Tight Margins Lead to Lower ROAs in 1st Quarter 2004

As expected, early reporting credit unions are seeing tighter margins and less service revenue leading to lower earnings. The 202 credit unions that have participated in Callahan & Associates’ First Look program report an ROA of 0.97% at the end of the first quarter, 22 basis points below their collective 1.19% ROA at the end of 2003.
These 202 credit unions total $104 billion in assets and represent approximately 16% of the credit union industry. The decline began at the end of 2003 as margins continued to tighten and credit unions were less successful in supplementing their revenue with a stream of service revenue. Credit union ROA for this sample was 1.00% in the last three months of 2003 - not far from the 0.97% they report for the first three months of 2004.

 
 

As expected, early reporting credit unions are seeing tighter margins and less service revenue leading to lower earnings. The 202 credit unions that have participated in Callahan & Associates’ First Look program report an ROA of 0.97% at the end of the first quarter, 22 basis points below their collective 1.19% ROA at the end of 2003.

These 202 credit unions total $104 billion in assets and represent approximately 16% of the credit union industry. The decline began at the end of 2003 as margins continued to tighten and credit unions were less successful in supplementing their revenue with a stream of service revenue. Credit union ROA for this sample was 1.00% in the last three months of 2003 - not far from the 0.97% they report for the first three months of 2004.

First Look participants report a net interest margin of 3.04, 12 basis points down from 2003 but only 4 basis points below the fourth quarter of 2003. Similarly their service revenue to average assets is 1.14% at the end of the first quarter, 12 basis points below 2003 but only 2 basis points below the fourth quarter. Operating expenses to average assets remained unchanged for the group at 2.83%.

 

 

 

April 26, 2004


Comments

 
 
 
  • As expected. Will ROA's really be rising on the upside of the interest rate curve this time around... I have my doubts due to longer term assets. Gerd Henjes, Countryside FCU
    Anonymous
     
     
     
  • Would be interested in reviewing the average investment portfolio yield for the same group of credit unions. Our Net Interest Margin was 4.64%, yield on the investment portfolio 3.80% and ROA 1.19% for the 1st qtr. I get the feeling that a lot of credit unions have chosen to invest heavily in cheap indirect auto and mortgage loans over the past three years and have ignored excellent opportunities to secure value and increase earnings in the investment market. The amount of under-invested overnight liquidity in the industry is staggering. A well managed balance sheet should never have more than 5% of its' assets in overnight funds during a low interest rate period like we have just experienced. If you assume that when interest rates begin to rise, slowly, NIM compression will continue to increase until all these cheap loans work their way out of the balance sheet. All I really need is the investment yield number. Thanks
    Anonymous