ONTARIO, Calif.-Non-interest income will be down this year industry wide, cautions one economist who feels there's room for many CUs to increase their fees as well as leverage CUSOs to help soften the blow.
Moreover, Dwight Johnston, chief economist at the California and Nevada leagues, noted that quickly shrinking refinance business in 2013 must also be considered.
"ROA for some of the large credit unions last year was astonishingly high-1.5% to 1.6%. That concerns me because this year they will be really challenged to come close to that," said the former WesCorp chief economist who warned of the impending mortgage meltdown several years before it happened.
Johnston sees the refinance market as well-tapped already-and completely tapped out if rates rise. "That would cause the refinance business to really fall off the charts. So many people who can qualify have refinanced already. Those on the margins would just be taken out of the equation."
Larger CUs, Larger Options
Johnston pointed out that last year the Mortgage Bankers Association reported refis went up almost 40% and sees a potential decline this year by the same amount. "That might lop off 20% to 40% of non-interest income this year. That's a big number."
Don't expect much of that refi shortfall will be made up through more loan loss reserve clawbacks, observed Johnston. "These are almost certainly tapped out, unless some really dramatic improvements in delinquencies occur."
Generating the same non-interest income this year as last will be challenging for credit unions of all sizes, but Johnston feels larger shops have more options. "They have more avenues to turn to and more flexibility in charging fees."
Small CUs, observed Johnston, have bands of loyal members who stay close to their credit unions and watch fees carefully, whereas members of large credit unions view their CU more like a big financial institution.
"As long as a big credit union is charging fees lower than what's being charged by banks, the members are typically OK with it. And credit unions have a decent amount of room here to adjust fees upward."
As confidence in the stock market returns, there is opportunity to expand CUSO brokerage services, as well, offered Johnston. Perhaps the simplest solution of all, opined Johnston, is just adding more younger members. "We certainly have had some success in the last year-and-a-half growing members, but that has not translated into a lot of loan volume," added the economist, who said 2013 should be a year in which CUs' focus on turning all the new bank converts-of all ages-into more profitable members.
"From a revenue perspective, this year won't look like last year, so it may be challenging," concluded Johnston. "There may not be easy answers."
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