ORLANDO, Fla.–In the current environment, credit unions must learn to create equity and use it effectively, Sandler O'Neill Associate Director Peter Duffy told participants in Credit Union Times' recent conference on non-interest income.
"Take the best of your culture and take it out for a test drive," Duffy said. Focus on your competitors, not just your peer groups when making comparisons. Focus on return on equity rather than return on assets. "Make marketshare your key ratio rather than loan-to-share," he advised.
True credit union growth does not come from mergers, as seven of the 16 fastest credit unions have done; Duffy pointed out that six have delinquency-to-total loan ratios double their peers. "Indirect loans and being loaned out got us where we are today," he said. According to Duffy, 58% of new members at CUDL credit unions are through indirect lending and 85% of new auto loans nationally at credit unions are indirect.
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Duffy noted a few credit unions–$3.8 billion Digital Federal Credit Union and $2.8 billion Bethpage Federal Credit Union in Massachusetts among them–that are truly growing organically. "Challenge sacred cows–it's for the good of the membership," he asserted.
Duffy added that banks might be doing a better job, outgrowing credit unions in capital by 50% and opening seven times as many branches from 2003-2006. Before accounting for fees, the net interest margin of banks between $1 and $27.2 billion in assets is 89 basis points, while the billion-dollar credit unions lose nine basis points on average. Credit unions' net interest margin is 33 basis points shy of covering operating expenses.
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