With more than 95% of the industry’s assets reporting, credit unions posted an earnings increase in 1Q11. These credit unions had an annualized year-to-date ROA of 0.74% in the first quarter, an increase from 0.50% for the same period last year. The 24-basis point improvement represents a return to the level of ROA that credit unions achieved prior to the recession.
Net income grew 56.7% from 1Q10. The increase in net income came primarily from a 23.7% decrease in dividends as well as a 32.3% drop in provisions for loan losses. Credit unions have adapted to a new environment by managing their cost of funds and asset quality.
Looking at the business model, the core earnings ratio was steady. This measure calculates the earnings from the credit union’s primary business. It is calculated by taking total income and removing interest and operating expenses, which is then divided by average assets. It excludes external factors such as stabilization expenses. This ratio was slightly lower than the level reported in 1Q10. The primary factors that caused this ratio to fall over the past year were the 22.8% drop in interest expense and a 4.4% rise in operating expense. Asset growth, driven by new shares, also pushed the ratio lower.