ORLANDO -
The answer lies in “competitive earnings,” according to Peter Duffy, associate director at Sandler O’ Neill + Partners. “Credit unions need to make as much earnings as their competitors, because consumers are looking at thrifts, banks and other financial institutions to determine who they want to bank with.”
At this year’s Credit Union Journal “Grow Show” in Orlando, April 27-29, Duffy will provide insight into what he considers to be an oftentimes lost perspective that credit unions need to pay particular attention to if they expect to grow their portfolios this year.
Earnings pressure results from the combination of a significant imbalance in supply and demand, the Internet and a razor-sharp consumer, all of which leads to intense pricing competition, he observed. The result, Duffy said, is a credit union member and prospective member who is paying more attention that ever to rates on shares/loans, fees and service standards.
In addition, consolidation in the financial services sector (35,000 banks and credit unions in 1985 have shrunk to fewer than 16,000 today) combined with increased compliance costs are now coupled with a potential increase in loan losses are only adding to the pressure on credit unions’ bottom lines, according to Duffy.
Duffy’s analysis employs metrics that compare net interest margin/ average assets and operating expenses/average assets and conclude that credit unions are losing up to 33 basis points before fees.
To combat this slide in earnings, Duffy suggests that credit unions find tactics beyond their commoditized balance sheets to boost earnings.
“It comes down to how well and effective your marketing, branding, advertising and branching is,” he said. “But all that costs money.”
There are 1,200 credit unions with more than $100 million in assets, and those, in turn, represent 80% of all credit union assets.
Of those 1,200, just 60 are single sponsor, Duffy remarked.
“Credit unions have traditionally been attached to a single sponsor. Since then, they’ve evolved into community-based entities so they market to them or to SEGs,” he added.
“Once you no longer market to the sponsor, then you’re in the same community (market-wise) as banks and other financials.”
Duffy pointed out that there are certain fundamentals that are keys to winning market share.
Duffy said that going into 2008, credit unions need to utilize capital shrewdly, improve investment portfolios, improve credit card performance and improve funding strategies. The most effectively managed dollar changes the metrics to market share, ROE and the efficiency ratio.
“To grow and have happy employees and happy members, etc., we need to be better at competitive earnings,” noted Duffy, who intends to share more strategies for doing just that at Grow Show.
