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.