Metric Dictionary
Welcome to the Metric Dictionary for Peer Suite!
Whether you're a proficient peer analyzer or you're just getting your feet wet, the metric dictionary is here to help you better understand the metrics behind the displays, how to interpret & articulate your own data, as well as to find new metrics you may not have known about that might be of value to you or someone on your team.
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Metric Name |
Formula |
Definition |
| Accounts per Employee (FTE) | (nshares+a025a)/FTEs | The number of accounts – including both loans and deposits - per employee is a measure of employee productivity. Credit unions with productive employees and efficient operations are able to service a higher number of accounts while maintaining satisfactory service levels. Credit unions that pursue a full service strategy will tend to have more accounts per member and a corresponding higher account to employee ratio. Generally the higher the ratio, the more productive the credit union. |
| Accounts Per Member | (nshares+a025a)/members | The number of accounts - including both loans and deposits - per member is driven primarily by the credit unions business plan and secondarily by the credit union’s field of membership. A credit union that has made the decision to offer a full menu of financial services and has allocated the resources required to deliver those services should have a much higher account to member ratio. |
| All RE Loans as % of Total Assets | CYCLENUM<2017.2[(a703+a386)/assets](a703a+a386a+a386b+a718a5)/assets | Real estate loans as a percentage of total assets is a measure of what proportion of your balance sheet is made up of outstanding real estate loans. The value of this ratio will depend on your credit union’s appetite for real estate loans, underwriting standards, and liquidity needs. More risk-averse credit unions will have tighter underwriting standards, leading to fewer mortgage originations and a lower percentage of assets devoted to real estate loans. Liquidity needs are another factor that could affect this ratio. Because real estate loans are longer-term assets, they tie up funds for an extended period of time. Credit unions that have higher liquidity needs may either not be as active in real estate lending and focus more on short-term loans, or be active in the secondary market to sell the mortgages off their books. Many credit unions have established limits for the percentage of real estate loans held on the balance sheet. |
| All RE Loans as % of Total Loans | All RE Loans as % of Total Loans | The formula shows what percentage of the total loan portfolio is made up of real estate loans. Real estate loans are the largest portion of the credit union industry's loan portfolio, and have grown significantly since the early 2000s. Long-term real estate loans expose the credit union to interest rate risk, and credit unions involved in real estate lending must ensure they have appropriate risk controls in place. |
| Allowance for Loan Loss to Delinquent Loans | (a719+aas0048)/delinquent_loans | The allowance for loan losses to delinquent loans ratio, also known as the coverage ratio, measures the adequacy of the reserves to cover potential losses in the credit union’s loan portfolio. Delinquent loans forecast future losses; the allowance for loan losses are the reserves set aside to cover loan losses. Because the allowance is funded from current earnings the ratio is a forecaster of future earnings in that a declining ratio, from an increase in delinquent loans, suggests that the credit union will have to increase the allowance account as those loans turn into losses. A declining trend in the ratio indicates an under-funded allowance. |
| Annualized Loan Origination | annual(a031b) | The loan origination metric measures the total dollar amount of loans granted at the credit union over the past year. In order to standardize this metric and make quarter-by-quarter comparison easier, this year-to-date amount has been annualized. This metric provides an accurate measure of the success of a credit union’s loan origination programs. |
| Annualized YTD Loan Originations per Member | annual(a031b)/members | As a major gauge of loan activity, loan originations per member can provide a key view of current lending trends at the credit union. This loan originations metric measures the total dollar amount of loans granted at the credit union over the past year, annualized, and divided by the number of members belonging to the credit union. In looking at originations on a per member basis, credit unions can examine how well they have been able to locate opportunities and meet member loan demand over the last year. |
| Asset Growth | growth(assets) | A credit union’s asset growth is effected by both external and internal factors. The external factors that impact asset growth include the state of the economy and the make-up and size of the credit union’s field of membership. The key internal factors that impact asset growth include the quality of member service, the menu of products and services offered, and the pricing philosophy. |
| Assets per Employee (FTE) | assets/ftes | This ratio evaluates the amount of credit union assets per each full time equivalent (FTE) employee. As a general rule, the higher the number, the more productive the credit union. This ratio is one of the most effective measures of credit union productivity as the bulk of credit union income is derived from its assets. |
| Auto Loan Growth | growth(A385+a370) | Annual auto loan growth is driven by several factors, including the state of the economy, the demographic make-up of the membership, the level of risk the credit union is willing to manage, and the credit union's ability to gain market share. Because of the highly competitive nature of the auto lending market, it is vital that the credit union have strong marketing and product development initiatives in place to foster growth. |
| Auto Loan Penetration | (a958+a968)/members | This ratio measures the percent of members who have a vehicle loan with the credit union. Auto loans can be highly profitable, have broad market appeal, and when correctly implemented are a productive use of operational resources. Auto loan penetration helps to determine how effectively a credit union's auto loan products are reaching its members, though a membership base with low demand for auto loans may result in an low auto penetration rate. Credit unions with successful auto lending programs generally have the following characteristics: a relationship with auto dealerships either through buying programs/indirect lending programs, sound risk management policies, several delivery channels for loans, and effective sales and marketing programs. |
| Auto Loans to Total Loans | (A385+a370)/loans | This formula shows what percentage of the total loan portfolio is comprised of auto loans. While real estate loans have overtaken auto loans to become the largest portion of credit unions' loan portfolios, auto loans still account for a large portion of total credit union loans. Auto loans are a good use of operational resources as they produce consistent yields and credit unions hold a larger share of this lending market than any other. |
| Average Auto Loan Balance | (a385+a370)/(a958+a968) | This formula represents the average outstanding auto loan balance at the credit union. It is calculated by dividing the total amount of auto loans outstanding by the total number of auto loans. This number will generally be higher for credit unions with a larger amount of new auto loans than used auto loans, as new auto loans are usually more expensive. |
| Average Cost of Funds | cost_of_funds/adjusted_shares | Cost of Funds is calculated by summing the dividends paid to members and interest paid on borrowed money, divided by the average outstanding shares and borrowings. A credit union’s cost of funds is influenced externally by the overall rate environment and internally by the make-up of the deposit portfolio and any borrowings the credit union might have. For example, older members might have more share certificates, or a more affluent membership might have higher balances on tier-priced products. Both situations will drive up the cost of funds. Credit unions with high checking account penetration will generally have lower cost of funds. |
| Average Credit Card Balance | a396/a993 | Higher average credit card balances reflect a credit union's success in offering a competitive product and effectively marketing the program to members. Balances will be impacted by seasonal factors such as holiday spending and balance transfer promotions. Average balances also reflect membership demographics, with older members less likely to utilize credit cards for borrowing and affluent members more comfortable with carrying higher balances. |
| Average Dividends Paid | annual(dividends)/shares | Average dividends paid is calculated by taking the total amount dividends and interest paid on deposits issued by the credit union in the current year, divided by the total share balance at the credit union. |
| Average Loan Balance | loans/a025a | Credit unions with a wide variety of loan products including auto, real estate and credit card loans will generally have a lower average loan balance than a credit union with a high concentration of 1st mortgages (often the loan type with the largest balance). The average loan balance is a reflection of external factors such as the state of the economy and composition of the field of membership. Internal factors like the credit union’s pricing and underwriting policies, product mix, and service culture also contribute to this metric. Credit unions that effectively manage interest margins are able to charge highly competitive rates for loans and generally capture more of the member’s loan dollars than credit unions that are less effective at interest spread management. |
| Average Share Balance | ave_share_balance | The average share balance per member is a reflection of both external and internal factors. External factors include the current macroeconomic picture, and the makeup of the field of membership. The internal factors consist of the credit union's pricing policies, product mix and effectiveness of service levels and sales culture. Credit unions with more affluent members generally have higher share balances. Credit unions with a variety of products – certificates, money market accounts, tiered accounts, etc. – will generally capture more of the members' deposit dollars than credit unions with a more limited product offering. |
| Bankrupt Member Loan Balance Growth | growth(a971) | Growth in loan amounts to members that have filed for bankruptcy is an indicator of the quality of the credit union’s loan and credit risk management. In general, the bankrupt loan amount should track closely with the credit union’s overall loan amount. If growth is high, analysis should identify the loan type and account characteristics that are unique in bankrupt loans, allowing credit unions to then make the appropriate adjustments in their underwriting policies necessary to slow the trend. |
| Borrowings to Assets | borrowing/assets | This is the total amount of outstanding borrowings relative to the credit union's assets and represents how much the credit union has borrowed from other entities. Most credit unions rely predominantly on member shares for their funding needs. High borrowing balances may be part of a concerted growth strategy, or may be a method to deal with a shortage of liquidity. Some credit unions may also use borrowings as part of a diversified funding strategy to optimize costs and balance risks. |
| Capital Growth | growth(capital) | Capital growth should be planned in parallel with asset growth to effectively manage the overall net worth ratio. If a credit union is seeking to generate above average asset growth, then earnings must also be above average in order to maintain sufficient capital levels. Capital adequacy, and therefore the level of capital growth required, depends on the rate of asset growth, the risk in the balance sheet, and the relative level of capital to its peers. |
| Capital Growth/Asset Growth | growth(capital)/growth(assets) | This measure evaluates how closely a credit union's asset growth tracks to its capital growth. Generally, credit unions want these ratios to increase at relatively similar rates. If capital growth cannot keep pace with asset growth, this can create growth constraints in the future related to the institution's overall capital ratio. Given credit union's primary means to grow capital is via retained earnings, institutions must ensure they don't increase assets too quickly. |
| Capital to Assets | Capital/Assets | This measure evaluates what percent of a credit union's assets are backed by capital. While credit unions do not want this ratio to go too low, a very high percentage indicates that a credit union may not be using their assets productively. The capital ratio and net worth ratio are two distinct measurements even though they are often inaccurately referred to as one and the same. The capital ratio specifically includes allowance for loan & lease losses whereas net worth does not. |
| Capital to Loans | Capital/Loans | The capital-to-loan ratio evaluates the financial strength of the credit union by comparing loans, generally the area of highest risk, to the total capital of the organization. Capital exists to protect the credit union from significant or unanticipated future losses. The credit union’s loan portfolio is not only its primary source of earnings, but also its primary source of risk. Credit unions with lower risk in their loans, based on the kinds of loans or a record of sound underwriting and low losses, may be able to justify a lower ratio. Credit unions in the process of making changes to their lending strategies – installing risk-based pricing, starting indirect lending – may need to develop strategies to increase this ratio. |
| Change in Net Worth to Assets | change(net_worth/assets) | The change in net worth-to-assets ratio shows how the net worth ratio is moving from one period to the next on an annual basis. A credit union’s net worth is all of the credit union’s earnings since inception. According to current Prompt Corrective Action (PCA) regulations, a 7% or higher net worth ratio represents a "well capitalized" credit union. Capital serves several purposes. It is an insurance-like reserve to protect the credit union against unforeseen or unusual losses. Credit unions also use it to invest in future member service expansion efforts. An adequate level of capital is a judgment that balances risk and growth factors. Too high a ratio can be as detrimental to members’ interests. Management must weigh the opportunity costs of holding excess capital, especially with respect to potential investments in technology and member service enhancements. |
| Commercial Loan Growth | growth(a400T1) | Commercial loan growth is driven by several factors including: 1) the state of the economy; 2) the socioeconomic make-up of the credit union’s membership, and 3) the credit union’s ability to make and hold commercial loans. Commercial loans can be an attractive asset. Generally, the interest rates offered are higher than consumer loans due to several reasons: the varied risks of business default and their relation to business cycles, and commercial loans tend to be more illiquid than traditional consumer loans. For credit unions with new commercial lending programs, higher levels of growth are to be expected as the services ramp-up. As the program matures, growth will naturally slow down. New product and service offerings for commercial member services - including commercial checking accounts, business credit cards, or ancillary services may drive attention to and stimulate growth in the credit union’s core commercial loan products. |
| Commercial Loan Portfolio | a143B3+a143B4 a042a5+a042a7 a400m+a400m1 a400h2+a400h3 a400j2+a400j3 a042a6+a042a8 a400l2+a400l3 a400c5+a400c6+a400c7+a400c8 | A credit union’s commercial loan portfolio is broken down into categories based on how the loans are secured, or unsecured. Each of these categories has characteristics that help with risk diversification and yield variability, but they also have varying levels of default risk. Additionally, each type of secured loan necessitates a different type of expertise from the lender in order to properly evaluate, underwrite, and price the loan. Balancing profitability, member relationships, asset liability management policies, loan limits, and operational risk across the key commercial lending segments is one of the primary jobs of commercial loan program management. |
| Commercial Loans to Total Loans | (a400t1)/a025b | Commercial loans can be an attractive asset. The commercial loans/total loans ratio highlights how large their commercial lending business is as a percentage of their total lending business. Commercial loans can be an attractive asset as the interest rates offered are generally higher than consumer loans due to the relatively varied risks of business default and their relation to business cycles, and commercial loans tend to be more illiquid than traditional consumer loans. Credit unions can look to credit union service organizations (CUSOs) that provide credit union friendly networks to allow institutions to outsource all or part of the lending process. |
| Consumer Loan Delinquency | (a045b+a130b+a041T+a041C1+ A041C2+A041C+aDL0027+ aDL0055)/(a396+a698a+a397a +a698c+a397+a385+a370) | Consumer loan delinquency measures the amount of consumer loans two or more months past due as a percent of the total consumer loan portfolio. Consumer loans include credit card balances, auto loans, and any other loans not in the real estate portfolio. Loan delinquencies in this category are likely to be higher than those in the real estate or member business portfolio. |
| Core Earnings Ratio | core_earnings | The core earnings ratio attempts to provide a true measure of a credit union's earnings by eliminating external factors (such as the NCUSIF Stabilization Expense). Core earnings is calculated by taking a credit union’s total income and removing interest expenses and operating expenses. This information is then annualized, and that value is compared to average assets to complete the ratio. By comparing this metric to a credit union’s traditional ROA, you will get a better sense of the credit union’s earnings from operations. For a more detailed analysis of your credit union’s income be sure to refer to the individual components of this equation. |
| Credit Card Charge-Offs to Credit Card Loans | (Annual(a680-a681))/ ((a396+ a396:dec)/2) | Credit card loans will typically experience higher levels of charge-offs than other loan products as a result of higher interest rates and uncollateralized nature. Effectively tracking and pursuing delinquent accounts is the first step in reducing charge-off levels. Charge-off levels may also be influenced by economic factors impacting the membership. Credit unions are generally willing to accept relatively higher charge-offs for credit card loans versus other loan segments due to higher earnings associated with this product line. |
| Credit Card Delinquency | a045b/a396 | Credit card loans typically have higher delinquency rates than other loan products as a result of higher interest rates and uncollateralized nature. Because credit card loans are unsecured, underwriting policies and rates must reflect potential losses. Delinquencies may be influenced by economic factors impacting the membership. Establishing processes that track and pursue delinquent accounts is an important part of a successful credit card program. |
| Credit Card Loan Growth | growth(a396) | This metric measures the year-over-year change in outstanding credit loans held in the credit union's portfolio. The amount of credit card loans outstanding is, as with the success of most credit union services, closely tied to the level of effort the organization puts into the program. The credit card market is highly competitive, and requires both technological investment and effective marketing in order to succeed. Credit unions that make the credit card a key part of their core service offerings, provide a competitive product, and constantly market the product to members are generally able to achieve a healthy margin. Additionally, the demographics of the membership can heavily impact outstanding credit card balances, as older and wealthier demographics tend to be less likely to carry balances on their credit card. |
| Credit Card Loans Outstanding | a396 | The amount of credit card loans outstanding is, as with the success of most credit union services, closely tied to the level of effort the organization puts into the program. The credit card market is highly competitive, and requires both technological investment and an effective marketing strategy in order to succeed. Credit unions that make the credit card a part of their core service offerings, provide a competitive product, and constantly market the product to members are generally able to sustain a profitable product. Additionally, the demographics of the membership can heavily impact outstanding credit card balance levels, as older and wealthier demographics tend to be less likely to carry balances on their credit card. |
| Credit Card Loans to Total Loans | a396/loans | The ratio of credit card loan balances to total loans measures the share of credit card balances within the credit union's total loan portfolio. As credit unions seek to diversify their loan portfolios and serve members by providing fair value credit cards, this ratio is important to track, particularly if the credit unions is placing an emphasis on growing this business as a core product. The amount of credit card loans outstanding is, as with the success of most credit union services, closely tied to the level of effort the organization puts into the program. The credit card market is highly competitive, and requires both technological investment and effective marketing strategy in order to succeed. |
| Credit Card Penetration | A993/members | Credit card penetration represents the percentage of the credit union's membership that have a credit card product with the credit union. Credit card accounts can often be a starting point for fostering deeper relationships with members, along with a checking accounts and real estate loans. |
| Delinquent Loan Growth | growth(delinquent_loans/loans) | The credit union's delinquency ratio is a measure of the current credit risk associated with a credit union's loan portfolio and is a forecaster of future loan losses. Therefore, unusual increases or decreases in the ratio generally have an impact on future earnings. Changes in the delinquency ratio can be broken down into two general categories: 1) external events that affect the members' ability to make loan payments, and 2) internal changes in the credit union's operations that affect the credit union’s ability to collect loan payments. External factors can be macro events such as an economic downturn or local events such as the closing of a sponsor's factory. Internal factors include changes in loan underwriting policies or changes in the capabilities of the collection department. Risk-based pricing is often accompanied by higher delinquencies which should be offset by higher loan yields. |
| Dividends to Income | dividends/a100 | A credit union’s dividends-to-income ratio (payout ratio) is influenced by the organization’s loan and deposit pricing strategies and asset and liability management approach. The credit union’s member demographics will also impact deposit costs. For example, older members may have more certificates while younger members may concentrate in shorter term products, or a more affluent member may have higher balances; each situation could drive up dividends. Credit unions with strong lending performance will increase the income component of the ratio thereby driving down the ratio. |
| Education and Promo Expense per Member | annual(a270)/members | The amount of money a credit union spends per member on education and marketing expenses is driven by the credit union’s business plans and commitment to a marketing and sales culture. Education and promotional expenses can be viewed as an investment in the future success of the credit union’s products and services. This expense should be evaluated in terms of other measures that indicate market penetration such as accounts per member, average share balance, share draft penetration, average loans per member, and related growth rates to ensure that the investment is producing results. |
| Efficiency Ratio (Excluding Provision for Loan Losses) | ((a671))/(a115-a350+a131+A659+AIS0020) | The efficiency ratio divides a credit union’s operating expenses by total income (including funds set aside to provide for loan losses) minus interest expense. The lower the efficiency ratio, the better. A high or rising efficiency ratio means that the credit union is losing a larger share of its income to overhead expenses. A low efficiency ratio infers that operating expenses are a smaller percentage of income. The efficiency ratio can fluctuate over time, influenced in part by the interest rate environment as income is generally more sensitive to changes in interest rates than expenses. In theory, credit unions with higher ratios of fee income to total income should see less fluctuation in the efficiency ratio than credit unions with less fee income. |
| Efficiency Ratio (Including Provision for Loan Losses) | (a671)/(a115-a350+a131+A659+AIS0020-a300-ais0017) | The efficiency ratio divides a credit union’s operating expenses by total income (excluding funds set aside to provide for loan losses) minus interest expense. The lower the efficiency ratio, the better. A high or rising efficiency ratio means that the credit union is losing a larger share of its income to overhead expenses. A low efficiency ratio means that operating expenses are a smaller percentage of income. The efficiency ratio can fluctuate over time, influenced in part by the interest rate environment as income is generally more sensitive to changes in interest rates than expenses are. In theory, credit unions with higher ratios of fee income to total income should see less fluctuation in the efficiency ratio than credit unions with little fee income. |
| Expense Composition | a210 a230 a250 a260 a270 a280 a290 a310 a320+a360 | Operating Expense composition generally does not vary widely across credit unions, but some expense types may stand out in credit unions with unique business models. Employee compensation and benefits is a credit union’s most significant expense category and usually accounts for roughly 50 percent of total expenses. Other expense categories show more variability, but account for much smaller percentages of total expenses. Variability in expense composition can stem from several sources, including: 1) local and regional pay scales; 2) the credit union’s branch strategy—for example, employee compensation and office occupancy will typically be higher for a credit union with multiple branches than for a credit union with a single office, and 3) the credit union’s field of membership—a credit union with a community charter will generally have to meet different service needs than a credit union with sponsor support or a closed field of membership. |
| Fee Income per Member | annual((A131+RIAD4079)/members) | The amount of fee income generated per member is primarily driven by the credit union’s fee strategy which is often a function of the credit union’s field of membership and other aspects of its overall financial structure. The credit union’s fee strategy will impact its level of productive operations (operating expenses), and ability to generate other income from indirect sources. A credit union’s fee strategy is generally designed to fill in the shortfall between the results of all the other aspects of net income and the credit union’s ROA goal. Other factors include the field of membership’s tolerance for fees, competitive pressures in the credit union’s trade area, the board of director’s attitudes towards fees, and the amount of mortgage lending the credit union participates in (which contains certain unavoidable fees related to processing). |
| Growth of All RE Originations | growth(a726+aRL0048) | The growth of real estate originations is a key metric used to measure the success of a mortgage program. Year-to-date originations compared with the same period the year prior shows a trended perspective on how a program has performed. Real estate originations include all fixed rate, ARMs, seconds, and home equity lines of credit. Originations can fluctuate for several reasons. In a strong housing market, originations will grow due to home price increases as well as higher demand for firsts and home equity lines. Origination amounts could also fluctuate based on the credit union’s liquidity position and whether it is active in the secondary market. |
| HELOCs and 2nd Mortgages as % of Total RE Loans | CYCLENUM<2017.2[a386/(a386+a703)]((a386a+a386b)/a703a+a386a+a386b+a718a5) | Home equity lines of credit and second mortgages as a percentage of total real estate loans outstanding measures the concentration of real estate loans that are seconds and HELOCs. These are typically less than the amount of first mortgages on the books due to the relatively smaller size of these loans. However, as home prices rise these loans are used to a greater extent by consumers, leading to an increase in this ratio. This ratio could also be higher if a large proportion of first mortgages are sold to the secondary market. |
| Income Composition | a110-a119 a120+(a124+ais0004) a131 A659+AIS0020 | Credit union income is composed of two categories: 1) balance sheet based (loan and investment income), and 2) operationally based (fee income and other income). Balance sheet income is generally influenced by external economic forces and market conditions and is slower to change than operational income. The key elements in managing balance sheet driven income are the size of the loan portfolio, the credit union’s loan pricing and underwriting policies, and the quality of the credit union’s management of its investment portfolio. Operational income is generally affected more by the internal policies of the credit union and is able to be adjusted in a relatively short time frame. The key elements in managing operational income are the credit union’s fee policies and strategies and its ability to develop income generating products and services; e.g. mortgage lending, certain types of fee based CUSO operations, and credit and debit card operations. |
| Income per Employee (FTE) | a100/FTEs | This ratio measures the amount of income (in dollars) generated by each employee. The higher the number, the more productive the credit union. As employee salaries and benefits are often the dominant component of overall operating expenses, this ratio is an effective tool for measuring how efficiently the credit union is converting its expenses into income. |
| Interest Expense to Average Assets | annual(a350)/ave_assets | A credit union's interest expense (measured as a percentage of average assets) is influenced by the external rate environment and internally by the composition of the deposit portfolio. In addition to the credit union's pricing strategies, liquidity needs and asset and liability management strategies will drive the ratio. The credit union's member demographics will also affect the deposit portfolio, and thereby influence this ratio. For example, older members may have more certificates while younger members may concentrate in lower-yielding, shorter term products. Or, a more affluent membership may have higher balances which are usually tier-priced, driving up interest expenses. If the credit union has higher levels of equity than peer credit unions, the shares-to-assets ratio and interest expense ratio will be correspondingly lower. |
| Interest Expense to Total Income | a350/a100 | This ratio represents the credit union's total interest expense divided by total income (interest income and non-interest income). It is important to monitor this ratio to ensure there is a balance between the interest paid and the income the credit union is generating. Interest income and interest expenses generally trend in similar directions; non-interest income is often the largest variable in this metric. Relative to peers however, this ratio is more likely to stand out if the credit union's member demographics are concentrated. For example, older members may have more share certificates or retirement accounts while younger members may be focused on shorter-term and lower yielding products. The differences in these products' dividend rates impacts the ratio's numerator (interest expense). This ratio may be lower if the credit union is a strong lending institution with a high loan-to-share ratio, which generates additional interest income, increasing the ratio's denominator (total income). |
| Interest Income to Average Assets | annual(a115)/ave_assets | Income earned from interest on loans and investments continues to be the primary driver of credit union's total income. Tracking the interest income to average assets ratio helps demonstrate the relationship between increasing assets and the credit union's main source of income (interest). Holding non-earning assets will decrease this ratio. Credit unions with strong, well-performing investment and loan portfolios will have higher ratios. |
| Interest Income to Total Income | a115/a100 | This ratio measures total interest income (loans and investments) to all income sources. Interest income continues to be the primary driver of total income. Tracking the interest income to total income ratio will help the credit union understand how reliant it is on interest income (if the ratio is high) or how diversified its income sources are (if the ratio is low). |
| Investment Portfolio Composition | Various Formulas | Credit unions primarily invest in securities issued by federal agencies, such as Fannie Mae and Freddie Mac., and also allocate overnight cash balances to the Federal Reserve and other financial institutions (FHLB and Corporate Credit Unions). U.S. Treasury securities, corporate credit union shares, deposits at banks and savings and loans, and mutual funds are also utilized though generally to a lesser extent. The composition of the investment portfolio will vary among credit unions based on their investment guidelines and strategy, as well as their outlook for interest rates and liquidity needs. |
| Investment Portfolio Maturities Distribution | aNV0153+a799a1+a730a+a730b+ a730c+aAS0008-aAS0041 aNV0154+a799b aNV0155+a799c1 aNV0156+a799c2 aNV0157+a799d | A credit union’s investment maturity schedule is broken into five categories: 1) investments that mature in less than 1 year (including cash balances); 2) investments that mature in the next 1 to 3 years; 3) investments that mature in more than 3 to 5 years; 4) investments that mature in 5 to 10 years, and 5) investments with maturities greater than 10 years. Each category carries different ALM characteristics and subsequently impacts the credit union’s liquidity profile and repricing opportunities. Typically, credit unions should seek to implement a diversified strategy that best matches their ALM needs, most commonly being a laddered approach or a barbell strategy. |
| Loan Accounts Per Member | a025a/members | The number of loan accounts per member measures how well the credit union is meeting the lending needs of its members. Loans per member is a function of the demographic make-up of the field of membership, the breadth of the credit union’s lending operations, and the effectiveness of the credit union’s marketing and sales culture. Offering a full product suite of real estate, auto, and credit card programs is necessary to maximize this metric. The credit union's underwriting policies, and the level of credit risk that it is able to take on are also key determinants. |
| Loan Delinquency | delinquent_loans/loans | The delinquency ratio - calculated by dividing the number of loans reported as delinquent (>60 days past due) divided by the total number of loans - is a measure of the current credit risk associated with the credit union’s loan portfolio. Delinquency is a forecaster of future loan losses, therefore unusual increases or decreases generally have an impact on future earnings. The level of delinquency a credit union can sustain is a function of several factors including income generated by the loan portfolio, management of credit risk, and ability to manage loan losses. Risk-based pricing is often accompanied by higher delinquency which should be compensated for by higher loan yields. Conversely low delinquency rates can indicate that the credit union’s underwriting policies are too conservative. This ratio should be evaluated in conjunction with the credit union’s loan-to-share ratio, coverage ratio and ROA. |
| Loan Growth | growth(loans) | Loan growth is driven by several factors, including: 1) the state of the economy; 2) the demographic make-up of the membership; 3) the level of risk the credit union is willing to manage, and 4) the credit union’s ability to gain market share. The overall market for loans is influenced by the membership’s confidence in their ability to manage debt. The demographic factors which can influence loan growth include the number of borrowing age members, how affluent is the membership and what are their cultural attitudes towards debt and borrowing. Finally, the credit union’s ability to penetrate its potential loan market through marketing, product development (e.g. indirect lending, real estate lending, etc.), sales culture development, and the ability to use multiple delivery channels all contribute to the credit union’s ability to grow loans. |
| Loan Portfolio | CYCLENUM<2017.2[a703]a703a CYCLENUM<2017.2[a386]a386a +a386ba370a385a396CYCLENUM <2017.2[loans-a703-a386-a370- a385-a396]025b-a703a-a386a- a386b-a370-a385-a396 |
A credit union’s loan portfolio is broken down into three primary classifications – real estate loans, auto loans and all other loans. Each of these categories has characteristics that positively contribute to the diversification and security of the credit union's loan portfolio, while also creating challenges for the credit union to manage. Balancing profitability, member relationships, asset liability management policies, maturity lengths, and operational risk across key lending areas is one of the primary jobs of credit union management. Track this composition over time to see which loan types have been a focus for both the credit union and its membership. |
| Loans Maturing in 1 Year | bench19/100 | The percentage of loans with maturities less than one year is a factor of the composition of the loan portfolio and highlights the investment strategy of the credit union. Management must be aware of the repricing risk of its loan portfolio as it relates to increases and decreases of interest rates. This ratio can be a helpful measure when assessing the short term liquidity of the credit union. |
| Loans per Employee (FTE) | loans/FTEs | The higher the total balance of loans per employee, the more productive the credit union is at cultivating loans across its membership. The loan component of this performance measure is a combination of the credit unions lending philosophy and the member’s propensity to borrow. A strong sales culture and effective marketing programs can have a positive impact on this ratio. |
| Loans to Assets | Loans/Assets | Lending is the primary business of credit unions, and the loans-to-assets ratio indicates how successful credit unions are at optimizing their balance sheets. Given that loans are the highest earning asset for a credit union, a higher ratio is better. However, management needs to monitor their liquidity needs in conjunction with their loan/asset ratio to ensure that the credit union will have enough funds available for member savings withdrawals and general liquidity needs as part of a normal operating cycle. |
| Loans to Shares | Loans/Shares | The credit union’s loan-to-share ratio is driven by the credit union’s loan and deposit acquisition performance. Most credit unions concentrate on building the loan portfolio while focusing less on stimulating deposit growth, unless liquidity is an issue. The needs of the membership are important to this ratio as well. In general, loan growth can be influenced more by the credit union’s operations (sale culture, marketing, product development, risk management, etc.) than deposit growth. Deposit growth is generally influenced by non-operational factors (e.g. the demographics of the membership and economic conditions), than by operational factors. In general, a higher ratio can lead to greater profitability, but can cause liquidity pressures if not managed appropriately. |
| Margin Spread (Net Interest Margin Less Operating Expenses) | annual(a115-a350-a671)/ave_assets | This ratio calculates the credit union's basis point spread by subtracting operating expenses from net interest income. Essentially this ratio measures if daily operating expenses are covered by the core operations (savings and lending) of the institution. A positive result indicates the credit union is profitable on a day-to-day basis, excluding extraordinary items. A negative result means the credit union cannot cover regular operating expenses. It is important to monitor this ratio to ensure that the credit union's earnings relative to expenses and asset growth remain balanced. |
| Member Business Loan Growth | growth(a400a) | Member business loan growth is driven by several factors including: 1) the state of the economy; 2) the socioeconomic make-up of the credit union’s membership, and 3) the credit union’s ability to make and hold member business loans. Member business loans can be an attractive asset as the interest rates offered are generally higher than consumer loans due to the relatively the varied risks of business default and their relation to business cycles, and member business loans tend to be more illiquid than traditional consumer loans. For credit unions with new member business lending programs, higher levels of growth are to be expected as the services ramp-up. As the program matures, growth will naturally slow down. New products and services offerings for business services members, including business checking accounts, business credit cards, or ancillary services such as payroll services, may drive attention to and stimulate growth in the credit union’s core member business loan products. |
| Member Business Loans to Total Loans | a400a/Loans | Comparing outstanding member business loans to the total loan portfolio shows how much of the credit union’s portfolio is comprised of member business loans. While both member business loans and commercial loans are used to fund a business purpose, the primary difference is that two specific loans types are designated as MBLs but not commercial loans: loans secured by 1-4 family properties that aren't the member's primary residence, and loans secured by a vehicle manufactured for household use (e.g., corporate work truck, car, etc.). The concentration level of member business loans is driven by the credit union’s focus and member base. If a credit union is focused on member business lending, this ratio should be in line or higher than peer averages. Member business loans are generally regarded as riskier than most consumer loans, however member business loans have correspondingly higher yields. Establishing risk-tolerance levels and implementing those guidelines through specific lending criteria should be the first step for any institution focusing on member business lending. |
| Member Growth | growth(members) | Member growth is the result of the successful application of effective business strategies in the credit union’s marketplace. Business strategies used to acquire new members include the board’s philosophy towards service levels, delivery channels, product pricing, and the breadth of services offered. Other factors can that can lead to member growth include geographic expansion (new branches), mergers, or a change in charter type allowing for a wider demographic (or area) to join the field of membership. |
| Members per Employee (FTE) | members/FTEs | This ratio measures the number of members for each full time equivalent employee. Given that human resource costs are typically credit unions largest operating expense, this ratio is critical to monitor. Theoretically, a higher ratio means a credit union is more productive; however, there are many factors that influence it. When examining the ratio, credit unions should also consider product penetration rates, members per branch location, the geographic distribution of the membership, and field of membership requirements. Too high of a ratio could indicate that members are not able to receive quality service. The strategic factors that impact the ratio include organizational service level goals, growth, and the development of products, technologies, and employees. |
| Mortgage Origination Portfolio | (a721a+a721b+arl0015)/(a726+aRL0048)(a720c+a720d+arl0009+arl0012)/(a726+aRL0017)(a720a+a720b+a720e+arl0003+arl006)/(a726+aRL0017) | The mortgage origination portfolio composition details the types of real estate loans that the credit union has promoted within the past year, as well as the most popular products amongst its membership. Components include fixed rate first mortgages, balloon/hybrid first mortgages, adjustable rate first mortgages, and other real estate (primarily second mortgages and equity LOC). Factors that impact the origination portfolio include the current interest rate environment, the real estate market in the region, and the home purchasing and refinancing attitudes of the membership. |
| Net Assets Less Than 1 Year to Assets | (Loans_Lt_1yr+invest_Lt_1yr+a730)/assets | The percent of total assets with a maturity of less than one year provides an overview of the credit union’s short term liquidity. The ratio is influenced by the all of the components of the balance sheet with maturities less than one year including: 1) the investment portfolio composition; 2) the loan portfolio composition, and 3) the credit union’s pricing policies. The ratio is a measure of the combination of all aspects of the credit union’s liquidity position, and helps to determine its flexibility to reprice assets moving forward. |
| Net Charge-Offs to Loans | ((annual(net_charge_offs))/ (ave_loans)) | The net charge-offs to loans ratio is a measure of the credit union's past management of credit risk. In general, the lower the ratio, the sounder the credit union's position. Changes in lending strategies typically take 12 to 18 months to be reflected in charge-off statistics. This ratio has a direct impact on the credit union’s ROA. Two of the primary components of credit risk management that impact the charge-off ratio are underwriting policies and debt collection procedures. Risk-based pricing, the demographic make-up of the membership, and the loan mix of the credit union are all components of underwriting policies that have an impact on the quality of originated loans. The timeliness and aggressiveness of the collection effort also have a direct impact on charge-off levels. |
| Net Charge-Offs to Prior Year Delinquent Loans | annual(a550-a551)/delinquent_loans:1 | A credit union’s delinquency is a measure of the current credit risk associated with its loan portfolio; net charge-offs are a measure of past credit risk. Comparing current charge-offs to past delinquency, the credit union synchronizes the timeline between loan underwriting and loan losses. Current charge-offs are a reflection of past lending decisions. The primary application of the ratio is to measure the effectiveness of a credit union’s collection efforts. A secondary application is as a measure of its underwriting policies. The time lag between a loan underwriting decision and charge-off averages 12 to 18 months. A credit union’s first short-term line of defense against loan losses is an effective collection operation. |
| Net Income to Expenses | bench15/100 | The net income to expense ratio is a secondary measure of the credit union’s capacity to generate earnings. The relationship between expenses and net income is driven by several factors, including operating expenses, spread management, and other income strategies. The ratio may be useful for credit unions with high operating expenses but strong net income in that it provides an alternative perspective to the operating expenses-to-assets ratio which would present an inaccurate negative picture for these credit unions. |
| Net Income to Total Income | net_income/a100 | This ratio measures the credit union's net income relative to its total income. It is one way to measure efficiency. As interest income and expense are the most impactful metrics that make up net income, this ratio can be helpful to determine how the credit union's earnings and operating strategies compare to peers. It will be beneficial to review this metric along with other income and expense measures. |
| Net Interest Margin | net_int_margin | A credit union’s net interest margin - interest income from loans and investments minus interest paid to members or on borrowed funds divided by average assets - is the result of the organization’s execution of its lending, investing, and liquidity funding strategies. The credit union’s ability to manage its spread is a critical component in managing this metric. For example, a credit union’s ability to appropriately price loan products (through risk-priced loans) or deposit products (through a pricing strategy that clearly differentiates between rate sensitive and non-rate sensitive products) significantly enhances the organization's flexibility in managing the margin. Credit unions with lower operating expense levels, or strong non-interest income, will be able to sustain more competitive loan and deposit pricing strategies. Credit unions with higher expenses, loan losses, or lower non-interest income levels will need to maintain higher net interest margins. |
| Net Liquid Funds to Short Term Savings | bench18 | This ratio is used to measure the short term liquidity of the credit union, and is defined as the relationship between investments that mature within the next year less any borrowings, divided by the number of share/deposit products with maturities under one year. Investments maturing within a year, including short term and overnight investments of the organization, matched to the shares that mature within the next year, provides an indicator of the credit union's ability to meet the immediate cash flow needs of its members. While the bulk of short term shares are generally core deposits and therefore less rate sensitive, the credit union can be vulnerable to liquidity pressure from members' seasonal withdrawals to pay taxes or to respond to external economic pressures. |
| Net Operating Income to Income | bench12/100 | The net operating income to income ratio is a gauge of the credit union’s ability to cover loan and non-operating losses. The ratio reflects the results of the credit union’s operations before deducting funding for loan losses and any other adjustment for other losses. Because of the generally consistent nature of operating income and the relatively inconsistent nature of funding for losses, the ratio can present a good representation of the basic operation’s ability to contribute to earnings. |
| Net Worth to Assets | net_worth/assets | The net worth of a credit union represents all of its earnings since inception. The net worth-to-assets ratio is the primary measure of a credit union’s financial strength. Current Prompt Corrective Action (PCA) regulations state that a 7.0% or higher net worth ratio is a "well capitalized" credit union. At 6% the credit union is "adequately capitalized." Capital serves several purposes. It is an "insurance-like" reserve to protect the credit union against unforeseen or unusual losses, and can also be used to invest in growth (new employees, branches, etc.). Because retained earnings are the primary source of capital for credit unions, the credit union industry tends to maintain a higher level of capital than thrifts or banks which have more diverse options for raising capital. |
| New Auto Loans Outstanding | a385 | New auto loans make up a large portion of the loan portfolio at most credit unions. Cooperatives have historically been successful at grabbing market share in this product because of their competitive rates and targeted marketing. Credit unions that offer low rates and engage in marketing to both members and potential members have been able to generate strong yields from this product. |
| Non-Interest Income Growth | growth(a117) | Non-interest income is any revenue that a credit union earns outside of its core activity of taking in shares and making loans and investments. It consists of fee income (fees charged for services provided by the credit union, such as overdraft protection and ATM fees) and other operating income (which can include items such as credit/debit card interchange income and income received from selling real estate loans on the secondary market). Non-interest income is an important item to monitor because it generally diversifies a credit union’s sources of revenue. The growth rate of non-interest income can vary widely across time and across credit unions. These variations can be a function of strategic decisions, competitive forces, time, and member dynamics. |
| Non-Interest Income per Member | annual(A117)/members | This ratio measures the amount of non-interest income generated per member. This ratio is a method for measuring how well the credit union has developed non-interest revenue generating products and services and how well the members have accepted these products and services. Non-interest income factors that impact the ratio generally fall into two major categories: income generated directly from the member in the form of fees, and income generated indirectly from members or other aspects of the credit union’s operations, e.g. interchange income from credit and check cards, the sale of real estate loans on secondary markets, and income from CUSO activity. |
| Non-Interest Income to Avg Assets | annual(a117)/ave_assets | This ratio measures the amount of non-interest income the credit union generates as a percentage of average assets. Analyzing non-interest income as a percentage of assets removes the variations that exist when comparing the ratio to total income. For example, viewing non-interest income alone removes the impact of a weak loan to asset ratio. This ratio also has a tendency to be less volatile than the total income to assets ratio as it is less susceptible to interest rate fluctuations and their subsequent impact on interest income. Non-interest income factors that impact the ratio generally fall into two major categories: income generated directly from the member in the form of fees, and income generated indirectly from members or other aspects of the credit union’s operations, e.g. interchange income from credit and check cards, secondary market mortgage sales, and income from CUSO activity. The rate of asset growth is the most impactful variable on the ratio. Rapid asset growth will depress the ratio while slow or stagnant asset growth will inflate the ratio. Organizational issues that would impact the ratio and should be analyzed include: 1) rate of asset growth; 2) member participation in the credit union, and 3) unusual credit union operations that contribute to non-interest income. |
| Non-Interest Income to Total Income | a117/a100 | This ratio measures the relationship between non-interest income and total income. The greater the ratio, the less the credit union is reliant upon interest-based income streams. This ratio is most influenced by three strategic decisions: 1) the credit union's lending philosophy, 2) the credit union's philosophy towards spread management, and 3) the credit union's emphasis on developing non-balance sheet income streams. Non-interest income factors that impact the ratio generally fall into two major categories: 1) income generated directly from the member in the form of fees, and 2) income generated indirectly from members or other aspects of the credit union’s operations, e.g. interchange income from credit and check cards, secondary market mortgage sales, and income from CUSO activity. Interest income factors that impact the ratio include the credit union’s spread management strategies, the credit union’s ability to generate and fulfill loan demand and the overall rate environment. Credit unions that have lower loan-to-asset ratios will have lower interest income. |
| Operating Expense to Average Assets | annual(opex)/ave_assets | Operating expenses to average assets reflects both the operating efficiency and the operating strategy of a credit union. Some credit unions will pursue a strategy that is focused on a more extensive physical member service network that requires greater investment in branches and ATMs while others will focus on serving members through lower cost digital channels as well as call centers. The breadth of a credit union's product and service line will also have an impact on this ratio. Whether through internally-driven economies of scale or cooperative efforts with other credit unions, initiatives to manage expenses more efficiently can have a significant impact on a credit union's competitiveness and the value it creates for members. In comparing expenses to assets, this ratio underscores the idea that a larger balance sheet results in a larger operation that requires greater resources. The ratio can be looked at in comparison with the operating expense to income ratio, which can show larger swings due to the impact of interest rate changes total income. |
| Operating Expense to Income | opex/a100 | Credit unions that pursue a full service strategy with a diverse product and service offering will generally have higher expense levels than credit unions with a more limited offering. The credit union’s expense to income ratio will depend on the credit union’s ability to generate income from those products and services. The ratio can also be a measure of the credit union’s productivity. Investments in technology can, when managed successfully, make significant contributions to a credit union’s productivity, which will lower expenses. Product-pricing strategies also have a significant impact on the ratio. Credit unions that price products and services competitively generally will have good income results and a good expense to income ratio. |
| Outstanding Member Business Loans | a400a | Member business loans can be an attractive asset. While both member business loans and commercial loans are used to fund a business purpose, the primary difference is that two specific loans types are designated as MBLs but not commercial loans: loans secured by 1-4 family properties that aren't the member's primary residence, and loans secured by a vehicle manufactured for household use (e.g., corporate work truck, car, etc.). Member business loans can be an attractive asset as the interest rates offered are generally higher than consumer loans due to the relatively varied risks of business default and their relation to business cycles, and member business loans tend to be more illiquid than traditional consumer loans. Credit union service organizations (CUSOs) provide credit union friendly networks to allow institutions to outsource all or part of the lending process. |
| Provision for Loan Losses/Avg. Assets | annual((a300+ais0017))/ave_assets | The Provision for Loan Losses (PLL) represents the amount that has been reserved this year by a credit union for future expected member defaults. Measured as a percentage of average assets, the provision should be reviewed with delinquency and charge-off ratios, and also as part of a larger spread analysis. A lower than average provision ratio with average to higher delinquency could put the credit union at risk if loan delinquencies and charge-offs rise unexpectedly. In the past, credit unions followed historical trends to help set their PLL. Today many credit unions use both historical information and qualitative information, such as regional economic statistics, to help project future needs. By tracking this ratio, a credit union can better evaluate its ability to withstand credit losses compared to other credit unions in its peer group. Credit union boards and managers can also gain a broader view of the overall financial health of the credit union by monitoring this ratio over time. |
| Real Estate Delinquency | CYCLENUM<=2021.4[(a713a+a714a+a715a+a716a)/(a703+a386)](adl0069+adl0076+ADL0062)/(a386a+a386b+a703a) | Real estate delinquency measures real estate loans two or more months past due as a percent of the total real estate portfolio outstanding. The real estate portfolio includes all first mortgages, seconds, and home equity lines. Delinquencies on real estate loans historically have performed better than other segments in the loan portfolio as it is more probable that an individual will make a house payment over a car or credit card payment. Real estate underwriting and collections play an important role as these are the most valuable loans and relationships held by the credit union. |
| Real Estate Loan Penetration (All RE Loans) | (Number1stMortgageLoans+NumberOtherRELoans)/members | Real estate loan penetration is a measure by which credit unions can see what percentage of their membership base is using their real estate loan services (firsts, seconds, or home equity lines). A higher value for this ratio indicates a higher percentage of the credit union’s membership has a real estate loan outstanding with the credit union. If the credit union sees itself as mainly a consumer lender, has a young mortgage program, or has a particularly young or urban-centric membership, the ratio may be lower. In addition, this ratio may be lower if the credit union primarily sells mortgages to the secondary market rather than keeping them on their balance sheet. |
| ROA After NCUSIF Expense | Annual(a661a)/ave_assets | Return on Assets (ROA) is an important gauge of a credit union's profitability. ROA provides insight into how efficiently management is running the credit union and how able management is at generating profits from the credit union’s available assets. A comparison of net income and average total assets, ROA reveals how much income the credit union is able to generate for each dollar of assets deployed. In general, a high ROA relative to peers reflects management's success at utilizing its assets to generate income. Credit unions, however, should view ROA in light of each institution's distinct strategy. For example, if a credit union passes along potential profits to members (e.g., no/low fees, high deposit rates, low lending rates), then its strategy might result in a low ROA relative to its industry peers. |
| ROA Before NCUSIF Expense | annual(a661a+a310)/ave_assets | Return on Assets (ROA) is an important gauge of a credit union's profitability. ROA provides insight into how efficiently management is running the credit union and how able management is at generating profits from the credit union’s available assets. A comparison of net income and average total assets, ROA reveals how much income management is able to generate for each dollar of assets deployed. In this version of the metric, net income is calculated before the NCUSIF expense is removed. In general, a high ROA relative to peers reflects management's success at utilizing its assets to generate income. Credit unions, however, should view ROA in light of each institution's distinct strategy. For example, if a credit union passes along potential profits to members (e.g., no fees, high deposit rates, low lending rates), then its strategy might result in a low ROA relative to its industry peers. |
| Salaries and Benefits per Employee (FTE) | annual(a210)/FTEs | The total cost of a credit union’s human capital is typically its largest operating expense, usually hovering around 50% of total non-interest expenses. The average salary and benefits paid per employee is a measure of several aspects of the credit union including its location, the productivity of its employees, the board of directors’ philosophy toward compensation and benefits, and the organizational structure. Credit unions in metropolitan areas or on the coasts will generally need to pay higher salaries to attract competent employees. Credit unions that have developed highly productive operations generally will have fewer but higher paid employees, so while the average cost per employee may be high, the overall cost may be less than its peers. A lower salary and benefits per employee ratio than peers (after controlling for differences in market rates) may put the credit union at risk of talent attrition, or imply that the credit union has relatively inexperienced workforce. |
| Share Accounts Per Member | nshares/members | The number of share accounts held by each member is a measure of the depth of relationship that the average member has with the credit union. The ratio is impacted by deposit product offerings and pricing strategies, account features, and marketing efforts. With more credit unions gaining members through indirect channels there is increased focus on raising this number and expanding relationships beyond a single product. This metric should be considered along with average share balance and share growth, as some credit unions choose to concentrate on specific products such as certificates rather than developing a wide range of deposit offerings. |
| Share Composition | a902a657a911a908ca906ca630+a880 | The composition of the share portfolio (and the change in composition over time) reflects a credit union’s strategic and tactical decisions, competitive factors, and local and national factors affecting members’ ability to save. For example, a credit union whose strategy is to become its members’ primary financial institution may have a higher percentage of share drafts in its overall portfolio. Share certificates may constitute a higher percentage of shares at a credit union that intentionally prices share certificates to attract term funds. |
| Share Draft Penetration | a452/members | A credit union’s share draft penetration is an excellent measure of the membership’s participation in the credit union. This account is the doorway to additional products and services, and holding this type of account likely means that the member is active within the credit union. A high share draft penetration rate correlates with member loyalty and an increase in wallet share. When priced appropriately, e.g., low or no dividends and appropriate fees, the account is also a net contributor to income. The credit union’s ability to penetrate its share draft account market is based on how well the product or products meet the needs of the members and on how well the credit union is able to communicate the product’s benefits to members. |
| Share Growth | growth(shares) | Share growth is driven by several factors including: 1) the state of the economy; 2) the demographic make-up of the membership; 3) the credit union's ability to pay market rates, and 4) the credit union’s ability to gain market share. Credit unions often see an influx in deposits during times of economic uncertainty, the result of credit union members generally having higher levels of trust in a financial institution to which they feel connected. Seasonally, credit unions tend to report higher share growth in the first quarter of the year as members' receive tax returns and year-end bonuses. |
| Shares per Employee (FTE) | shares/FTEs | Generally, the higher the shares per employee ratio the higher employee productivity and overall efficiency of the credit union. The shares component of the ratio can be affected by, but not limited to, the economic make-up of the field of membership and the effectiveness of the credit union at marketing deposit products to its members. |
| Total Loans | Loans | A credit union’s loan portfolio is broken down into three primary classifications – real estate loans, auto loans and all other loans. Each of these categories has characteristics that make a positive contribution to the credit union while also creating challenges for the credit union to manage. Balancing profitability, member relationships, asset liability management policies, and operational risk across key lending areas is one of the primary jobs of credit union management. The credit union's total loan balance, measured here, is useful to track over time. However, absolute loan balances must be analyzed in conjunction with the asset and member sizes of peer credit unions as well as overall loan growth rates. |
| Total Real Estate Servicing Portfolio | a779a | The total real estate servicing portfolio is the amount of real estate loans that have been sold but are still being serviced by the credit union. Credit unions look to sell these loans off of their books for liquidity and interest rate risk reasons. While the credit union sells the financial commitment of the loan, they often retain its servicing rights (and obligation). This is integral to credit unions as they strive to maintain high levels of member service and keep these important member relationships within the credit union. A smaller servicing portfolio may reflect that either the credit union is choosing to keep the real estate loans on its balance sheet or that they are selling their mortgages with servicing released to the buyer. |
| Total Undivided Earnings | a940 | A higher undivided earnings balance is desirable, indicating that a credit union has higher capital adequacy. This number can be negatively impacted by excessive risk or unanticipated events such as increased unemployment amongst its membership or deteriorating economic conditions. A declining balance can also indicate that a credit union is exceeding its allowance for loan and lease losses and thus has to dip into reserves to cover losses. Credit unions can look to increase their capital balances by revisiting product offerings and pricing strategies, or looking into methods of streamlining operational efficiency and cutting costs. When looking at absolute balances, it is important to analyze them in conjunction with the relative size of other credit unions in the peer group, as well as overall growth rates. |
| Used Auto Loans Outstanding | a370 | Used auto loans have been a staple of the credit union loan portfolio, and are often a key product segment. Though used auto loans tend to be smaller and come with higher risk, they also generally carry higher yields. Credit unions that offer competitive rates and engage in marketing to both members and potential members have been able to generate strong yields from this product. Additionally, credit unions that implement indirect lending strategies tend to see higher penetration rates and growth in their used auto lending business. |
| Yield on Earning Assets | Yield_ave_earn_assets | Earning assets include loans and investments which earn interest income. The higher the yield the more successful the credit union is at penetrating its loan market, effectively pricing loans, managing its investment portfolio, and managing risk in its loan and investment portfolios. Generally the higher the credit union’s loan-to-asset ratio the higher the yield on earning assets; a result of loans yielding more than investments. Risk management also plays an important role, both in the loan portfolio and in the investment portfolio, as defaults and losses will hurt this metric. Credit unions that risk-price all or part of their loans will generally have a higher yield on earning assets. Credit unions with higher concentrations of more sophisticated investments such as mortgage backed instruments - that usually come with higher yields - will have a higher yield on earning assets. |
| Yield on Investments | annual(a120+(a124+ais0004))/ave_investments | A credit union’s investment yield is a reflection of the organization's investment risk tolerance, policies towards average maturity lengths and liquidity controls, and its level of investment management expertise. Investment income is usually the second-largest component of gross income and therefore an important element of a well-managed net interest margin. The type of investment vehicle, maturity, and the various options which can be attached to an investment (call features, type of indexes on variable rate investments, and cash flows) all have an impact on the overall yield of the portfolio. The primary strategic factor that impacts the yield on the investment portfolio is the level of risk the credit union is willing to take, whether they are obtaining appropriate levels of compensation for their risk, and the corresponding ability to manage the risk. |
| Yield on Loans | yield_avg_loans | Loan income is usually the largest component of gross income and therefore often the single most influential element of a well-managed net interest margin. Factors which effect loan interest income generally fall into two areas: 1) the make-up of the loan portfolio, and 2) pricing strategies used by the credit union. Loan portfolios with high percentages of real estate loans have a trend towards lower yields just as portfolios with higher percentages of higher yielding consumer loans (credit cards or signature loans) tend to have higher overall yields. Additionally, credit unions with indirect lending programs generally have higher yields due to the higher percentage of consumer loans. Credit unions with risk-based pricing will also generally have higher loan yields. Memberships with higher net worth members generally have a higher percentage of real estate loans with a corresponding lower loan yield. Conversely, memberships with moderate to low income memberships generally have a higher percentage of higher yielding consumer loans. |
| $ Revenue per $ Salary & Benefits | a100/a210 | This ratio evaluates the credit union’s employee compensation (salary and benefits) relative to the total income generated by the institution. As salary and benefits are the largest expense for credit unions, it is prudent to measure the income generated by those same employees. Credit unions in metropolitan areas or areas with high cost of living may see a lower ratio as costs to hire and retain talent would be higher than credit unions in more rural areas. |
| (Loans + Servicing Portfolio - Purchased Participations)/Shares | (a025b+a779a-a691L)/shares | The credit union’s loan to share ratio is driven by the credit union’s loan and deposit acquisition performance. In this particular version of the ratio, the formula has been modified to include loans that have been sold but are still serviced, and exclude purchased participations. This helps to isolate a more complete picture of loans under management, while controlling for inorganic loan growth. Most credit unions concentrate on building the loan portfolio while focusing less on deposits, unless liquidity is an issue. In general, loan growth can be influenced more by the credit union’s operations (sales culture, marketing, product development, risk management, etc.) than deposit growth. Deposit growth is generally influenced more by non-operational factors (e.g. the demographics of the membership and economic conditions), than by operational factors. In general, a higher ratio can lead to greater profitability, but this upside must be tempered with risk management practices, as a higher ratio also brings liquidity risk. |
| 12-Mo. Growth of Operating Expenses | growth(opex) | This ratio measures the year-over-year change in the dollar amount of operating expenses. This ratio excludes stabilization expenses. This growth number should remain fairly stable but one-time expenses, such as a new branch or other capital investment, will cause it to increase. Credit union managers need to balance expense growth with overall asset growth and income growth. The interplay of these growth numbers will vary, though, depending on a rising or falling rate environment. |
| 1st Mortgage Delinquency | CYCLENUM<2017.2[(a713a+a714a)/a703]aDL0062/a703a | This ratio tracks the dollar amount of delinquent first mortgages relative to the total first mortgage portfolio. Delinquency is a forecaster of future loan losses. Therefore, unusual increases or decreases will have a significant impact on future earnings. Borrower delinquency rates can be impacted by the underwriting policies of the credit union, as well as many factors outside the credit union's control, such as interest rate changes, unemployment rates, and overall macroeconomic health. The level of delinquency a credit union can sustain is a function of several factors including the level of income generated by the loan portfolio, the quality of the credit union’s management of credit risk, and its ability to manage loan losses. Rapid increases or decreases in the loan portfolio can also influence the ratio by adjusting the denominator. Risk-based pricing is often accompanied by higher delinquency which should be offset by higher loan yields. Conversely, low delinquency rates can mean that the credit union’s underwriting policies are too restrictive. |
| 1st Mortgage Penetration | Number1stMortgageLoans/members | This ratio measures the percent of members who have a first mortgage loan with the credit union. The ability of the credit union to successfully penetrate this market depends on how competitive it can be in offering low rates and different types of mortgage products to suit the needs of its members; additionally, member demographics and the number of competitors in the market also can influence this metric. |
| 1st Mortgage Sales on Secondary Market as % of All 1st Mortg | a736/(a720+a721) | Liquidity is a leading motivation for credit unions to sell to the secondary market. By selling first mortgages, credit unions receive immediate funding which they can turn around and deploy for new loans to members. Additionally, depending on the rate environment, credit unions may use the secondary market as a means of controlling their interest rate risk. A higher value for this ratio may indicate strong loan demand from credit union members, or could indicate that the credit union is at or near internal limits for mortgages held on their books. Conversely, a credit union with low activity in the secondary market may have adequate liquidity and not feel the need to sell their mortgages. |