On the Margins: A Comparison of Banks and Credit Unions by Asset Tier

by Stephen Greer, April 15, 2015
Industry Trends
North America


In Celent’s experience, organizations tend to measure themselves against a tight circle of closely aligned competitors. The new demands of financial services require a more holistic view of the market as previously segmented business models move closer together.

In the report On the Margins: A Comparison of Banks and Credit Unions by Asset Tier, Celent compares banks and credit unions of a similar size, first laying out some of the differences in performance metrics, then exploring the business models that create these differences.

The report focuses on the change in efficiency ratio, examining operating expense to income, as well as the return on assets (RoA) and return on equity (RoE). Looking at efficiency ratio offers a view into the operations of an institution, but in many ways it’s dependent on the industry and organization.

Celent has simplified this to a least common denominator: operating expense as a percentage of the sum of noninterest income and net interest income. Using an efficiency ratio calculation of operating expense to income, it´s clear that credit unions are becoming less efficient at a faster rate than banks of the same size. Simplifying the methodology as well as concentrating on the delta rather than absolute numbers allows for a closer cross-industry comparison of how much money institutions are spending for every dollar of revenue.

“Credit unions as an industry are running thinner margins than banks of the same size,” says Stephen Greer, an analyst with Celent’s Banking practice and author of the report. “While this is an intentional business decision reinforced by member-centric charters, it leaves the institution with fewer resources than similarly sized banks that take a more profit-driven approach. With the complexity and demands of financial services putting more pressure on the bottom line, the logical question to ask is if this difference will adversely affect credit unions´ ability to stay competitive.”

This report compares and contrasts performance metrics of credit unions and banks of the same size, leveraging Celent surveys and publically available data to ask some important questions, stimulate deeper thinking around strategic priorities, and deliver pointed insights.

This 30-page report contains 21 figures and one table.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
Tel: +1 212 345 1366

Europe (London)
Chris Williams
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary





Performance Ratios


Examining the Performance Delta


Where Does the Difference Come From?



Business Models



Technology Adoption


Challenges and Implications




Appendix: Performance Ratios


Leveraging Celent’s Expertise



Support for Financial Institutions



Support for Vendors


Related Celent Research


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