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3 Takeaways from Trendwatch 4Q 2016
Monday, February 27, 2017 6:30 AM

By Erik Payne, Associate Editor, Callahan & Associates

Credit union loan growth continues its double-digit pace, the average member relationship expands to its highest level ever, and the need for sources of non-interest income remains, according to fourth quarter data from Callahan & Associates.

Last week, Callahan hosted its quarterly Trendwatch webinar, an event that recaps the industry’s performance trends over the past three months while highlighting credit union success stories and other areas of opportunity.

Here are three takeaways from this quarter's Trendwatch.

No. 1: Loans Balances Continue to Grow
Total loans topped $880 billion in fourth quarter 2016 after credit unions posted a 10.5 percent year-over-year growth rate—the third consecutive year of sustained double-digit growth. If credit unions continue at a 10 percent growth rate, the industry will hit $1 trillion in loans in second quarter 2018.

Fueling growth are record loan originations during the past three quarters, including the $125.2 billion originated in third quarter 2016, the highest number on record regardless of period. And in the fourth quarter, credit union originations reached $117.7 billion, primarily driven by consumer loans. Year-to-date, credit unions have originated more than $267 billion consumer loans.

Overall loan growth was strong across the country, and three of the six NCUA designated regions posted double-digit growth. Strong growth in Utah (14.7 percent), California (13.5 percent), and Oregon (13.1 percent) underpinned 12.9 percent year-over-year growth in the Western region.

Trendwatch provided the overview, now get the details. Callahan & Associates is offering five custom Trendwatch slides comparing your credit union against peers in your asset range.

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No. 2: Average Member Relationships Are at the Highest Level Ever
As of fourth quarter, the industry’s loan and share growth outpaced new membership growth of 4.2 percent. Member participation has driven the average member relationship to $17,704. That's the highest level ever.

Although membership growth lags behind loan and share growth, its 4.2 percent rate represents the fastest annual growth rate since 2002. And credit unions now count more than 108 million total members.

In addition, members have increased their usage of several credit union products over the past five years. As of fourth quarter 2011, 14.7 percent of members had a credit card, 50.9 percent used a share draft account, and 16.0 percent had an auto loan. Five years later, these figures jumped to 17.3 percent, 55.4 percent, and 19.6 percent respectively.

No. 3: The Need for Non-Interest Income Remains
Fourth quarter loan growth outpaced share growth by 2.9 percentage points, pushing the industry’s loan-to-share ratio to 79.4 percent, its highest level since fourth quarter 2008. This illustrates the need to attract deposits to sustain lending.

Loan yields, however, have dropped to their lowest rate in five years. The 4.57 percent fourth quarter 2016 yield is markedly lower than the 5.76 percent of fourth quarter 2011. And although the spread between the industry’s operating expense ratio (3.11 percent) and net interest margin (2.89 percent) continues to tighten, until net interest margin surpasses the operating expense ratio, credit union’s will not be profitable on interest income alone.

This underlines the need for credit unions to find sources of non-interest income. And for credit unions, non-interest income as a percentage of average assets rose slightly, to 1.35 percent.

In July 2016, Callahan & Associates surveyed 170 credit union executives from 40 states to gain insight into their current and emerging sources of non-interest income. Learn more by reading "In Search Of Non-Interest Income."