5. Meager earnings
Credit union earnings will be meager. Earnings as measured by return on assets are expected to decline from 0.84% in 2012 to about 0.75% in 2013 and 2014. A 10 basis point (bp) decline in net interest margins (from 2.9% in 2012 to 2.8% in 2013) will be partially off set by a 5 bp decline in loan loss provisions. For perspective, credit unions were earning a 5.3% spread 30 years ago.
To boost net interest margins, credit unions are searching for alternative assets and weighing their marginal risk (credit/interest rate) against their marginal return (additional yield on assets).
Area demographics—including population growth, median household income, local industries—and age trends also will influence margins.
Focusing on core deposits and their “stickiness” will increase your credit union’s opportunity for higher interest margins when short-term interest rates start to rise in 2015.
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