Preliminary fourth quarter data from participants in Callahan &
Associates' First Look Program indicates U.S. credit unions achieved
an ROA of 1.13% in 2001, a slight increase from the 1.11% reported
for these same credit unions in December 2000. This week we analyze
how these credit unions, which represent approximately 27% of industry
assets, achieved this result given the challenging economic environment.
The following exhibit shows the major components of ROA as a percent
of average assets for the 12 month periods ended December 2001 and
December 2000. What makes this data interesting is that although
the results are similar, the way in which credit unions achieved
these results differs.
The impact of the declining interest rate environment is evident
in the first two items, as interest income and interest expense
declined by 28 basis points and 17 basis points, respectively, as
a percent of average assets. The two figures viewed together represents
an 11 basis point decrease in ROA from the prior year. These are
the largest components of ROA but are largely driven by market forces.
The provision for loan loss increased from the prior year and
reduced ROA by four basis points. This reflects conservative management
given the economic environment, although credit unions experienced
only a slight rise in their delinquency ratio.
The real story lies in the non-interest income and non-interest
expense items. Total non-interest expense decreased by 1 basis point
from the prior year while non-interest income increased by 17 basis
points from the prior year. These two components are the items that
are most influenced by management, and the data indicates that credit
unions managers focused on these areas in 2001, resulting in an
18 basis point positive impact on ROA. Expenses were managed well
while fee income, the largest component of credit union income after
loan and investment income, rose 16% in 2001. It is evident in these
figures that credits actively responded to the changing interest
rate environment, resulting in solid financial performance.