How does the credit union earnings model in 2012 differ from 2002?

 
 

Over the past ten years, the credit union business model has changed significantly. Interest income, which made up 5.94% of average assets in 2002, dropped to 3.66% in 2012 as a result of the low-interest rate environment. Also a result of the low-rates, interest expenses dropped to 0.73% of average assets, as dividends and interest on deposits have declined. This category accounted for 2.30% of average assets in 2002.

As credit unions look for alternative ways to boost the bottom line, non-interest income has increased its percentage of average assets 41 basis points since 2002. Credit unions have seen significant growth in this category, particularly in the last few years from the increase of mortgage sales to the secondary market.

Operating expenses have fallen slightly, as credit unions have taken a closer look at their budgets and cut back in certain areas as a result of the recession.

Although non-interest income is up and operating expenses are down, these changes were not enough to overcome the drop in interest income. At year-end 2012, the average ROA for the industry is down 21 basis points from 2002.

CREDIT UNION BUSINESS MODEL: 2002 VS. 2012
DATA AS OF DECEMBER 31, 2012
© Callahan & Associates, Inc.

  2002 2012 Change
Interest Income 5.94% 3.66% -2.28%
+ Interest Expense 2.30% 0.73% -1.57%
= Net Interest Margin 3.64% 2.94% -0.70%
+ Non-Interest Income 1.06% 1.47%  0.41%
- Loss Provisions 0.35% 0.36%  0.01%
- Operating Expenses 3.28% 3.19% -0.09%
= ROA 1.07% 0.86% -0.21%

 

 
 

April 29, 2013


Comments

 
 
 
  • excellent clear summary. Might just add net worth ratio at the bottom to see if lower ROA today is OK because this ratio is higher than in 2002?
    Anonymous