At the end of first quarter 2010, regardless of the NCUSIF stabilization expense, credit unions’ operating expense ratio was equal to or below its lowest point in the past five years. Calculating the expense ratio has historically been straightforward – annualized operating expenses divided by average assets – but the NCUSIF stabilization expense has created a trickier formula. By excluding the NCUSIF stabilization expense, Callahan & Associates measures operating expense ratios in a way that is more representative of expenses incurred from conducting business. By comparison, the NCUA ratio includes the NCUSIF stabilization expense in its Financial Performance Reports. Either way, credit unions’ operating expense ratio is below or equal to its lowest point in the past five years.
At the end of 1Q 2010, credit unions’ operating expense ratio excluding the NCUSIF stabilization expense was 3.12%, down nine basis points from the 3.21% at year-end 2009.
When the NCUSIF stabilization expense is included, credit unions’ operating expense ratio increases slightly to 3.15% for first quarter 2010, down 41 basis points from the 3.56% recorded at year-end 2009. The ratio is down 158 basis points from the 2009 first-quarter spike of 4.73%.
Credit unions’ operating expense ratio with the NCUSIF stabilization expense included is higher in first quarter 2010 because many credit unions were (correctly) anticipating another NCUSIF premium sometime during 2010, although nothing had been made official by the end of the first quarter. To avoid being caught off guard, some credit unions began the process of accruing a monthly expense for this potential assessment to help minimize its impact on their bottom line. With the recent announcement of another assessment coming in 2010, these credit unions may be in a better position to manage their expenses.
A major contributing factor to the decline in credit unions’ operating expenses is asset growth outpacing operating expense growth. Total assets grew at a rate of 4.7% between 1Q 2009 and 1Q 2010, while operating expenses grew at a rate of only 2.6% over the same period. Although that is not to say credit unions haven’t been making positive strides in managing their expense levels as they have cut back on travel and conference expenses and marketing expenses.