FirstLook: Credit Union Earnings Rise in the First Quarter

With over 7,500 credit unions reporting March data in our FirstLook program, the industry as a whole remains in the black for the fourth consecutive quarter.


Over the past two weeks, my colleagues have highlighted multiple examples of individual credit unions that returned to profitability in the first quarter of 2010, but when you pull the camera back, how is the industry faring as a whole?

With over 7,500 credit unions reporting March data in our FirstLook program, the industry as a whole remains in the black for the fourth consecutive quarter. As of March 31, these credit unions reported an annualized year-to-date ROA of 47 basis points. Last year at this time, credit unions reported an ROA of negative 1.49%. Although a large component of the loss in 2009 was the NCUSIF Stabilization expense, it is not just the removal of that expense that is driving credit unions back to profitability.

The core earnings ratio, which eliminates external factors, provides a look at the credit union’s earnings from operations. This metric is also on the rise. Through the end of March, these FirstLook credit unions reported a core earnings ratio of 1.34%, up from the 1.15% in the previous year.

ROA vs. Core Earnings

There are two drivers behind the increasing ratio. The first is strong management of operating expenses. Although operating expenses have grown 3.9% annually, credit unions have slowed that rate of growth over the previous year as they cut back on travel and conference expenses and marketing expenses. The second factor at play is the decline in interest expenses, due largely to the low interest rate environment. Interest expenses have fallen 27.1% from levels in the previous March as credit unions cut back dividend rates to manage their cost of funds, and in many cases stem the flow of deposits as loan demand falters and investment yields continue to drop.




May 12, 2010


  • Nick -- I've been a bit confused about the credit union movement since I joined for one main reason - why, if credit unions are not for profit, not for charity, but for service do we use banking profitability measures like ROA, efficiency ratio, asset growth, etc. as the measures for success? Accordingly, most of what CU's do has a profitability slant to it. For instance, like when they do fee increases (and I understand we needed income to keep the CU viable), that wasn't actually creating value members - it was taking away value. To me, the fundamental question for CUs should not be who has the highest ROA (the "Wow, X CU has an ROA over 2 reaction") but who provides the most value to their members in terms of a combination of deposit rates above peer, loan rates below peer, fees below peer, and capital generation. Who's better - the CU with an ROA over 2, or the CU with a .5 ROA that gives loans at below the cheapest rates in their markets, above the going deposit rates, and with a few structure that is low - all of this beyond the level of just being competitive.
  • That’s actually a great point.

    There’s no doubt that ROA and earnings metrics are important, because if a credit union can’t keep its doors open, then they aren’t going to be able to serve their membership. That said, credit unions have a distinct benefit in the fact that they can focus on a wider range of success metrics than banks, which have to answer to shareholders and worry about how their bottom line will affect their stock price.

    Like you said, the true question for a credit union should be “how well are we creating value for our members.” And although there is no official way of measuring that, we at Callahan use the Return to the Member (ROM) Score to try and answer that question. The calculation itself is pretty complicated, but in short, ROM takes a look at 18 different metrics (such as the rates you offer, the number of accounts your members have with you, the fee income you generate per member, etc.) and ranks your credit union against a customized peer group. This score then gives you an idea for the value you are providing to your members, and also puts it in the context of the peer group you select.

    My colleague Mike wrote an in-depth article on the ROM score that goes into much more detail about the metrics included in the score, how it is calculated, and how other credit unions are using ROM. If that’s something you’d be interested in, the article can be found here: If you have any other questions, feel free to give me a call and we can talk through the issue in more detail.

    -Nick Connors

    Nick Connors