Mike Higgins Jr.I read an article about a credit union recently in which the CEO proudly noted a near-prime (ahem, subprime) lending program was responsible for generating an ROA of 2.93%.  I read another article where a credit union CEO commented his ROA was 2.22%.

I was confused. Surely, no member-focused entity would produce profit-mongering returns like that.  I re-read both articles, just to make sure the information was correct. Unfortunately, it was. 

Producing an ROA like what was mentioned in the articles is not a badge of honor, it is a shameful scarlet letter.

Credit unions serve a dual mandate. They must extract enough profit from their members (ROA) to stay adequately capitalized (cumulative profit not returned to members) and at the same time, they need to create tangible economic value for their members (lower loan yields, higher dividends rates and fewer fees) which comes at the expense of ROA and net worth.  The objective of every member-focused credit union should be to optimize, not maximize, ROA so the dual mandate can be fulfilled.

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