The Power of Data (part 1)

Quantitative facts covering almost every aspect of credit union activity are abundant—and becoming even more plentiful. Many users of data are seeking answers. The issues range from the general, “How-am-I-doing?” to the specific, such as “Should-I raise-my-NSF-fee?”

 
 

Quantitative facts covering almost every aspect of credit union activity are abundant—and becoming even more plentiful. Many users of data are seeking answers. The issues range from the general, “How-am-I-doing?” to the specific, such as “Should-I raise-my-NSF-fee?”

This use of data to answer questions is widespread. However, the most beneficial role of data may not be the answers provided, but the questions raised by the “new” facts.

An example. Which was the fastest growing credit union in the Top 100 in 2001? The answer is easy: Arizona State Savings Credit Union with a rate of 39.4%. End of issue—or just the beginning? How did ASSCU’s growth rate compare to the mean growth rate of the Top 100? Did the credit union have a merger? What did the credit union do with the new shares? What percentage was from internal increases in member activity versus new members? The answer to the first question merely provokes a series of further ones.

Looking at Data from Three Levels
When selecting credit union performance data, there are three levels of analysis. These range from the very general macro trends of the industry or in the economy to the very minute level of household and wallet-share member facts. Each level has value. The caveat is to not limit use to just one view when making decisions.

For example, when calculating product profitability using standard allocation models, a credit union with a 1.00% ROA will almost always show a lower return on share drafts then a credit union with a 1.5% ROA. But the share draft role may have very little to do with the institution’s bottom line.

The Macro Level
Putting credit union industry performance in context is essential. For almost all financial institutions 2001 was a record year. In credit unions, mortgage loan originations rose over 120%. But that increase was just a few percentage points more than the total of all originations, which skyrocketed because of falling interest rates.

Share growth for credit unions in 2001 at 14.6% was the highest in 15 years. As reported in the FDIC Quarterly Banking Profile, for the 1,287 thrifts, the savings rate was “the highest since the inception of the SAIF in 1989.” But wait—that growth was only 6%. So credit union performance looks even more impressive.

But for a moment, let’s continue looking at the thrifts’ funding strategies. The FDIC reports that “measured as a percentage of domestic liabilities, insured deposits continued a steady ten-year decline, falling to 50.9% at the end of 2001. . .at year end the ratio was 46% for institutions with assets greater than $1 billion.” So we learn that thrifts are looking to consumer savings for less than half of their funding sources.

Now going back to credit unions, an interesting fact emerges. Even with the highest savings growth in recent history, credit unions ended the year with the second highest level of borrowings ever. The only higher peak was the Y2K preparation at the end of 1999. Are some credit unions, even at the time of record savings inflows, beginning to diversify their funding strategies? Why?

One other example of the power of context. In 2001, for the first time ever, the amount of non-interest income recorded by credit unions exceeded the total of net income. Non-interest income was 1.02 of average assets and ROA was .96%. (See graph below)

 

 

 

Oct. 14, 2002


Comments

 
 
 
  • Interesting. I'm waiting for part 3
    Anonymous