4 Truths About Efficiency That Don’t Show Up On The Balance Sheet

Credit unions are finding a middle ground between being large enough to scale and nimble enough to maneuver.


In the real world, efficiency isn’t just a number on a spreadsheet or a peak on a line graph. It’s a moving target that changes over time. Some credit unions are more efficient in their business model, others are less so, but all must be able to adapt under pressure.

Suncoast Schools Federal Credit Union ($5.5B, Tampa, FL) is an adaptable credit union with a streamlined operation. As of second quarter 2013, the credit union’s efficiency ratio — which measures how comfortably a credit union can cover its operating expenses, the lower the better — was 52.1% compared to the 72.4% and 80.6% averages for credit unions with more than $1 billion in assets and all credit unions in Florida,according to Search & Analyze data on CreditUnions.com.

“We have always emphasized efficiency and expense control as a means of fulfilling our mission to provide value to our members,” says Julie Renderos, chief financial officer at Suncoast Schools.

Its 1.63% annual loan growth and 1.3% ROA demonstrates the credit union can embrace efficiency without impairing its primary goal — giving loans to members in need.

Likewise, NorthCountry Federal Credit Union ($435.4M,Burlington, VT) also maintains an efficiency ratio that is superior to its peers, but by a slightly smaller margin — 72.2% versus 84.5% for similar-sized credit unions and 82.4% for state credit unions. Additionally, NorthCountry posted a 14.87% annual loan growth at midyear and consistently maintains a loan-to-share ratio of approximately 85%.

“We want to have a balanced perspective,” says Lisa Huyer,chief financial officer at NorthCountry. “We need efficiencies to keep costs down, but we also need to be able to offer outstanding service. We can’t focus on just one to the detriment of the other.”

Both of these credit unions are positioned well from an efficiency standpoint, but they have learned that building a lean, effective work environment requires going deeper than base metrics.

Follow their unconventional wisdom and you, too, might find yourself at the crossroads where good service, productivity, and efficiency meet.

Truth No. 1 — Efficiency Sometimes Requires Thinking Bigger, Not Smaller

“One way to become more efficient is to find ways to increase revenue, not just reduce cost,” Huyer says.

For example, since redesigning several payment protection products for consumer and home equity loans last year, NorthCountry has increased its penetration levels for each product from around 30% to more than 50%.

Likewise, the launch of a free, rewards-based checking option —in a time when free accounts are disappearing — has generated a significant increase in interchange and NSF income for the credit union.

For Suncoast Schools, scale helps it improve efficiency, Renderos says. “The more we collaborate as an industry to pool our resources, the greater savings we can achieve through economy of scale.” 

For example, Suncoast Schools not only manages its own credit card portfolio but also sets up participations with a fellow cooperative that previously sold off its proprietary program. 

“That credit union avoided the significant start-up costs associated with a new credit card product and we have been able to pool our resources to benefit from a low-pricing structure,” Renderos says.

Truth No. 2 —Efficiency Is About Culture As Much As Metrics

Sometimes there is a significant disconnect between what looks best on the balance sheet and what is good for members and the institution in the long term.

“The biggest challenge right now is managing competing goals,” Renderos says. “For example, one of our goals is to grow our net worth ratio. Asset growth slows progress on that goal but improves our expense-to-assets ratio.”

Avoid putting too much emphasis on any one benchmark and don’t look to institutions that have different cultures, values, or strategic visions for financial performance goals.

“Some industry efficiency measures may be misleading when compared to peer results,” Renderos says. “One example is the efficiency ratio, where you can have a good ratio by either having low operating expenses or a high net interest margin and fee income.”

Uncovering the right goals for efficiency might require stepping out of the office and getting a boots-on-the ground perspective.

“We monitor several metrics at the branch level, including members per employee and transactions per branch,” Huyer says.

Front-line employee interactions also help NorthCountry uncover process changes and other quick fixes. Work-arounds and technological changes can eventually lead to outdated procedures, which often go unnoticed except by those who use them every day, Huyer explains.

NorthCountry uses teller cash dispensers — which reduce wait time and help eliminate errors — as well as eSignatures and a high-tech optical system for record and document retention, but the credit union is careful to not let these technological improvements get in the way of human interactions.

Truth No. 3 — Efficiency Can Have Drawbacks

Suncoast Schools’ commitment to its efficient operating model was tested during the recession when the credit union found itself with less wiggle room than its bulkier peers.
“We didn’t have excessive expenses to cut for immediate relief,” Renderos says. “Since we have always been conservative, we were not overbranched and therefore didn’t have the ability to close a branch without adversely impacting a significant number of our members.”

Employee count declined during the recession on account of natural attrition, but Suncoast Schools was firmly against layoffs.

“We don’t want to be overstaffed, because that doesn’t add value to our members,” Renderos says. “But we also couldn’t cut our expenses so drastically that members experienced long wait times and poor service quality.”

To keep staffing levels on an even keel, employees took a temporary reduction in pay and benefits. And when employees did leave, the credit union tended to redistribute their responsibilities among existing staff rather than hire replacements. It also found other places where it could make difficult changes, including:

  • Immediately reducing marketing expenses.
  • Renegotiating major vendor contracts.
  • Postponing the purchase of a new core processing system.
  • Putting a moratorium on new branch openings.

Truth No. 4 — Efficiency Can Be Counterintuitive

After the recession, Suncoast Schools reinstated employee salaries and applied the appropriate market adjustments. More recently, it has resumed building new branches and hiring new staff. Since second quarter 2012, the credit union has hired roughly 60 new employees. It has also increased average salaries and benefits 4.7% annually as of second quarter 2013.

Suncoast Schools sees this new activity as an investment in its future efficiency rather than as a detriment to it.

“In a strategy to grow members, assets, or a line of business, you have to invest in resources and infrastructure to support that growth,” Renderos says.

Membership growth is currently up 4% year-over-year. And because Suncoast Schools employees can serve an average of 524 members each, versus an asset-based peer average of just 415, the credit union feels comfortable investing in these resources from an efficiency standpoint.