Loans are Down. What is it Costing You?

If you are like most credit unions, your total loans outstanding are down from last year (or behind budget this year). But what does that mean in dollars and cents? Here's an easy way to ballpark it. Let's say the spread between your average loan rate and your average deposit rate is four percent (that's about average). Your lost income for each million dollars in reduced loans outstanding is (4% x $1million) $40,000 per year.

So how do you find your credit union's rate spread and loans outstanding? It's all public record. Go to http://www.ncua.gov/DataServices/FindCU.aspx. Search for your CU, click on Financial Performance Report, then ask for a two page FPR report. Your loans outstanding will appear on the Financial Summary Report, and your interest spread will be on the Ratios Report (use "Net Interest Margin/Avg Assets - it'll get you close). June's ratios won't be available for a while, so March will do. Need some help? Just post a comment below, I'll take a look for you.

Is your Interest Margin is lower than your peer group? Unless you are comfortable with your profit margin, or lack thereof, you might want to take a close look at your loan and deposit pricing. Many credit unions are finding that rates just don't matter right now, especially on the deposit side.

Riddle: What did the clueless CEO say to his Board about the credit union's high net worth ratio? CEO: "We'll keep offering the highest deposit rates and lowest loan rates until it's all gone"
OK, it's not quite a riddle that will win a $100 prize from Reader's Digest, but you get the drift.