Massachusetts is the birthplace of the U.S. credit union, yet when it comes to growth and profitability rankings, the Bay State’s numbers appear unimpressive compared with other states.

Nationally, Massachusetts credit unions rank No. 44 in asset growth. They’re No. 48 in deposit growth. And they’re No. 43 in return on average assets, a key measure of profitability.

Taken from the National Credit Union Administration’s (NCUA) second-quarter data, the figures show Massachusetts as average or below average in a number of categories – except loan growth, which grew 4.7 percent over the first nine months of the year, putting Massachusetts at No. 19.

But credit union officials argue that the state’s institutions are faring much better than these rankings would suggest, and contend that economic and demographic factors have an outsized impact on the numbers.

Of all the categories, return on average assets (ROAA) is the most glaring potential problem. Massachusetts credit unions’ ROAA was at 58 basis points – 47th in the nation and well below the average basis point figure of 86.

“Obviously, we’d like to see that higher here,” said Rob Kimmett, spokesman for the Massachusetts Credit Union League. But he noted that each institution faces an unusually crowded playing field in this state, which makes for stiff competition. Massachusetts has more than 200 credit unions, as well as around 200 banks, he said.

The FDIC puts the number of Massachusetts-based banks at 155, although that doesn’t include out-of-state banks with branches here.

Comfortable Cushions

Mike Schenk, senior economist with Credit Union National Association (CUNA), an industry group, had other explanations. Massachusetts’ credit unions are extremely well-capitalized, he said, with 98 percent reporting a capital cushion of 7 percent or higher. That actually reduces the need to increase one’s ROAA – with high capital cushions, there is no urgent need to generate capital through earnings, he said.

That allows credit unions to charge members lower fees – Massachusetts credit unions’ fee income was 44 basis points compared with the national average of 71, Schenk pointed out. That factor, in addition to Massachusetts CUs’ slightly lower asset yields and slightly higher funding costs, accounts in large part for the state credit unions’ collectively low ROAA.

As for the other financial categories, such as membership growth, Schenk pointed to demographics. For example, credit union member growth was 1.7 percent here, or No. 33 nationwide.

But the Bay State’s population growth is fairly stagnant overall compared with other states, Schenk noted, which explains why Massachusetts CUs’ membership growth of 1.7 percent is much better than it appears. According to the most recent U.S. Census figures, the state’s population grew .06 percent between April 2010 and July 2011.

Kimmett also defended Massachusetts’ asset growth rate, which was ranked at No. 44 in the country. Assets grew 5.3 percent here, he pointed out, which is still a strong number. Deposits are weak – at 4.9 percent, or 48th in the country – but with interest rates so low in the current environment, no institution really wants to reap huge piles of customer deposits.

What they do want, he said, is loans. And that’s where Massachusetts has a strong showing, with 4.7 percent growth so far in 2012, when the national average is 3.2 percent. Massachusetts is also in better shape for avoiding delinquent loans, sitting at the national average of 1.7 percent delinquencies.

Holding Their Own

John Worth, NCUA chief economist, said he believed none of Massachusetts’ numbers were particularly alarming. The state actually has fewer troubled credit unions than the national average, he said.

Indeed, credit unions tend to survive better in Massachusetts than other states. Credit unions, many of which are very small in asset size, are gradually being merged or dying off in many corners of the country. But institutions overall have actually held on better in Massachusetts than elsewhere, Worth noted.

In 2000, Massachusetts had 285 credit unions, he said, compared with 207 today – a 73 percent survival rate. Nationally in 2000, there were 10,316 credit unions compared to 6,961 today, which is only a 67 percent survival rate.

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