During the past months, credit union boards and senior management teams have been discussing a wide variety of strategic scenarios and growth expectations as part of their planning process.
CUNA economists have been looking ahead as well. Here’s an overview of our 2015 credit union financial expectations from A to Z—and the opportunities and challenges they present.
Credit union funding costs are headed up in 2015. Overall, dividend/interest costs as a percent of average assets declined from 0.72% in 2012 to 0.59% in 2013, a slide of 13 basis points (bp).
The decline continued into 2014, but the pace slowed considerably. In the first six months of 2014, funding costs averaged 0.53%—only a six bp decline over full-year 2013 results.
Next year’s widely anticipated Federal Reserve hike in short-term interest rates will push costs marginally higher as credit unions increase dividends to continue to attract deposits and stave off liquidity concerns. As market rates increase, members will begin to move funds out of regular shares and other short-term accounts, so mix-related pressures will put upward pressure on funding costs as certificate balances increase.
Bankruptcies will ease further in 2015. Bankruptcy cases filed in federal courts for the 12-month period ended Sept. 30, 2014, totaled 963,739. According to the Administrative Office of the U.S. Courts, that’s a 13% decline from prior-year results and is the lowest total for any 12-month period since 2007.
Credit union borrower bankruptcies have followed national trends. Bankruptcies per 1,000 members peaked at 3.7 in 2010 and have been declining since, finishing June 2014 at two per 1,000. Labor market improvements combined with higher wages should further push down those readings.
With high earnings and relatively slow asset growth, credit union capital should return to historical peak levels, hitting 11.5% by year-end 2015.
NCUA’s revised risk-based capital proposal likely will be released in January. The revised proposal will reflect broad changes to proposed asset risk weights, including those on mortgages, investments, member business loans, credit union service organizations, and corporate credit union capital.
Credit unions can expect there to be a new comment period for the revised capital proposal.
Asset quality will improve in 2015. Delinquencies have been trending down since 2009 as the economy improves.
In the aggregate, delinquencies stood at 0.85% at midyear 2014 (down from a 2009 peak of 1.82%). The overall loan delinquency rate will fall below 0.70% in 2015.
That means it likely will be below the long-run average rate of 0.75% as job growth buoys incomes and strong loan growth helps to push the readings lower (“CU capital and delinquency ratios,” p. 24).
NEXT Earning assets