BY MICHAEL ORAVETZ
2018 proved to be an eventful, and profi table, year for most credit unions. Amidst heightened volatility from domestic and international concerns, credit union performance reached post-crisis highs over the year (Figure 1). Now, in early 2019, many institutions are asking themselves what’s next? Searching for creative ways to maintain and grow profitability in 2019 is a task at the top of many financial executives’ to-do lists. When faced with uncertainty like this, it’s usually a good idea to go back to tried-and-true core lending principles: asset pricing discipline, marginal return analysis, and leverage strategies.
For many years now, securities portfolios have dwindled as a percentage of average assets as institutions focus on lending. This allocation to credit-riskier assets has led to higher profi ts. Figure 2 highlights the change in balance sheet composition starting in 2011. As of Q318, loans-to-assets sits at over 70%, while securities-toassets was below 15% for the industry.
Despite margin expansion throughout 2018, fears over plateaued earnings remain real. Competition has heightened due to a maturing credit cycle, a continued rise in short-end rates, and a fl at yield curve putting pressure on low-cost core funding retention. Regardless, successful lenders abide by a few key tenets independent of the environment.