Top Ten Reveal a Decade of Trends

We looked at the past ten years of performance and the fourth quarter data for the top ten credit unions to predict what the industry should expect in the next decade.


Though no one knows for certain what changes will occur with credit unions in the next ten years, we do know that a decade ago there were nearly 12,500 credit unions. Today, only 9,300 exist.

In the same period, assets have grown from $300 billion to reach over $650 billion and membership has increased by 20 million to 85 million today (see chart below for 12-month asset growth for the top ten credit unions). The number of credit unions will continue to shrink due to consolidation. However, success will be affected not by how many credit unions exist but by the critical strategic decisions made by credit unions to pave the road for future success.

Source: Callahan & Associates, as of Dec. 31,2004
Credit Union
12-mo Asset Growth
1 VA Navy
2 NC State Employees
3 VA Pentagon
4 CA The Golden 1
5 CA Orange County Teachers
7 FL Suncoast Schools
8 IL Alliant
9 TX American Airlines
10 TX Security Service


Shifting Balance Sheet Strategies

Determining a way to grow market share and earnings will then be a pivotal challenge facing credit unions. Given the changing landscape of the financial services industry, one credit union executive stated, "Working the balance sheet to ensure profitability in the future will be much different than it has been in the past."

Two credit unions, Alliant and American Airlines, have been undergoing transitions based on strategic initiatives to instill growth by converting to community and TIP (Trade, Industry, or Profession) charters, respectively. In the long haul, these credit unions are strategically positioning their business models for future growth and profitability.

A Decade of Performance

Looking at the top ten credit unions today versus their performance a decade ago shows there have been changes in the business model. The most significant change to the bottom line dollar-wise is the drop in net interest margin by 30 basis points since 1994 to 265 basis points as of Dec. 31, 2004. Credit unions have been able to make up some of the decline in net income by augmenting non-interest income through increased mortgage fee generating activity, overdraft protection programs, debit card interchange income and other fee generating services.

Overall profitability has taken hits as operating expense as a percentage of average assets continued to increase. It appears as though this may persist as the number of branches increase. Over the past two years, the number of branches for the top ten credit unions has increased by 14.6 percent to 558. This trend echoed the banking industry's recent surge in new branches.

Below is a Dec. 31, 2004 snapshot of the top ten credit unions' collective financial performance compared to ten years ago.

The Credit Union Business Model - Top Ten
Interest Income 6.50% 4.52% (1.98%)
Interest Expense 3.55% 1.86% (1.69%)
Net Interest Margin 2.95% 2.65% (0.30%)
-Provision for Loan Loss 0.23% 0.38% 0.15%
-Operating Expense 2.07% 2.14% 0.07%
+Non-Interest Income 0.56% 1.03% 0.47%
+Other Operating Income/(Expense) 0.01% 0.01% 0.00%
Return on Assets 1.22% 1.17% (0.05%)

Competitive pressures, population shifts, demographics and the economic environment will be the main external factors that feed into managing net interest margin. However, internally credit unions can create efficiencies and improve member value to ensure survival in the future.

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Feb. 21, 2005


  • Great comparison.
  • I could only imagine how much better ROA would have been over that decade had Credit Unions (in general) become more educated and more proactive about the investment portfolio considering the impact it could have on returns, rather than pay out investment advisory fees to Advisors / Corporate Credit Unions...
  • Thoughtful; worht thinking about.