every group of firms, some will do better than others. Credit unions
are no exception. While it is customary to look at the top of the
chart for ''best practices,'' insight can also be gained
by examining the lower end of the performance ladder.
At June 2002,
1,503 credit unions with $13.5 billion in assets reported a collective
loss or negative ROA of 1.1% for the first half of the year. Most
of the credit unions were small. The average size was $ 9 million
with 2,180 members and five employees. One year ago this same group
reported a positive bottom line of .3% for the first six months
causing the losses in this group can provide some insight as to
the issues larger credit unions may face. There were three primary
reasons for the falloff in net income from positive to negative
in the 12 months between the two reporting dates:
expenses rose much faster than total income. For the group
revenue for the first six months fell 11.6%; however total expenses
11.9%. The result is that the operating expense to income ratio
rose from 51% to 65% in one year. The data suggests the credit
union were aware of their dilemma since travel and conference
expenses declined 16.9% and total salaries only rose 5% compared
the industry average of 10%.
- The net
interest margin fell by 41 basis points from 4.69% to 4.28%.
Two major factors caused the decline. Total loans fell by 2.4%
versus an 8% gain for all credit unions. Investments grew 24%
or the same as in all credit unions but the return in terms of
dollars fell by over 31%. Most small credit unions keep their
investment portfolios very short. At June 30 only 25% was over
one year versus 45% for all credit unions. The yield on investments
fell from 5.2% to 2.4% which was a return lower than these credit
unions cost of funds- 2.6%- for the first six months of 2002.
- Finally the
credit unions had some modest deterioration in the loan portfolio.
Net charge offs rose by 60% and the provision expense increased
impact of all these forces on the average income statement of this
group of 1,503 was as follows:
line decline: $61,000