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HOW TO BE A FINANCIALSROCK STARPresented by Becky Reed
President / CEO
Western Heritage Credit Union
What Does Not-For-Profit Really Mean?
Liabilities = What We Owe
Assets = What We Own
Types of Assets
• Earning Asset
• Non-earning Asset
Income
• Interest Income
• Investment Income
• Other Income = Fees
Expenses
• Interest Expense• Cost of Funds
• Operating Expense• Staff• Buildings• Technology, equipment, furniture
• Provision for Loan Loss
Credit Union Comparison• Credit Union 1
• Credit Union 2
Which Credit Union Performed Best?
• Credit Union 1
• Credit Union 2
Key Ratios – Net Worth / Total Assets
• Definition – Earnings from current and previous periods (as a percent of total assets) set aside to absorb operational losses. Higher levels of Net Worth help the credit union survive difficult periods.
Credit Union 1
Credit Union 2
Key Ratios – Delinquent Loans / Total Loans
• Definition – The percentage of the loan portfolio with payments delinquent two months or longer.
Credit Union 1
Credit Union 2
Key Ratios – Net Charge Offs/Average Loans
• Formula – (Annualized Charge Offs minus Annualized Recoveries) ÷ Average Total Assets
• Industry Standard - .30% or less (look to peer)
Credit Union 1
Credit Union 2
Key Ratios – Return on Average Assets
• Formula – Annualized Net Operating Income ÷ Average Total Assets
• Industry Standard – 1.30% or higher (look to peer)
Credit Union 1
Credit Union 2
Key Ratios – Earning Asset Yield• Definition – The yield on earning assets (loans &
investments)
Credit Union 1
Credit Union 2
Key Ratio – Fees & Other Income• Credit Unions increasingly rely on non-interest income,
which come primarily from fees. Which example has the most opportunity?
Credit Union 1
Credit Union 2
Key Ratios – Cost of Funds• Definition – The annualized cost of the liabilities
dividends paid on deposits and interest paid on borrowed funds combined with the zero direct cost of the credit union’s net worth dollars.
Credit Union 1
Credit Union 2
Key Ratios – Spread or Net Interest Margin
• Definition – The percentage difference between the income generated on all assets and the cost incurred for all liabilities.
Credit Union 1
Credit Union 2
Key Ratios – Net Operating Expense• Definition – Annualized operating expenses (excluding
provision for loan loss, dividends, and interest on borrowed money) less fee and other operating income. This ratio adjusts expense ratio by the amount of income collected to offset the cost of offering services.
Credit Union 1
Credit Union 2
Key Ratios – Total Loans / Total Assets
• Formula – Gross Loans ÷ Total Assets• Industry Standard – 65% or higher.• Refer to current Peer Group Statistics.
Credit Union 1
Credit Union 2
Tips to Take Home• Don’t look at just the bottom line• Ratios tell the story• Look to Peer for comparison purposes• Understand the ratios
• Be familiar with the formulas• Example – asset growth or asset decline can affect many ratios
• Not-for-Profit doesn’t mean Non-Profit• Review historical data to identify trends• Ask your CU Manager for details
