Less is More

Institutional efficiency helped carry credit unions from recession through recovery.


The cooperative industry’s average efficiency ratio (with the provision for loan loss included) peaked in the fourth quarter of 2008 at just over 96%.  Faced with unexpected costs, management made concerted efforts to cut the fat and successfully brought the ratio back down below 85% by the second quarter of 2009. However, some of the measures taken may have yielded only short-term gains as the ratio is rising again.

The efficiency ratio represents a credit union’s operating expense, divided by total income minus interest expense and can be calculated with or without the provision for loan loss. A low efficiency ratio means that operating expenses are being kept in check, and take up a smaller percentage of the credit union's hard earned income.

These 10 credit unions led their peers in the efficiency ratio at year's end, according to Callahan’s Peer-to-Peer Software.

Efficiency Ratio (Including Provision for Loan Loss)

U.S Credit Unions (20M+in Assets)

Rank State Credit Union Dec-10 Dec-09 Change
1 TX Southern 31.30% 28.77% 8.79%
2 NY Progressive 32.11% 33.38% -3.80%
3 AL Mead Coated Board 34.87% 37.63% -7.33%
4 KS SM 38.75% 34.05% 13.80%
5 TX Caprock Santa Fe 40.47% 47.46% -14.73%
6 HI McBryde 43.22% 37.10% 16.50%
7 GA Workmens Circle 45.35% 37.58% 20.68%
8 CA Glendale Area Schools 45.55% 40.91% 11.34%
9 CA Star One 45.76% 34.80% 31.49%
10 IN Whiting Refinery 46.33% 39.95% 15.97%
    Average Value for 3547 Credit Unions 86.34% 91.89% -6.04%

It’s easy to improve your efficiency score by asking fewer people to do more, but that strategy only works for a while. To get serious about reducing your efficiency ratio you have to revamp processes, carefully measure where waste might be occurring and look for long-term solutions to keep more of your members’ money where it belongs—in their wallets.