Data Paints a Picture ... How do you Compare?

Data Paints a Picture ... How do you Compare?
Posted: Jan 12, 2018
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Recent performance data from NCUA and Callahan & Associates show several positive trends. But looks can be deceiving.

The role of the Portfolio Consultant at Trellance means being able to paint the picture for member/owner credit unions as to exactly how their credit card portfolio is performing. Each quarter, average credit union performance is released, which for the last very many quarters have all shown positive trends. For example:

  • Average Member Relationship (Deposits plus Loans) now sits at $18,329, an increase of 4.7% year-over-year. Loans and shares grew 10.7% and 6.8%, respectively.

  • Total assets in federally insured credit unions were up by $86 billion (6.8%) year-over-year, and an additional 4.3-million people became CU members over that same period.

  • Income from investments is up 20.4% as credit unions start to feel the effects of the interest rate hikes.

  • Operating Expense Ratio is 3.07%, representing a drop of seven basis points year-over-year and one basis point quarter-over-quarter. Concurrently, net interest margin is on the rise at 2.87%. The tightening of the spread between the operating expense ratio and net interest margin means that credit unions are operating more efficiently.

  • Credit Card Penetration is 17.3%, marking eight years of year-over-year growth in the third quarter.

  • Average credit card balance is likewise trending upwards, topping $2,844.

However, these numbers are averages across the over 5,800 credit unions who range in size from 7 million members down to credit unions with just a handful of members, and ranging in asset size from over $80 billion down to literally a few hundred dollars in total assets. Portfolio consulting involves analyzing each individual credit union’s performance, comparing the most recent quarter of data to not just historical data, but also against a multitude of “peer groups” such as similar size, number of branches, similar markets, etc. Portfolio reviews always encompass data elements that help Trellance consultants determine how a specific credit union’s program is performing. Giving specific recommendations, following up with the credit unions to ensure the recommendations worked, and providing on-going consulting, is a tried and true way Trellance consultants work with credit unions to create the most profitable program possible. There are 6 key metrics that are used as a starting point to “paint this picture”.

  1. Credit Card Loans / Total Loans: This gives a glimpse into a credit union’s underwriting strategy. A low percentage of credit card loans indicates a credit union’s aversion to unsecured debt, or it may represent a philosophy by the credit union that other loans deserve more attention, even though credit card loans produce a higher ROA than most any other asset on a credit union’s books.  Definitely a discussion starter!

  2. Credit Card Penetration: Most financial institutions feel that they have a competitive credit card offering, but a look at their Penetration Rates can tell a different story. Penetration rates of 17.3% for Q3-2017 sound fairly strong … until it is pointed out to the credit union that most of your members likely have a credit card, they just don’t have yours!   These discussions always lead to trying to evaluate the missed opportunity that exists for all card programs.

  3. Credit Card Loan Balances(Outstandings): This is the main metric where credit unions are really interested in how they compare to their “peers.”  The peer comparison credit unions most like to see is a geographical one.  However, a better peer comparison involves credit unions of similar asset size.  This is a more holistic view of the entire market and offers some good benchmarks on how credit unions of similar sizes are performing.

  4. Average Credit Card Loan Balance:  This is another metric that goes a long way in determining where opportunity lies within a portfolio.  A low average balance could mean this portfolio is full of “transactors” who don’t carry a balance, but rather pay their statements in full every month.  More realistically, this is a “red flag” that the credit union needs to review their Credit Line Management processes.  On too many occasions, there are members wanting to use their credit union-branded credit card more often, but can’t, due to restrictive limits placed on them, including credit limits.  These members are putting their credit union card away and using one of the “big bank” cards to conduct their business.  All this translates into lost opportunity and a reduction of potential Finance Charge Revenue.

  5. Credit Card Loan Growth: This is great data to measure and track success over time, especially with credit unions who work with Trellance on an on-going basis.  Total Loan Growth is an easy measurement used to gauge the effectiveness of Trellance portfolio growth products such as usage promotions and Credit Line Reviews.

  6. Credit Card Delinquency: Having a good handle on delinquencies is a great way to control chargeoffs before they can occur, and help ensure that a credit union is not operating a card program in a vacuum. Tracking this trend helps determine card portfolio staffing requirements, and at the same time can alert the credit union’s management of a potential problem.  It’s always best to stay ahead of the problem.

While many people don’t like to get tied up in all the numbers, it’s the numbers that tell the story of exactly how a card portfolio is performing.  “Numbers don’t lie.”  Trellance portfolio consultants know that the data tells the story, and the picture we paint for our member/owner credit unions is the foundation for the continued growth of their card offerings!

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Michael Chenderlin

Michael ChenderlinMichael Chenderlin

Mike Chenderlin, Trellance Sr. Portfolio Consultant, has more than 20 years of relationship management experience.

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