Recipe for ROA Management

Quarterly ROA rose to six basis points to reach 98 basis points in the third quarter. The rise is partially attributed to many credit unions creating efficiencies within their organization and expanding non-interest income opportunities to grow revenue.


Ingredients for a solid return on assets (ROA) stem from three components: net interest margin, non-interest income and operating expense. As a percentage of average assets, the top performers in ROA generally will excel in these categories. Although the results can be similar, how credit unions achieved these results differs.

For those credit unions with an ROA exceeding 200 basis points, St. Paul Croatian Federal Credit Union in Eastlake, OH, with $110.8 million in assets, has an operating expense to asset ratio of 0.79 percent significantly below the credit union industry average of 3.19 percent for the third quarter. The credit union's effective operating efficiency and low overhead resulted in an ROA of 225 basis points. On the other side of the spectrum, DOCO Regional Federal Credit Union in Albany, GA with assets of $60.2 million also had an ROA for the third quarter of 225 basis points and had an operating expense to asset ratio of 4.60 percent. However, offsetting the higher expense ratio was non-interest income ratio of 3.39 percent, which well exceeded the credit union industry average of 1.17 percent. "Through Courtesy Pay, debit card program, and effectively upgrading our selling efforts with credit, life, and gap insurance, we have been able to capitalize on increasing our non interest income," stated Barry Heape, CEO of DOCO Regional, "but more importantly, providing these services with a positive response from our membership."

Credit union industry statistics from the third quarter showed a drop in ROA of 10 basis points from last September. With interest rates remaining low and competitive pressures from other lending institutions, net interest rate margins are continually being squeezed. Moreover, the gap between net interest rate margin and operating expense as a percentage of average assets has been diminishing. It is likely that at some point in the near future that operating expense will exceed net interest margin, thus creating a greater need for non interest income sources. (See graph below).




Jan. 17, 2005


  • We would really love to read a little more information when you cite data like St. Paul Croatian FCU's incredibly low expense ratio. For example, is their low ratio because they don't have to pay rent on their facilities or perhaps they have a very low employee to assets ratio. Also, we'd love to read how credit unions, such as DOCO Regional FCU, have effectively upgraded their "selling efforts with credit, life, and gap insurance". I think we all are trying to do this but the trick is how to get employees to do the cross-selling. Did DOCO Regional utilize incentives and, if so, how much? Using Peer-to-Peer, we can see who the top performers are but how they are doing it is what is important to us. Thanks for listening, Paul Christensen METRO 1 CU