Credit Union ROA Declines, But for a Reason

While the average credit union ROA may have slipped in the first quarter of 2008, a little perspective can go a long way.


If you have picked up any one of the trade publications over the course of the last month, you have no doubt heard that there are credit unions who have seen their ROA decline during the past year. While it is true that credit union ROA fell from 73 basis points in March of 2007, down to 60 basis points in March of 2008, what is more important is the reason for this decline.

Putting Things in Perspective

When looking at any type of financial information it is important that you have perspective. While credit union ROA in the first quarter of 2008 was 60 basis points, our for-profit cousins reported even lower ROA figures.

Banks and thrifts both reported a lower average ROA than credit unions, with banks reporting 59 basis points for the quarter and thrifts actually reporting an ROA of negative 16 basis points. Surely when compared to these numbers the picture we paint of declining ROA is not nearly as bleak.

Maintaining a Focus on Members

Establishing that credit union ROA has fallen, we now must answer the question of “why”. The two major factors contributing to the decline are an increase in reserves and credit unions' desire to return more of their earnings to their members. Credit unions increased their provision expense by 94% during the 12-months ending March 2008. Although credit unions are still increasing reserves, their more responsible lending practices have kept these increases manageable. In 2007 credit union loan loss provision as a percentage of average assets was 0.54%. This compares to 1.21% that banks posted during the same time period, and the even higher percentage at thrifts (2.02%).

The second major reason for of this decline is that credit unions are continuing to give back to their members. Credit union dividends continue to increase, up 7.25% during the year, keeping dividend growth on pace with increases in total revenue. Credit unions also continue to provide competitive rates on their savings and loan offerings even as the net interest margin continues to tighten for credit unions, down to 3.04% in the first quarter of 2008.




June 16, 2008


  • The second reason is poor financial management in my opinion. Credit unions OVERPAID their members well above the market demands. Credit unions on the whole were slow to recognize the falling rate environment and adjust pricing accordingly. We essentially rewarded the depositor at the expense of the borrower.
  • I wonder if some credit union''s are not being pro-active about providing sufficient loan loss reserves.. I know our members are better and are more likely to pay, but are they 2-4 times more likely to pay? I think there are much more losses to come...
  • The problem with the dividends comment is that it is so depend on interest rates in the market particularly with credit unions holding more and more of their shares in certificates and money market accounts. As rates in the market increase dividends will increase. As rates in the market deacrease dividends will decrease.