Rising 3rd Quarter ROA? Some Have It, Most Don’t

With the Fed increasing rates and a new Chairman appointment imminent, there is a lot of uncertainty regarding credit unions’ future margins. Find out who is succeeding.

 
 

Several credit unions increased their Return on Assets (ROA) in the 3rd quarter of 2005. These credit unions realized gains despite decreased yields and rising cost of funds for credit unions in general. With the Fed Funds rate rising to 3.75 percent at September 30th and the ten-year Treasury bond yield only 45 basis points higher at 4.20 percent, credit unions faced an environment of tightening margins.

Nevertheless, certain top-performing credit unions excelled in this environment. BECU ($5.8 billion, Seattle, WA), for example, has posted growth in all areas of both their balance sheet and income statement and surpassed Orange County Teachers Federal Credit Union to become the fifth largest credit union in the United States, as of September 30th. BECU has experienced double-digit growth over the past year in both non-interest income and interest income at 22.7 percent and 18.4 percent, respectively, while decreasing operating expenses by 3.6 percent over the same period.

BECU’s strategy for growth began in December 2004. According to chief financial officer, Brad Canfield, “Last December we expected that the Fed would continue to raise rates in 2005 and we knew that we couldn’t compete with these rising rates under our operating structure at that time.” The credit union went through a series of staff reductions to reduce expenses and to better position itself to offer more aggressive rates. The credit union then experienced a 15.0 percent growth in loans and 11.4 percent in shares between December 2004 and September 2005 as a result of these more competitive rates.

The other top five credit unions in assets experienced mix results in ROA. State Employees Credit Union of North Carolina was the only other credit union among the top five to increase their Return on Assets from the 2 nd quarter 2005 and all of the remaining four credit unions experienced a drop in ROA from September 2004 to September 2005.

A Look at 3rd Quarter First Look Participants

Change in basis points

Change in basis points

Credit Union

St

ROA

From 2Q

From 3Q '04

Credit Union

St

ROA

From 2Q

From 3Q '04

BECU

WA

1.40%

25

44

State Employees

NC

0.47%

2

-24

Eastern Financial Florida

FL

0.99%

12

20

Navy

VA

1.35%

0

-8

Mountain America

UT

1.55%

11

-2

The Golden 1

CA

1.27%

-5

-1

Premier America

CA

1.07%

5

2

Orange County Teachers

CA

1.65%

-7

0

America First

UT

0.98%

4

9

Pentagon

VA

1.55%

-9

-3



To get a better glimpse of third quarter trends, participate in our First Look Program. Submit your 5300 call report in XML format to 5300@callahan.com
 

 

 

Nov. 21, 2005


Comments

 
 
 
  • Sure, they area a large billion dollar credit union. They should have a better ROA. If not then they should manage their Creidt Union better. You take one of those billion dollar credit union CEOs and place them in a 100 million dollar credit union and watch and see how they manage it. In today's environment it is much harder to manage finacially, a smaller credit union. You have everything going against you especially the larger credit unions. It is not just the banks we have to worry about but also the larger credit unions.
    Anonymous