Measuring Efficiency for Credit Unions

The efficiency ratio can be a valuable tool for measuring how effectively a credit union is minimizing expenses while also generating income. Find out more about what the ratio is and who some of the industry leaders are.

 
 

When evaluating the efficiency of a credit union, the widely-used efficiency ratio can be a very useful tool. This ratio examines how much of a credit union’s income is being used to cover the credit union’s expenses. A low value for this ratio indicates that a credit union is able to both generate income and minimize expenses. The industry average in the 1st Quarter of 2004 was 72.86%.

This efficiency ratio has been slowly increasing for credit unions over the past year. At this time last year, the ratio was only 70.87% . During this same time period, operating expenses grew by 9.45% while total income decreased by 1.14%. The following table shows 25 credit unions who were able to outperform the industry by keep their expenses in check while also generating income.

 

 

 

July 5, 2004


Comments

 
 
 
  • quite interesting. i wonder how the formula used here compares with the formula used on banks by the fdic at their summary of deposits web page. standardization would permit valid comparisons. as it is, we may compare with each other, but how about with the competition? p.s. orchids to these cu's for achieving low scores. maybe they could give the rest of us a good seminar..
    Anonymous
     
     
     
  • Notice that most of these CUs are airlines, schools or employee CUs. They have less FTE and/or branch per member therefore less compensation, therefore more efficient.
    Anonymous
     
     
     
  • Very important data!
    Anonymous
     
     
     
  • The formula we used for the efficiency ratio in this article was: total operating expenses/(total income-int. expense) -Joe James
    Anonymous
     
     
     
  • Is operating efficency computed by taking gross income minus cost of funds divided by Operating Expenses?
    Anonymous