April 23, 2012


  • Nice article. Helps provide a good prospective between the two metrics.
    Russ Dalke
  • This article makes some valid points that have some real world implications for our credit union, and probably many others as well. In the case of our CU that has $460 million in assets on our balance sheet, through our financial services arm and wholly owned mortgage CUSO we service an addtional $560 million in off balance sheet investments and mortgages. Even though those revenue producing assets are not considered by GAAP as part of our balance sheet, there are still substantial expenses required to service them. We are glad to incur those costs because the revenues they generate far exceed them. However, they certainly drive up our operating expense ratio substantially, which is always a cause for examiner concern. That's because those folks are trained to only focus on balance sheet asset-based ratios and "peer groups". (Unfortunately, this agency practice seems largely driven by Callahan's history of using the same down and dirty, and generally inappropriate, method of determining who our peers are for purposes of industry analysis.) However, the reality is that our efficiency ratio, and therefore our profitability, are both healthy. In turn, that serves to increase the overall capital strength of our institution. Yet such facts can be easily obscured when so many of the metrics being used to evaluate us are based on balance sheet assets.
    Wally Murray
  • The credit union industry approach the last few years of controlling expenses in a down market was absolutely the right approach. Lydia is correct that now is the time to grow fee and interest income. With all the low interest deposits on hand; credit unions need to find ways to put those excess deposits to work in lower risk higher yielding non-prime loans. Many former prime members have been rescored as non-prime because of the economic climate. These members were prime when their credit union last extended them credit. Just because they have been rescored as non-prime, credit unions owe them the non-prime loans they now need. Looking away from these once prime members is not the correct attitude for credit unions. Finding a way to continue to service these non-prime members is a must which will help you grow your loan interest income. The problem is that you can't afford to build the infrastructure necessary when dealing with the non-prime member. It does require a different skill set that dealing with prime members. CU Lender Management has developed a turnkey program for credit unions that want to continue servicing their once former prime members without the costs associated with the infrastructure build necessary to do so.
    Frank Mercer
  • Great article. I hope examiners are privy to this kind of seemingly elementary information. What I do not understand is the tendency for many to focus so much on expense control, while so much potential revenue is ignored. It seems to me that in tough times, the most effective managers will attack expenses and simultaneously seek new income sources.