Second Quarter Data Illustrates Credit Union, Bank Differences

Financial data on several large national retail banks provides some insight into bank strategy, as well as an alternative point of comparison for credit union performance.

 
 

Second quarter credit union and bank data shows how credit unions are performing relative to their chief competition, BANKS.

Let's look at how credit unions compare to consumer banks with national franchises on a number of key financial performance indicators:

Assets (in millions) Loans (in millions) Loans/Assets Net Interest Margin Efficiency Ratio ROA
Golden West Financial Group

117,485

111,290
94%
2.79%
29.0%
1.35%
Wachovia
511,840
230,287
45%
3.37%
62.6%
1.17%

Wells Fargo & Co

434,981
301,739
69%
4.86%
58.4%
1.72%

Washington Mutual Inc.

323,533
212,737
67%
2.76%
66.8%
0.99%
Average Bank*
289,667
143,978
56%
3.43%
59.8%
1.49%
 
Average for all Credit Unions
76
49
65%
3.26%
72.3%
0.93%
Average for Credit Unions >$1 billion
2,238
1,492
67%
2.83%
64.1%
1.11%
*Philadelphia Bank Index

** Source: Peer-to-Peer for credit unions, Bloomberg for banks

These numbers show how credit union and bank relative performance differs based on size. While larger credit unions have higher profitability than the average for all credit unions, they still track behind banks by 38 basis points. This translates into $3,800 less in earnings for every million dollars!

But credit unions' loan/assets ratio is much higher than that of banks, on average. This implies that credit unions are doing an effective job of meeting their member's borrowing needs.

Clues to Bank Strategy

How are the banks generating their returns? Golden West has a low net interest margin because of its focus on adjustable rate mortgages, but they maintain a high ROA because of their legendary low efficiency ratio of 29 percent.

Well Fargo, on the other hand, achieves a high ROA by generating a very high net interest margin. Their net interest margin is an incredible 160 basis points higher than the average credit union net interest margin! Wells Fargo focuses on selling more financial products to its existing customer base. They average four products per customer, with a goal of eight. Overall, credit unions average 2.5 products per member.

Are comparisons relevant? Credit unions have a different charter and mission than banks, so these numbers must be taken with a grain of salt. Nevertheless, it is still very important to compare the financial performance of the two groups. Credit unions and banks are in direct competition and the numbers listed above have a big impact on how they deliver their products and services.

 

 

 

Sept. 5, 2005


Comments

 
 
 
  • More data on Wells Fargo would be helpful. Selling more financial products does not necessarily translate into net interest margin. What is the price and mix of their share and loan products?
    Anonymous
     
     
     
  • In the comment about products per member, how are products weighted. Are all weighted the same, i.e., a share account considered one product and an auto loan is one product. Or is the auto loan weighted more because it contributes more to the bottom line. And does the balance of that share account affect the weighting?
    Anonymous