Increasing Efficiency Leads to More than Just Lower Operating Expenses

Increasing operating efficiencies is becoming a major focus for a number of credit unions in the current environment. Can freeing up resources, operating more efficiently, and changing your credit union’s culture have the desired impact on the balance sheet?

 
 

Increasing operating efficiencies is becoming a major focus for a number of credit unions in the current environment. The tough challenges of the recession, combined with the unforeseen financial impact of recent corporate conservatorships, are putting increased pressure on credit unions' bottom lines. Even credit unions that currently have their expense levels under control are examining their own operating efficiencies as they look to drive growth. However, can freeing up resources, operating more efficiently, and changing your credit union’s culture have the desired impact on the balance sheet?

To answer this question, let's look at growth in the most common metrics: assets, loans, shares, and members. For this analysis, I have selected the 189 credit unions with assets between $500 million and $1B. I ran the operating expense ratio for each credit union in this peer group, and then compared the top 50 credit unions with the lowest operating expense ratio to the rest of the peer group. This is what I found (all results as of December 31, 2008):

  • Asset growth for those credit unions with a lower operating expense ratio was 9.8%, increasing at a faster pace than the 7.9% reported at the remaining 139 credit unions
  • Loan growth also rose at a faster pace for those more efficient credit unions, up 9.0% annually compared to the 7.5% annual growth of the other group
  • Share growth followed a similar pattern, up 9.2% at the top credit unions by operating expense ratio, compared to the 8.1% increase at the remaining credit unions
  • Membership growth was the one area where the credit unions with lower operating expense ratios reported a slower growth rate, up 1.2% annually, compared to the 2.8% growth reported by those credit unions with higher expense ratios. This may point to one area where credit unions with lower operating expense ratios may be making cuts in order to manage their expense levels

Based on this sample, operating more efficiently has lead these credit unions to not only manage their income statements more effectively, but has also likely played a role in the balance sheet growth these credit unions reported above their peer group averages.

 

 

 

May 7, 2009


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