Appreciation For Appreciating Earning Assets

Earning assets are the majority of assets at credit unions. What factors impact how credit unions can leverage them?

 
 

Credit unions posted strong asset growth in the third quarter of 2017. Assets at the nation’s cooperatives have increased 6.8% over this time last year, reaching nearly $1.4 trillion. Delinquency, also, is on the rise. It hit 0.79% while net charge-offs increased 3 basis points year-over-year to 0.38% as of Sept. 30.

Nevertheless, earning assets still comprised 95.5% of total assets. These assets, rather than foreclosed and repossessed assets, account for the majority of asset and asset growth, helping to alleviate some of the industry's asset quality concerns.

* DATA FOR U.S. CREDIT UNIONS REPORTING THIRD QUARTER 2017 DATA.

Non-earning assets are a necessity to credit union operations. After all, most credit unions must own land and possess real estate to operate branches. It’s important to maximize earning assets, and after years of stagnation, the yield on earning assets inched up 8 basis points YOY to 3.69%.

This movement is a signal it’s time to review asset distribution. Credit unions with too high a proportion of assets tied up in cash, foreclosures, and branches might miss out on revenue opportunities.

* DATA FOR U.S. CREDIT UNIONS REPORTING THIRD QUARTER 2017 DATA.

Non-earning assets include land and building, other fixed assets, intangible assets, foreclosed and repossessed assets, and cash. And although asset quality declined in the third quarter, foreclosed and repossessed assets accounted for only 1.3% of non-earning assets. With a steady recovery rate of 29.1%, it appears asset quality has not yet been impacted by the percentage of foreclosed and repossessed assets.

Comparatively, in the third quarter of 2012, foreclosed and repossessed assets accounted for 3.5% of the non-earning asset portfolio, while the recovery rate there was 25.4%.

* DATA FOR U.S. CREDIT UNIONS REPORTING THIRD QUARTER 2017 DATA.

In summary, asset quality has slightly declined across the industry. Specific lending strategies to capture lower-tier paper, tightening financial limitations by borrowers, and other factors have all contributed to this decline. In terms of earnings, however, credit unions have yet to feel the effects in their earning assets and yield on earning assets.

Nevertheless, credit unions should monitor asset quality and underwriting practices with an eye toward helping borrowers finance loans only within their means.

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Nov. 29, 2017


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