Key Indicators of High Credit Union Performance

Credit Unions have been exposed to a challenging economic environment over the past several years. The turmoil has been marked by numerous failures and consolidations within the Credit Union industry, coupled with increased regulatory scrutiny. However, some Credit Unions have fared better than others. Variation in the performance of Credit Unions, each exposed to a relatively similar economic environment, prompts an obvious question. What are the macroeconomic and Credit Union-specific factors which are associated with high performance? In this research note, we answer this question by evaluating the attributes of Credit Unions which are associated with high performance, as measured by a Credit Union’s return on assets (R.O.A.). In particular, we analyze a sample of 1,069 unique Credit Unions over the years 20002012 using publicly available call report data. One innovation of this study is that the publicly available call report data are supplemented with data on relevant macroeconomic trends, including rates of house price appreciation, unemployment data, and interest rates. The conclusions drawn in our analysis are supported by evidence generated from a multivariate regression analysis of Credit Unions’ realized R.O.A. The results of our analysis can be summarized into two broad themes. First, macroeconomic factors have some power in explaining observed variation in Credit Union’s performance. Rates of house price appreciation, patterns in unemployment, and interest rates demonstrate meaningful statistical relationships with realized Credit Union performance, even when controlling for a host of Credit Union-specific factors. The second main theme is the relative importance of a Credit Union’s operations, as opposed to the performance of a Credit Union’s assets. Put differently, our analysis indicates that how a Credit Union operates in terms of originating loans and controlling operating costs more meaningfully explains variation in return on assets than a Credit Union’s asset quality.