5 Ratios Every CEO Must Know

Jack-of-all-trades, master of none. These benchmarks help CEOs lead their entire organization — from finance to marketing and everything in between.

 
 

The most effective chief executive officers have a high-level understanding of everything happening at their institution. To aid them in their duty, CEOs can use the following metrics to achieve baseline knowledge about the general health of their credit union.

1. Loan Growth

Definition: Loan growth is the period-to-period change of loans outstanding. The loan growth national average as of year-end 2014 is 10.4%.

 

 

Loans Outstanding Current Period ($)

 -1

 

Loans Outstanding Prev. Period ($)

 

Loan Growth
For all U.S. credit unions | Data as of Dec. 31
© Callahan & Associates | www.creditunions.com

CEO-1b

Source: Peer-to-Peer Analytics by Callahan & Associates

Several factors contribute to loan growth. The economy and the membership’s confidence in its ability to manage debt affects the overall market for loans, as does demographic factors such as the number of borrowing age members, membership affluence, and cultural attitudes toward debt and borrowing. But internal factors influence this ratio, too, such as the credit union’s appetite for risk, marketing effectiveness, product development, sales culture, and delivery channel usage.

2. Share Growth

Definition: Share growth is the period-to-period change of total share balances. The share growth national average as of year-end 2014 is 4.5%.

 

 

Share Deposits Current Period ($)

 -1

 

Share Deposits Prev. Period ($)

 

Share Growth
For all U.S. credit unions | Data as of Dec. 31
© Callahan & Associates | www.creditunions.com

CEO-3b

Source: Peer-to-Peer Analytics by Callahan & Associates

As with loan growth, several factors contribute to share growth. These include the economy, the socio-economic status of a credit union’s membership, and the credit union's ability to pay market rates and gain market share. It is important to monitor this ratio in relation to marketing efforts for deposit products. In recent quarters, credit unions have had minimal challenges making loans but have had more difficulty bringing in sufficient deposits to maintain their loan-to-share ratio. As a result, individual institutions have inched closer to being “loaned out,” which is when the loan-to-share ratio is equal to or greater than 100%. Moving forward, share growth will be a major factor in determining whether a credit union can continue to make loans at the pace the market demands.

3. Asset Growth

Definition: Asset growth is the period-to-period change of total assets. The asset growth national average as of year-end 2014 is 5.7%.

 

 

Total Assets Current Period ($)

 -1

 

Share Deposits Prev. Period ($)

 

Asset Growth
For all U.S. credit unions | Data as of  Dec. 31
© Callahan & Associates | www.creditunions.com

CEO-4b

Source: Peer-to-Peer Analytics by Callahan & Associates

Both internal and external factors affect asset growth. External factors include the economy as well as the make up and size of a credit union’s field of membership. Internal factors include the quality of member service, the menu of products available, and the credit union’s pricing philosophy. The ability of the credit union to increase its asset base has a direct impact on how well it is able to scale its operations and control expenses. With more assets comes, presumably, more income. This in turn enables a credit union to earn more income for every dollar it spends on operating costs.

4. Member Growth

Definition: Member growth is the period-to-period change of total members. The member growth national average as of year-end 2014 is 3.1%.

 

 

# of Members Current Period

 -1

 

# of Members Prev. Period

 

Member Growth
For all U.S. credit unions | Data as of Dec. 31
© Callahan & Associates | www.creditunions.com

CEO-5b

Source: Peer-to-Peer Analytics by Callahan & Associates

A credit union’s business strategy is a major driver of its member growth. More effective strategies for a given marketplace typically yield stronger member growth. The board’s philosophy toward service levels, delivery channels, product pricing, and breadth of services also influence member growth. Typically, credit unions with substantial indirect lending operations have stronger member growth rates than peers without such programs. Although this is a good strategy to recruit members, credit union management must work to convert these new members to users of additional products and services.

5. ROA

Definition: Return on assets (ROA) is an institution’s annualized net income divided by its average total assets. The ROA national average as of year-end 2014 is 0.80%.

 

Annualized Net Income

 

Average Total Assets

 

ROA
For all U.S. credit unions | Data as of Dec. 31
© Callahan & Associates | www.creditunions.com

CEO-Last

Source: Peer-to-Peer Analytics by Callahan & Associates

ROA is an important gauge of a credit union's profitability. It indicates how efficiently management is running the credit union by measuring how much income is generated from every dollar of assets deployed.

In general, a high ROA relative to peers shows management is efficiently using assets to generate income. However, credit union leaders need to view ROA in light of their own institution's distinct strategy. For example, if a credit union passes along potential profits to members — such as through minimal fees, high deposit rates, and low lending rates — then its strategy might result in a lower ROA relative to its peers.

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April 27, 2015


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