Conservative underwriting is credited for a 0.75% delinquency rate and a 0.60% charge-off rate at the $924 million Commonwealth Credit Union as of June 30, according to Comptroller Donna Jackson. She also said her conservative field of membership–state employees who participate in Kentucky's retirement system–also tend to have more job stability than the average Kentuckian. The state hasn't suffered any state employee layoffs like other areas, she said, and Kentucky's unemployment rate matches the national average of 8.2%.

Commonwealth, based in the state capital of Frankfort, tightened up its underwriting in 2008 when the financial crisis hit, but it has recently relaxed because losses were so low, Jackson said.

“We felt maybe we had tightened too much, so we [loosened underwriting] about a year ago. We tried to follow the lead of what we were hearing in the marketplace, and that seemed to work for us this time,” she said.

Fewer losses have helped boost Kentucky credit unions' ROA to 97 basis points during the first quarter of 2012. 

The $60 million Greater Kentucky Credit Union has been very profitable this year, reporting 1.75% ROA as of June 30, according to President/CEO Mike Fromma. He credited Greater Kentucky's lack of loan losses, saying, “When you're not funding your allowance account, that ROA will look pretty good.”

The Lexington-based Greater Kentucky also earns good interest income, Fromma said, with an 80% loan-to-share ratio.

“Interest income is the lion's share of revenue,” he said, “but there's a huge drag on it with rates where they are. There really isn't much spread to speak of, and it barely covers our operations costs.”

Lyons stressed that Kentucky's nearly 100 basis point ROA is a mathematical average and could paint the impression that profitability is higher than it actually is since the state's largest credit unions are performing well.

Lyons said that he thinks another important figure is the 74% of credit unions with positive ROA, which is right on the national average.  

“When you look at the larger credit unions, Fort Knox, for example, which has $1.1 billion in assets and a very strong ROA, that begins to pull the average up for everybody. We still have 26% who are struggling with earnings,” he added.

Struggling credit unions tend to be smaller, Lyons said, although Kentucky has plenty of relatively small credit unions like Greater Kentucky that are doing well.

“It depends upon the sponsor group,” Lyons said. Kentucky is home to health insurance company Humana, four automotive plants, UPS' worldwide air hub, and the bourbon and horse racing industries.

Like many other states, Kentucky credit unions are struggling to grow their loan portfolios, with an annual state average growth  of 2.6%.

“They're looking for loans wherever they can get them,” Lyons said. “There has been some growth in indirect auto loans, which has been a struggle, but it's positive.”

Greater Kentucky has had robust loan growth so far this year, with Fromma reporting a 9.34% gain as of June 30. 

“Through 2008 and 2009, we had a drag going and actually had negative growth, but in 2011 and most of  2012 we've seen good growth,” he said. “A lot of it is fueled by consumer loans: cars, personal loans, those types of things.”

The community charter credit union hasn't had problems making mortgage loans, either. Fromma said he tries to hold his long term assets to 20%, allowing it to go as high as 30%. 

“We've had a lot of bleeding off of variable-rate mortgages in the last three to four years,” he said. “People don't want those anymore, even though the rates are so low.”

Loan growth has been less robust at Commonwealth. Numbers are nearly flat, at a little under 1% year-to-date, Jackson said.

“We generally have a harder time in the first half of the year, because our field of membership uses their tax returns to pay off their holiday loans,” she said. “We are estimating 3% growth this year, mainly in the consumer market, which are smaller loans, so it takes a lot of them to grow. But, we have people who need new cars, credit cards, that sort of thing, so we will have some loan growth and will manage share growth in that range, too.”

Jackson said managing deposit growth has been key in maintaining positive ROA.

“When we see loans aren't growing, we kick back our savings rates to keep growth down,” she said. “We do want to pay our membership the best rate we possibly can, but we also want to be there for them when they have borrowing needs. We believe maintaining that balance is the right thing to do overall for our membership.”