Loan growth continues to be solid in FHLBank Topeka’s district with our member credit unions seeing steady growth over the past several years. Several factors have contributed to loan growth according to the Tenth District Consumer Credit Report.
Some of these factors are the increase in revolving debt such as credit cards and HELOCs, and installment debt such as student and auto loans. Employment and income increases have stimulated demand and the average age of autos is increasing, which suggests that consumers are in the market for a replacement. In just the last year, the Federal Reserve Bank of Kansas City reports auto debt balances in the 10th District increased 3.7% outpacing the national increase of 3.1%.
As this trend continues, where do you obtain the funding for this new loan growth? Shares and deposits are the core funding for the balance sheet and credit unions need to offer competitive rates to their members. However, periods of greater loan demand often result in increased pressure to price up shares and deposits to raise additional funding. The table at right illustrates recent CD offerings from several FHLBank members.
Following are a few observations:
• The stated rate on longer term advances are generally lower than the rate being offered on the CD specials. Also, the dividend paid to FHLBank members on their capital stock supporting the advances has the effect of further lowering the cost on advances by up to 0.27%.
• Another important factor when considering running a CD special is the amount of movement from lower costing accounts into the promotion CD and the impact it has on the marginal cost of the new funds that are raised.
Consider the following example:
You have a 1-year CD special at 0.70% that attracts $1,000,000. Of the funds obtained from the special, 50% is new money and the remainder is moving from existing checking/share accounts. Let’s calculate the cost to your institution on the margin.
FHLBank’s line of credit and bullet advances at terms of five years or less will often times cost less on the margin. The line of credit has remained steady at 54 basis points since the end of February. When considering your liquidity needs, the line of credit or a bullet advance is just a phone call away.
Please call me at 800.809.2733. I would be happy to help you determine which is most beneficial to your credit union - running a CD promotion or taking an advance.