The Dynamics Of The Loan-To-Share Ratio

Which states posted the highest change in loans to shares? What about in negative share growth? Find out in these Callahan leader tables.

There are many macro and micro measures that gauge a credit union’s success. For example, ROA is a useful high-level metric for evaluating an institution’s ability to use assets to generate profit whereas product penetration metrics offer a more targeted analysis of a credit union’s success at capturing wallet share across different product segments

The most insightful metrics often are those that combine and blend various elements of performance into a single benchmark that covers multiple areas of an institution’s operations. The loan-to-share ratio is one such metric.

To maximize member value, credit unions must provide competitively priced savings and loan products. A credit union’s ability to provide the latter is largely dependent upon its ability to attract members through the former. But like most thingsrelated to performance, there are nuances to the loan-to-share ratio that credit unions must consider when using it to analyze performance.

Traditionally, credit unions have strengthened their balance sheet by increasing share balances and distributing those funds in the form of loans. All things being equal, a credit union can use its members’ deposits to make as many loans as itsmembers demand. Even becoming loaned out, the term applied when loan balances equal share balances, is not insurmountable, as credit unions have the ability to borrow money and access secondary capital to continue lending.

For all U.S. credit unions | Data as of 12.31.15 Callahan & Associates |

Source: Peer-to-Peer Analytics by Callahan & Associates

In the past eight years, the industry average loan-to-share ratio has fluctuated. It peaked in September 2008 at 83.7% and fell to a low of 65.9% in March 2013. During this period, financial institutions tightened underwriting standards and generallyreduced risk across nearly every lending category, which greatly reduced consumer access to credit.

After bottoming out in March 2013, the industry average loan-to-share ratio gradually increased and stood at 77.4% at year-end 2015. During that 2.75-year period, loan and share balances have expanded 31.1% and 11.6%, respectively.

From a state-level perspective, those that posted the largest increase in average loan-to-share ratios were not necessarily the most populous. In fact, the top 10 of 14 states that increased their loan-to-share ratios more than the national average betweenMarch 2013 and December 2015 represent a cross-section of the country.

Data as of 12.31.15 Callahan & Associates |

State Loans / Shares Dec-15 Loans / Shares Mar-13 % change
Idaho 94.6% 75.8% 18.7%
Virginia 100.9% 83.7% 17.2%
New Hampshire 97.1% 80.5% 16.6%
Colorado 81.4% 65.1% 16.4%
Iowa 87.0% 71.9% 15.1%
Utah 85.7% 70.8% 14.8%
Arkansas 85.1% 70.5% 14.6%
Indiana 82.0% 67.9% 14.1%
Delaware 57.9% 44.2% 13.7%
Rhode Island 98.3% 84.8% 13.6%

Source: Peer-to-Peer Analytics by Callahan & Associates

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The net difference between annual deposit and loan growth, or net liquidity change, shows how loan growth gradually outpaced share growth and pushed the loan-to-share ratio higher between March 2013 and December 2015 (also shown graphically below as NetShare Growth).

Annual net share growth had already begun to decline by March 2013 when the loan-to-share ratio was at it lowest and would go on to decline for the following six quarters. In third quarter 2014, net share growth dipped to -$28.9 billionbefore reversing course the following quarter.

For all U.S. credit unions | Data as of 12.31.15 Callahan & Associates |

Source: Peer-to-Peer Analytics by Callahan & Associates

An improving broader economy and rising consumer confidence both contributed to the decline in net share growth. There was a surge in member demand for loan products over the period, and resultantly, net share growth dipped into negative territory asloan growth outstripped share growth.

On a state level, between March 2013 and December 2015 all but two states Montana and Nevada lent more than they received in member deposits. Many of the 10 states that posted the highest negative net share growth are also the most denselypopulated credit union states, based on both assets and number of credit unions.

Data as of 12.31.15 Callahan & Associates |

State Loan Growth Mar. 13 – Dec 15 Share Growth Mar. 13 – Dec 15 Net Share Growth
Virginia 42.9% 18.6% ($13.00)
California 39.1% 13.9% ($11.00)
Texas 30.3% 12.0% ($6.40)
Illinois 25.4% 3.6% ($3.70)
New York 27.5% 11.1% ($3.40)
Michigan 32.3% 11.2% ($3.30)
Florida 30.2% 13.0% ($2.70)
Massachusetts 17.1% 3.6% ($2.70)
Pennsylvania 21.8% 5.9% ($2.50)
Indiana 28.4% 6.3% ($2.40)

Source:Peer-to-Peer Analytics by Callahan & Associates

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March 28, 2016

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