Credit union earnings will climb back to 60 basis points (bp) this year and 70 bp in 2012 (after NCUA’s corporate assessments of a projected 20 bp this year and 15 bp in 2012). Through 2012, rising earnings will be supported by lower loan loss provisions, rising net interest margins, and continued cost-containment efforts.
Don’t expect a significant drop in interchange income this year, but you might see a 10 bp hit in 2012. Stronger earnings will push the growth of capital above asset growth, raising credit union net worth ratios to an average 10.4% by the end of 2012.
4. Housing and mortgages
Today, one in 10 mortgage holders (five million Americans) owes at least 125% of their property’s current value. The degree of negative equity is the best predictor of the likelihood a borrower will engage in a strategic default.
Your credit union must take loan-to-value ratios seriously. Consider requiring new borrowers to put down 10% to 15% of the property’s value.
Home prices, down more than 30% nationwide since their peak in 2006, are expected to fall another 5% this year before stabilizing in 2012. The big housing worry, however, is the amount of shadow inventory of homes (foreclosed or seriously delinquent houses) that will eventually come onto the market.
If the number of distressed homes coming onto the market continues to rise, expect further home price declines and more underwater homeowners. Roughly 10% of all mortgages currently are at risk of foreclosure.
5. Young and unaware
Nearly 70% of consumers ages 18 to 24 are “not at all familiar” with credit unions, according to CUNA’s 2011-2012 Survey of Potential Members. No other age group has such a high level of unfamiliarity with credit unions. Your credit union will need these young consumers for future loan and membership growth.
The credit union movement hasn’t had a national advertising campaign during the past couple of decades, which helps explain why the youngest consumers have the highest levels of unfamiliarity. If a national ad campaign isn’t affordable or politically palatable for today’s credit union movement, your credit union will have to come up with its own strategies for elevating awareness among young consumers within its field of membership.
The Hispanic American population is exploding. In the past decade, it grew 43% and the non-Hispanic white population increased 1.2%. Hispanic Americans now number 50.5 million, or 16% of the 308.7 million U.S. population.
The median age of non-Hispanic whites is 41, compared with 27 for Hispanics. By 2019, non-Hispanic whites younger than age 18 will go from the majority to the minority. Non-Hispanic whites are expected to become the minority by 2041 when compared with all other ethnic groups.
7. Mobile banking
The coming year likely will represent the “tipping point” for mobile banking adoption. The next generation of members will want your credit union to offer full financial functionality on smart phones and tablets.
Credit unions offering mobile banking often start with alerts and information about account status, expand the service to include mobile transactions, and then move to person-to-person electronic funds transfers.
Mobile banking is quickly becoming a competitive necessity. Nearly 20% of credit union members who don’t currently use mobile banking would switch financial institutions to get it.
And 50% of consumers ages 18 to 25 say mobile banking is “extremely important” when selecting a financial institution, according to research from Mercatus.
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