LAKE BLUFF, Ill.-Credit unions face difficult operating decisions to maintain the bottom line and to provide for $1 trillion of assets-and soon 100 million members, according to Michael Moebs.
The economist and CEO of Moebs $ervices reviewed CU performance numbers over the last 10 years and offered his analysis about why credit unions face a dilemma as they grow in size.
"By 2015 credit unions will likely celebrate 100-million members," observed Moebs. "Membership, which helps those CU assets increase, has grown from slightly less than 80 million members in 2000 to more than 94 million today-an increase of 18.5%, exceeding credit union asset growth and all other financial measures (see Tale One at left)."
Credit unions now have 21,415 branches that bring in the deposits to make loans necessary to get to $1 trillion in assets and keep membership growing, pointed out Moebs. "As Table Two [at left] shows overall assets in the past 10 years have grown to more than $963 billion from $443 billion in 2000, or a compound increase of about 7.5%-$1 trillion in assets is just around the corner."
Using assets as the base for comparison, shares have grown at a greater percentage, or 8.55% per year, explained Moebs. However loans, the revenue mainstay of credit unions, have grown only at about 6%. Moreover, capital has grown at 6.15%; again, less than share growth. "Why is loan and capital growth important? Loans are the engine driving much of the revenue of all credit unions. Since credit unions have no outside source of capital, what is derived from net income is the credit union movement's only source of the reserves needed to keep the assets and membership growing."
Moebs asserted that raises the question of where CU asset growth is coming from. "It's coming from the larger credit unions (over $500 million in assets), which do a much better job of expense control than smaller credit unions. Credit unions with less than $500 million in assets have declined in number from 10,307 in 2000 to 6,931-a 32.7% decrease-while credit unions greater than $500 million have grown from 132 in 2000 to 394 in 2011, an increase of almost 200%. The larger credit unions have $611.2 billion in assets or 63.4% of all CU assets. Because of technology, regulation, and compliance, the smaller credit unions have a tough time keeping up growth."
Dramatic Differences
While the net interest margin (see Table Three at left) is subject to economic conditions, the relationship of fees, expenses and the bottom line show a dramatic difference from 2000 to 2011, pointed out Moebs. "In 2000 the net interest margin still exceeded expenses-a common trend of the preceding millennium. This is no longer the case in 2011, where expenses exceed the net interest margin."
Also, fee income has grown 29.8% in the past 10 years, now representing almost twice CU net income. "Remember, net income is the only source of capital for credit unions and any business plan change to the credit union model of member performance must keep net income greater than member and asset growth," said Moebs.
Finally, adding to the bottom issues are NCUA assessments. Moebs summed up what CUs face in the coming years.
"The forecast for 2012 and the remainder of this decade calls for sharp expense reduction for credit unions to get their expenses equal to their net interest margin," he said. "This calls for a minimum expense reduction of 10%, which can be difficult since this may mean a loss of 20,000 credit union jobs. Or, credit unions can choose to increase fees by 23.7% to avoid any reduction in expenses. In either case credit unions face difficult operating decisions to maintain the bottom line in a position to provide for $1 trillion of assets and soon enough, 100 million members."
