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% |
| |
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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.