First Look: Efficiency Metrics Show Mixed Results in the First Quarter

Preliminary 1Q results show a mixed bag for efficiency metrics, as credit unions look to manage their expense levels to stay in the black.

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Closely tracking efficiency metrics is important in any environment. But tracking is even more important as the industry heads into the 2009 reporting periods, amid current recessionary woes. Add the hot button issue of the financial fallout from the difficulties experienced by the corporate credit union network, and credit unions must keep an eagle eye on their performance metrics.

The initial impact will first show up in the form of a new account code in the first quarter call report, the NCUSIF Stabilization Expense. Although this new assessment will not have any bearing on credit union efficiency ratios, it is putting increased pressure on credit union bottom lines. And, as credit unions are having increased difficulty maintaining a positive bottom line, many credit unions will look to trim their operating expenses in an attempt to minimize the impact of this stabilization expense on their bottom lines.

Preliminary Data Shows Operating Expense Ratios Declining

Although finalized first quarter data is not yet available, we can get a sense of how credit unions are preparing for, and being impacted by, the corporate stabilization expense through Callahan & Associates' First Look program. The First Look program has collected data from credit unions representing $240B in assets, or approximately 29% of the industry.

Data from those First Look credit unions shows operating expenses have increased 6.1% from March of 2008. This increase is on pace with the 12-month growth reported by the credit union industry in December. Although operating expenses increased, these credit unions are also increasing the size of their balances sheets, leading to a lower operating expense ratio. As of March 2009, the First Look credit unions reported an operating expense ratio of 2.63%. This is down from the 2.67% those same credit unions reported in December. However, it is also worth noting that the credit unions that comprise the First Look group reported a 2.76% operating expense ratio in December 2008, compared to the national average of 3.38%.

Although credit unions are making positive progress in their operating expense ratios, First Look credit unions are seeing a different trend with the efficiency ratio. Through March 2009, the First Look credit unions reported an average efficiency ratio of 92.1%. This metric has increased from the 89.9% efficiency ratio these same credit unions reported in December 2008, although it is slightly lower than the industry average of 92.4%. The most likely cause for this increase in the efficiency ratio is the increase in provision expenses that the First Look credit unions reported in the first quarter.

Taking Action

As the impact of the NCUSIF stabilization expense continues to be felt, credit unions are becoming more concerned about their operating efficiencies. Credit unions must closely monitor their efficiency levels to positively impact these metrics and offset the unavoidable impact of this unforeseen assessment.

Callahan's First Look program allows credit unions to compare performance data weeks before complete figures are released by NCUA. To participate in Callahan’s complimentary First Look program and get an early glimpse at credit union first quarter results, simply email your 5300.xml file to