3 Takeaways From Trendwatch 2Q15

Second quarter performance data showcases current and future areas of growth for credit unions, including loans, shares, and variety of income.

 
 

Second quarter data will give the credit union industry a reason to celebrate. 

In additon to a 3.4% member growth rate, total loans grew 10.7% year-over-year, to $755.0 billion. Credit unions also originated the largest ever amount of loans for the first six months of the year, reaching $200 billion year to date. First mortgage originations experienced double digit growth and market share reached a new high for the first half of the year. Members are now borrowing the largest amounts ever from credit unions.

In Callahan & Associates quarterly Trendwatch webinar, an analysis of 5300 Call Report data that contextualizes industry performance and showcases strategies to emulate, a review of second quarter data highlighted several areas in which credit unions are turning out impressive performance. Here are three takeaways from the first day of Trendwatch 2Q 2015:

No. 1: Share Growth On The Rise

While the industry loan-to-share ratio is at its highest level since fourth quarter 2009 and loan growth continues to outpace that of shares, as of second quarter 2015, share balances have surpassed $1 trillion, growing by approximately $48.5 billion year-over-year, a 5.1% growth rate. This growth was primarily fueled by core deposits. Regular shares grew 9.1% year-over-year, while share drafts grew at an equally impressive 8.4% in that same period.

Compared with 2005, core deposits make up a larger part of the total portfolio. Regular shares now comprise 36.4% of the total portfolio, compared with 35.4% in 2005. Share drafts and money market shares make up a larger percentage of the total portfolio as well, at 14.0% (from 13.2%) and 22.8% (from 22.8%) respectively.

As share balances have grown, so too have the number of share draft accounts and share draft penetration. As of second quarter 2015, there are 56.1 million share draft accounts, up from the 52.7 million total open at second quarter 2014. A second quarter 2015 share draft penetration of 54.7% is an increase of 1.2% year-over-year, and an indication that credit unions have become the primary financial institution for more members.  

No. 2: Finding Ways To Increase Income

Despite steady interest rates and the uncertain timetable for their change, as of second quarter 2015, total income at credit unions hit $27.1 billion, a 7.1% increase year-over-year. This performance was influenced by several specific metrics.

Net interest margin — a measure of the difference between the interest income generated and the amount of interest paid out, relative to the amount of interest-earning assets — continues to move away from 2013’s all-time low of 2.77% to 2.84%. But this figure still remains below the operating expense ratio, 3.10%. 

Additionally, other operating income grows on mortgage and interchange activity, to 0.68% of average assets. That’s compared to the 0.61% posted in 2014. Fee income continues to decline to 0.62% of average assets, from 0.65% in 2014.

Still net worth and total capital continues to rise, in part aided by a 0.82% return on assets across the industry. As of second quarter, the industry’s net worth ratio sits at 10.9%, an uptick from the 10.8% seen in 2014. Capital reached $134.2 billion in the second quarter, a 6.5% growth rate year-over-year.

No. 3: A Social Mission

Americans are struggling to raise funds:

  • 76% of Americans are living paycheck-to-paycheck (Wells Fargo Middle-class Retirement Class Study, 2014)
  • 50% of Americans cannot raise $2,000 in 30 days (Asset Funders Network: The Power of Credit Building, 2014)
  • 47% of consumers cannot cover a $400 emergency without selling something or borrowing money (Federal Reserve: Report on the Economic Well-Being of U.S. Households in 2013)
  • 37% of Americans have credit card debt greater than their savings (Urban Institure: Delinquent Debt in America, 2014)
  • 56% of Americans have a low credit score (FICO between 500-649), which can result in a lifetime cost of $200,000 or more in interest rate payments (Bankrate.com, 2015)

Additionally, 68 million Americans are underbanked — consumers without a checking or savings account and using alternative financial services — and unbanked — consumers without a checking or savings account. All told, 138 million Americans are struggling financially.

Because the diversity of economic organizations is a vital reality of the United States’ capitalistic system, different organizations are run with different motivations. Some, such as government run programs, social agencies, and churches are motivated by social benefit and are purpose driven. Others, such as publically traded companies and hedge funds are motivated by economic performance and are market driven. Cooperatives, such as credit unions, exist in the middle of this spectrum. They exist for the benefit of the member-owner but also with a social mission to help those of modest means. It is the credit union industry, more so than banks, that can help further develop these individual’s financial lives.

Trendwatch, Day 2

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Aug. 19, 2015


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