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.
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.