Does ROA Still Matter?

A credit union’s net worth should be used as a catalyst for growth. Credit unions with strong capital positions, therefore, should focus on increased member value, not ROA.


When you ask a credit union manager how the year is going, they usually respond in terms of ROA. But is ROA a valid yardstick of success for all credit unions?

Through the first nine months of 2005, credit unions over $50 million in assets grew their asset base by just 5.4%. More than one in five of all credit unions in this group had negative asset growth. Yet the shrinking credit unions actually had higher net worth than the growing credit unions! For the group as a whole, average net worth was a staggering 11.75%.

The cold hard reality of the financial services marketplace is that for most credit unions, growth will be a challenge for the foreseeable future. Then again, most credit unions have excess capital, especially on a risk-adjusted basis.

A credit union’s capital is like an insurance policy, there for a rainy day when the credit union needs it.

Today is the day that credit unions need it!

Member Value, Not ROA
In today’s competitive environment, credit unions need to re-evaluate the ways they measure success. Success should be measured in terms of increasing the value brought to the members, not in basis points of ROA.

For a $300 million credit union, the difference between a 0.90% ROA and 0.20%

ROA equates to $2.1 million. This money can be shared among members in the form of more competitive rates, superior service, and increased convenience.

How can a credit union afford to do this? Well, what do credit unions do with net income today? They 1) add to retained earnings or 2) declare a special year-end dividend (creating a tax liability for members).

The path to credit union success is to increase member value. The added value should be distributed year round and benefit all members. It could include opening new branches, deploying additional ATMs, staying open later, offering weekend hours, or more competitive rates.

For those credit unions with excess capital and in a position to live off capital for a year or two, today should be the day to stop focusing on ROA and focus on investing in their members!




Feb. 20, 2006


  • And, thought perhaps the author could have suggested lowering fees. A way to "give-back" to the members is to not take it from them in the first place. Dale Kerslake President/CEO Cascade FCU
  • Great topic. How much capital is enough? Too bad we are so heavily regulated. Nice suggestion but try watching your ROA plunge and see how the regulators react. Good Luck!!!
  • It's been our plan for 2 years. The regulators hate it.