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)
||Mead Coated Board
||Caprock Santa Fe
||Glendale Area Schools
||Average Value for 3547 Credit Unions
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.