Credit Unions Ride An ROA Roller Coaster

Second quarter data shows the industry’s ROA is up quarter-over-quarter but slightly down year-over-year.

 
 

Credit unions are on track to post a solid 0.77% in Return on Assets (ROA) for second quarter 2016, according to Callahan & Associates. That figure is a three-basis-point improvement over first quarter 2016; however, the metric is down slightly from last year’s second quarter ROA of 0.79%.

ROA, which Callahan calculates by dividing annualized net income by average assets, measures a credit union's profitability. In general, a high ROA reflects a credit union’s success at using its assets to generate income.

Credit unions should, however, view ROA in light of their individual strategies. For example, if a credit union passes on opportunities to earn higher profits — such as by charging lower fees or offering better loan rates — then its member-centric strategy might result in a low ROA relative to its industry peers.

RETURN ON ASSETS
FOR U.S. CREDIT UNIONS* | DATA AS OF 06.30.16
© Callahan & Associates | www.creditunions.com

2Q16_ROA
* For 5,976 credit unions.
Source: Peer-to-Peer Analytics by Callahan & Associates

Strong positive net income and asset growth for the industry makes its difficult to understand why ROA growth is slowing. However, separating the two components of ROA paints a clearer picture.

Assets are growing at a much higher and much more steady rate than net income. Because assets are the denominator in the ROA equation, the overall ROA ratio is growing at a slower pace.

YEAR-OVER-YEAR NET INCOME AND ASSET GROWTH
FOR U.S. CREDIT UNIONS* | DATA AS OF 06.30.16
© Callahan & Associates | www.creditunions.com

 

2Q16_YOYNetIncome_AssetGrowth

* For 5,976 credit unions.
Source: Peer-to-Peer Analytics by Callahan & Associates

The industry asset growth is stellar, but credit unions would benefit from focusing on increasing net income. On way to boost net income — and consequentially ROA — is by scaling back interest and non-interest expense or ramping up interest and non-interest income.  

In Search Of Non-Interest Income

In July 2016, Callahan & Associates surveyed 170 credit union executives from 40 states to gain insight into their current and emerging sources of non-interest income.

Click here for the:

LEADERSHIP REPORTMEMBERSHIP ABSTRACT

 

Asset growth is a metric that measures success, but credit unions need to leverage their expanded asset bases to grow net income.

ROA is not the most important metric to credit unions — financial cooperatives are driven more by member return than profits. Nevertheless, it is important to monitor ROA. By growing net income and assets at a similar rate, credit unions can boost this standard measure of productivity and profitability.