I sat down with a copy of the NCUA’s State of the Credit Union Industry report and decided I wanted to look at some past trends. I opened up an Excel Spreadsheet and the past five years of reports (December 2006 to December 2010) and started making some calculations. Below are some things that caught my attention about where the credit union industry is now and where it is headed:
– Asset size increased over $200 billion. Over 6% per year.
– Loans are increasing a bit slower at just about 3.5% a year.
– An article in the Credit Union Times that said “Some experts see the number of credit unions tumbling by as much as 20% in the next decade.” I don’t see what is so shocking about that. Since December 2006, Credit unions merged (shrunk) 12%, over 3% per year.
– Currently there are 7,339 credit unions with an average asset size of $124.6 million and $77.0 million in loans. Does this sound like you? Assuming the average rates of change above, in 10 years there will be 5,295 credit unions with an average assets size of approximately $324 million and $149 million in loans.
– Net charge offs as a percentage of loans were at their low in 2006 at .44% and their high in 2009 with 1.2%. Over the past five years they averaged .83%, approximating $22.6 billion.
– At a constant rate of .44%, net charge offs over the past five years would have been reduced by $10.6 billion.
To summarize, let’s look at net charge offs over the next ten years from the standpoint of an average credit union (changing at rates mentioned above):
The figures above quantify that for an average credit union over a ten year period, a credit union with a low charge off ratio would save approximately $8.6 million in charge offs over a credit union with high charge offs. It shows that risk isn’t just a word and regulations surrounding these risks aren’t just regulation for regulation’s sake. Savings for the credit union are savings for its members, and isn’t that what this is all about?
–Dan Price, CPA
Twenty Twenty Analytics Blogger