Tightening Margins Continue to Challenge CU Business Model

CU Times Feb 3, 2005

WASHINGTON – The pressures of tightening spread margins is an ongoing one for credit unions as they continue to seek ways to meet growth targets and manage their business models.

As a percentage of average assets, the credit union industry's operating expense has declined from 3.39% at year-end 2000 to 3.19% today, reports Callahan & Associates Inc. However, during the same period net interest margin has declined from 3.77% to 3.33% resulting in the industry's ROA declining eight basis points to 95 basis points.

Meanwhile, credit unions are increasing services to the member to help boost non-interest revenue, according to Callahan. As a percentage of average assets, non-interest income has been on the rise, growing from 0.94% at year-end 2000 to 1.12% at the end of the third quarter 2004.