Summer School: Credit Union Statistics 101

Averages are too blunt a tool for forecasting share behavior.

 
 

Veteran credit union managers are certainly familiar with the cyclical nature of their business and our industry. Looking at historical data, many financial measures exhibit a large range for a given time period.

Wide dispersion can render some statistics, such as simple averages, irrelevant for forecasting. Share growth is one measure that demonstrates this dynamic. Let’s look at the history.

Going back ten years from the first quarter of 2005, credit union share growth was as high as 16.60% (first quarter 2002) and as low as 3.41% (second quarter 1995). The average for the entire ten-year period was 8.97%. Gathering the facts is important, but understanding the data and its implications is critical for financial managers. For example, can historical share growth data give us any insight into where might be headed?

Focusing on the fourth quarter 2001 through the second quarter 2002, we see that share growth was nearly double the average for the period (16.44% vs. 8.97%). The exceptional events of this period—the bursting of the equity bubble and the September 11 th attacks—drove these high share growth figures as investors moved their money to less risky institutions like credit unions. As a result, these exceptional events skew the long-term average higher, making average share growth a less reliable measure to forecast future performance.

While the historical average is not useful for forecasting, the historical pattern of share growth may be. The pattern indicates that periods of below-average share growth have been followed by periods of above-average growth, and vice versa. Established patterns of mean reversion can be used to formulate possible scenarios of the direction and magnitude of share growth.

Share Growth and Interest Rate Risk

First-quarter data shows that credit unions are extending the maturity of their investment portfolios and adding fixed-rate mortgages against the backdrop of Fed tightening. In this environment, matching the duration of assets and liabilities relies heavily on shares. Share growth, and the corresponding behavior of shares once they’re on the balance sheet, can greatly alter the interest rate risk profile for an institution.

 

 

 

July 25, 2005


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