Is a High ROA Available Only to Big Credit Unions? Part II

Achieving a higher return on assets is not necessarily dependent on total asset size – as there are similarities in return for both large and smaller players.

 
 

Part I of this article focused on credit unions between $100 million and $1 billion, and it established that achieving a higher return on assets is not necessarily dependent upon size. Does the same hold true for smaller credit unions?

In a previous analysis of credit unions with assets between $100 million and $1 billion, we concluded that asset size was not a determining factor in a credit union’s ability to achieve an ROA greater than 1%.

Two main conclusions/findings of that study were:

  1. Within every asset-range, there are about 30% - 40% of credit unions that manage an ROA greater than 1%
  2. The range of ROA narrows as the credit union asset size increases.

To see whether these results were true for a larger range of credit unions, we analyzed 3,512 credit unions between $10 million and $100 million by dividing them into five peer groups based on asset size.

Credit Unions Above 1% ROA
Our analysis showed that even in these groups of smaller-sized credit unions, between 25% - 32% have an ROA greater than 1%, clearly showing that size or scale can not alone account for return on assets.

The fact that 398 credit unions with assets less than $20 million are delivering an ROA greater than 1% while 153 credit unions with assets between $80 and $100 million are not supports the conclusion that having a larger asset base does not ensure a higher ROA.

Range of ROA
While variation in ROA increased as we approached smaller asset sizes, it still remained true that the range of ROA (highest minus lowest ROA) got smaller with increases in asset size.

Since the conclusions from the previous review apply well to the smaller asset-size credit unions, the difference in credit union performance can then only be attributed to the soundness of their business models. Credit unions today need to find innovative ways to deliver value to their members while maintaining a healthy ROA and ensuring that these two are not mutually exclusive outcomes.

Top 5 Credit Unions
Credit unions in the Top 5 list have all been ranked in the top 5% of their group for December 2004, December 2005 and June 2006 to eliminate one-time star performers.

  State Credit Union ROA Dec 04 ROA Dec 05 ROA June 06 Total Assets June 06
$80 ~ $100M PA CBW Schools 2.33% 2.32% 2.47% $85,634,376
NM Rio Grande 2.22% 2.77% 2.02% $89,542,699
ND Citizens Community 1.51% 1.59% 1.89% $87,324,645
AL Fort McClellan 1.60% 1.78% 1.74% $92,203,961
WI Allco 1.43% 1.81%
1.61%
$86,430,251
$60 ~ $80M CA Harbor 1.56% 2.16% 2.39% $73,123,880
MI Forest Area 2.39% 2.51% 2.17% $60,254,223
VA Park View 1.59% 1.85% 1.88% $70,400,790
NJ 102 2.24% 1.71% 1.87% $76,531,018
ME Acadia 1.48% 1.43% 1.74% $68,211,813
$60 ~ $40M NY Queens Postal 2.10% 1.94% 2.29% $58,356,732
GA MembersFirst 3.52% 2.45% 2.11% $56,561,416
MN Dawson Co-op 2.09% 2.12% 2.01% $41,215,250
LA Zellco 1.60% 1.40% 1.90% $56,304,969
WY Sunlight 1.78% 1.97% 1.81% $52,574,359
$20 ~ $40M TX Southern 3.28% 3.73% 4.02% $25,205,242
TX Nizari Progressive 5.06% 4.00% 3.56% $28,293,886
ID Lewis Clark 1.70% 2.33% 2.78% $25,255,244
VI St. Thomas 3.06% 3.00% 2.62% $33,605,046
MS 1st Mississippi 1.70% 1.99% 2.47% $39,357,759
$10 ~ $20M TX Mclennan County Employees 4.13% 4.18% 4.45% $11,358,243
GA G. P. A. 2.94% 3.67% 3.79% $12,761,809
TX Dallas U.P. Employees 2.70% 3.60% 3.31% $10,200,206
NM Four Corners 1.61% 2.50% 2.72% $13,722,469
LA Federal Employees 2.04% 2.36% 2.68% $13,059,613

To perform similar analysis for your peer group, try Callahan’s leading software tool Peer-to-Peer.

Where does your credit union fall in this trend? Find out with the 2007 Credit Union Directory, an indispensable research tool covering all facets of the credit union industry-from associations to regulatory information to suppliers that serve credit unions.

 

 

 

Nov. 20, 2006


Comments

 
 
 
  • Great to see with clear data that strong credit union performance is not reserved only for those with higher assets. The question is what about their business model helped these credit unions succeed?
    Anonymous
     
     
     
  • One reader asked whether the credit unions listed in the article demonstrated growth as well? Could it be that their high ROA came at the expense of growth?? As a group, these credit unions bested the industry averages for all major growth indicators: (figures in brackets are Industry growth rates) Asset growth - 7.13% (4.12%) Share growth - 5.90% (3.76%) Loan growth - 10.78% (9.68%) Member growth - 3.78% (1.05% Income growth - 15.04% (14.49%) One can safely conclude that for these credit unions delivered value to their members by executing a well thought out strategy that did not sacrifice growth. -Author
    Appoorva Saxena