High ROA: Not Just for Big Credit Unions Anymore

Is size the key to strong bottom line performance? A closer look at mid-year data provides some answers.

 
 

Size has its advantages, but achieving a higher return on credit union assets is not necessarily dependent upon size. One only has to look closely at the performance of mid-size credit unions to see how this is true. By dividing the 1,121 credit unions between $100 million and $1 billion into five peer groups, we can get a clearer perspective on their performance.


as of June 30, 2006

The data shows that across each peer group, between 30% and 40% of the credit unions recorded had ROA greater than 1% as of June 2006. While it is true that this percentage increases as one moves from lower to higher asset size, the fact that they are within a 10% band also shows that having a larger asset base is not a requirement for having a higher ROA.

In fact, if a bigger asset size was essential for a higher ROA, one would expect to see highest ROA in the $800M ~ $1B group. However, that is not the case. The highest ROA of 3.6% was posted by Progressive Credit Union ($301 million in New York, NY).

As the graph below shows, the only difference between the five asset ranges is that the range of ROA narrows as asset size increases.

While scale can bring benefits, these results point to the ability of credit unions to utilize a variety of business models to deliver strong bottom line growth. In fact, a ROA has a higher correlation with non-interest income (0.21) than with asset size (0.10).

The following is the list of top five credit unions in each of the asset ranges that posted the highest ROA.

Top 5 ROA in $800M - $1Bn Group

St

Credit Union

ROA

Assets

CA

LBS Financial

1.77%

$964.11 Mn

CA

Arrowhead Central

1.73%

$996.54 Mn

AZ

Vantage West

1.65%

$861.97 Mn

NY

Melrose

1.60%

$805.29 Mn

WA

Spokane Teachers

1.52%

$832.92 Mn

Top 5 ROA in $600M - $800M Group

St

Credit Union

ROA

Assets

FL

Campus USA

1.70%

$754.05 Mn

AL

Max

1.69%

$674.32 Mn

OR

Unitus Community

1.65%

$640.09 Mn

HI

HawaiiUSA

1.61%

$773.77 Mn

CA

Coast Central

1.59%

$627.89 Mn

Top 5 ROA in $400M - $600M Group

St

Credit Union

ROA

Assets

PA

Philadelphia

3.27%

$545.59 Mn

CA

Water and Power Community

2.38%

$418.74 Mn

KY

Fort Knox

2.28%

$514.74 Mn

MI

USA

2.20%

$576.77 Mn

NV

Clark County

2.20%

$562.26 Mn

Top 5 ROA in $200M - $400M Group

St

Credit Union

ROA

Assets

NY

Progressive

3.59%

$301.14 Mn

CA

Cal State 9

2.98%

$386.28 Mn

TX

Schlumberger Employees

2.61%

$202.98 Mn

CA

Valley First

2.58%

$262.94 Mn

MI

United

2.56%

$215.04 Mn

Top 5 ROA in $100M - $200M Group

St

Credit Union

ROA

Assets

PA

NET

2.83%

$126.83 Mn

NJ

South Jersey

2.75%

$157.64 Mn

GA

AFLAC

2.72%

$116.16 Mn

NV

WestStar

2.71%

$180.61 Mn

IN

Fort Financial

2.39%

$174.47 Mn

Data as of June 30, 2006      

To see how your credit union compares on ROA and other key ratios, try Callahan's Peer-to-Peer software or CUAnalyzer, the latest online financial analytical and benchmarking tool.

 

 

 

Sept. 25, 2006


Comments

 
 
 
  • Good article. It's interesting to think about why some CUs have such high ROAs. I'd be interested to see what kind of programs they are running, and how well their fee/rate structure fits in with the credit union philosophy of returning value to the member.
    Anonymous
     
     
     
  • Being a member of one of the CUs in these results, I have to take exception to being classified as a mid-sized organization. Clearly, some 8,000 CU's were not in this data and I do believe Mid-sized is much closer to 25-50 million in asset size.
    Dan
     
     
     
  • Very well written, researched and analyzed! An interesting look at the credit unions size and ROA and their correlation.
    Anonymous
     
     
     
  • It is helpful to read about credit unions that have produced high ROA--the fact that the most extreme results were found in the medium-sized credit unions suggests that there is some uniqueness to their business models. If so, these are important stories to tell at a time when many credit unions are seeking to differentiate themselves strategically from other financial service competitors.
    Anonymous
     
     
     
  • I also agree that you should be including smaller asset size credit unions in your analysis since there are more credit unions under $100 million that over $100 million.
    Denise
     
     
     
  • I have to agree with Dan. Could you follow-up with an analysis that includes the majority of CUs?
    Lisa
     
     
     
  • How many of these ROAs are because of the sale of a building or something extraneous to the core business. If you have adequate capital, what is the point of a high ROA? What are you returning to the member? Each CU should have different plans and goals and attaining those is how they should be rated. One of your examples was -2.00% last year. Is that a good comparison? Just my thots, I could be wrong.
    Anonymous
     
     
     
  • Reasons high ROA is needed: To provide best of market rates for members To enable healthy asset growth To build a service/technology infrastructure To compete with banks (yes, I said banks) To increase market penetration To ensure the long term viability of the co-op. (capital, adequate reserves, etc.)
    Anonymous
     
     
     
  • ROE should be "THE" focus. ROA is only one component of the value returned to members. As a member I have an equity stake and should be properly compensated for that stake with a high return on my capital. It can be given back in the form of even higher dividends, lower fees or improved services via state of the art delivery systems.
    Anonymous
     
     
     
  • The focus you place on high ROAs as a measure of success is misplaced. After all, who is paying for the high ROA? It's the member, of course. We target an ROA that supports our capital and growth requirements - not a penny more. Last year it was 1.10% and in 2007 it will be .75%. So will we be less successful in 2007 than 2006? I think not. Your ROM (Return to the Member) index is a much better measure of value to the member. We rank 14th best among all credit unions and want to improve on that for 2007.
    Steve Smith