Build Clarity Into Your Financial Statements

Simply using ROA to gauge success is shortsighted.

June 24, 2011
KEYWORDS boards , financials , growth
/ PRINT / ShareShare / Text Size +

Financial institutions tend to have confusing financial statements, which makes it difficult for boards of directors to understand them and to use them in strategic planning, says Mike Higgins, a partner in the accounting firm Mike Higgins & Associates.

“You need to restructure your financials so you bring clarity out of confusion,” Higgins says. “Once you do this, your board can use your credit union’s financials to set relevant growth targets that create value for your members.

“Too many boards use net income or return on assets [ROA] as a benchmark of success, but that’s shortsighted and lacks strategic focus,” he continues. “It demonstrates ignorance of how a successful credit union operates. The bottom line isn’t really your true bottom line.”

Higgins said credit unions’ strategic priorities should be:

  • The strength of the net revenue engine—it seals your credit union’s fate;
  • Operating expenses relative to net revenue;
  • Credit loss tolerance;
  • An adequate capital-ratio range; and
  • Ongoing creation of value for members.

Boards should pay attention to and develop targets for their credit union’s product mix and expense ratios. “A focus on these areas will help your board stay focused on creating value for members,” he adds.

Higgins also suggests boards use a rolling 12-quarter budget or operating plan. “The annual budget has become a dinosaur—it’s too long of a time period.”

He says the ideal performance scorecard would include net revenue or ROA, account balance growth, product mix, rate differential, expense ratio, credit losses, capital ratio, and return on equity before and after credit losses.

Post a comment to this story


What's Popular

Popular Stories

Recent Discussion

Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory ( will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

Your Say: Who should be Credit Union Magazine's 2014 CU Hero of the Year?

View Results Poll Archive