MADISON, Wis.--Credit union yield on asset ratios rose to 4.84% in the first quarter of 2024, the highest since 2009, according to new analysis released as part of TruStage’s June Trends Report, which is based on CU data through April.
The 4.84% figure is above the 4.5% long-run average, noted Steve Rick, TruStage’s chief economist and author of the monthly report.
“Credit union yield on asset ratios are highly correlated to the 10-year Treasury interest rate,” stated Rick. “Over the last 25 years the credit spread, or the difference between credit union yield-on-asset ratios and the 10-year Treasury interest rate, averaged around 1.25 percentage points. The yield on asset ratio increased 182 basis points from the record low of 3.02% set in 2021. This 60% rise in interest earnings as a percent of assets is good news for credit unions, since 72% of their total revenues come from interest revenues. The other 28% of revenues come from fees, interchange income, gains on sale of mortgages, etc.”
Shift Occurs
According to Rick, over the last year, yield-on-asset ratios rose from 4.06% in Q1 2023, to 4.84% in Q1 2024.
“Most of this 78-basis point increase was due to amortizing loans and investments rolling over or repricing into higher interest rate loans and investments, called the rate effect,” Rick explained. “The remainder of the 78-basis point increase was due to the mix of assets shifting towards loans and away from lower yielding investments, the mix effect.”
What to Expect
Rick said credit unions should expect the yield on asset ratio to rise to 5.4% by the end of the year as the Federal Reserve keeps the Fed Funds interest rate at 5.35% until the fourth quarter, and loan growth exceeds investment growth, shifting the mix of assets to higher yielding loans.
CUToday.info has coverage of TruStage’s full Trends Report here.