the three-month CD and its “headline rate,” Dow offers a high-yield money market account that pays 3.5%.
Michael Goad
“That's also a very strong interest rate in the region. We have seen more activity in CDs, which are making a comeback,” Goad said. “In the last year, as interest rates have gone up, banks and credit unions have raised their CD rates as many people have reconsidered locking up some money for a period of time.”
As many have noted, including Goad, consumers have also raced to leverage an inverted yield curve and higher rates on shorter terms.
While many lenders are facing a liquidity crunch, Goad said Dow is in a strong position when it comes to making loans.
“We only have a 56% loan-to-assets ratio, so, we have plenty of money to lend. In fact, we've been very active in the loan participation space and have bought approximately $40 million of loan participations this year from other credit unions that are looking to unload some of their loan balances,” he said. “This liquidity environment is working very well for Dow right now.”
Doubling its Facilities
The Saginaw office is only the second physical branch for Dow, with its other location in Midland.
“We've always been highly digital, but also in-person. However, a year and a half ago we looked at our business continuity planning and the risks that come with only having one physical office,” Goad said. “We decided the best way to lower that risk would be to have a second office in a contiguous market where we can grow our membership and our market share, and have enough profitability to cover the costs of that building. This building gives us business continuity planning backup, but it also allows us to reach more members in a contiguous market and to grow in the Great Lakes Bay region. It's really a two for one.”
Goad emphasized that even being a highly digital credit union, it still needs a physical location that is not a long drive for most members.
“With online banking, many of us are comfortable dealing with an institution miles away,” Goad said. “But most people also want to have a local institution, and one they can drive to. We are not telling our members we are only digital. We are both digital and we're here for you in-person. Whether you want to drive to our Midland office or to Saginaw. This sort of proves you don't have to have ten branches...”
‘We’re Just Going to Have to Accept the Fact’
Meanwhile, as interest rates have been rising, Goad said he thinks some CUs could have been better prepared.
“For many credit unions, maybe their net interest margin is getting hurt because rates have risen and they weren't ready to pay higher rates,” he said. “They're going to have to continue to ratchet their deposit rates up. It's going to hurt over time, but loans and securities will reprice and the asset side of the balance sheet will come up to catch up with deposits. All of us are just going to have to accept the fact that we're in a 5% plus world, at least for CDs, and that all of our deposit costs are going to go up over the next several years. We have to keep our loan rates at reasonable levels, invest wisely with our participations and with our investments, and manage borrowings.”