How Credit Unions raised ROA during Uncertain Economy

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 achieved this result given the challenging economic environment.

 
 


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.

 

 

 

Feb. 11, 2002


Comments

 
 
 
  • would a ain on sale of investments also effect roa
    Anonymous
     
     
     
  • Show what proportion interest and non-interest income is of total income
    Anonymous
     
     
     
  • More like this, please
    Anonymous
     
     
     
  • Would love to hear more about reducing non-interest expense.
    Anonymous
     
     
     
  • What impact did the gain on sale of first mortgage loans have on ROA?
    Anonymous
     
     
     
  • Real estate origination income helped save the day.
    Anonymous
     
     
     
  • How did they achieve the increases,besides raising the fees?
    Anonymous