As of Dec. 31, 2016, the average efficiency ratio for the credit union industry was 73.4%, a slight improvement from a year ago when it stood at 74.6%. With efficiency, the lower the number, the better. Another way to read or interpret 73.4% is to put it in context of what it’s measuring; for example, on average, credit unions spent $0.74 (rounded up) to earn $1 of revenue.
There are numerous benchmarks to measure how efficiently a credit union manages its operations. Some focus solely on interest income and expenses, while others concentrate on the non-interest side of a business. The efficiency ratio of choice for me examinesthe relative size of non-interest expenses (commonly known as OpEx) compared to the sum of net interest income, fee income, and other operating income excluding provision expenses.
By using net interest income in the denominator, we can account for changes in interest rates on both the income and expense side of the business. Additionally, we add in the primary non-interest income components fee and other operating income to round out the reach of this benchmark. The result is a metric that provides insight into an institution’s operational income and expense structure.
Below is a table of the leaders in efficiency for credit unions with more than $50 million in assets.
CREDIT UNION EFFICIENCY
FOR U.S. CREDIT UNIONS >$50 MILLION IN ASSETS | DATA AS OF 12.31.16
Callahan & Associates | www.creditunions.com
| # | Credit Union | State | Assets | Efficiency Ratio (Excluding PLL) | Operating Expense/Average Assets | ROA |
|---|---|---|---|---|---|---|
| 1 | Workmen’s Circle Incorporated | GA | $69,500,489 | 31.5% | 0.95% | 2.07% |
| 2 | CommunityWide | IN | $392,263,624 | 37.5% | 1.98% | 1.07% |
| 3 | Long Beach Firemens | CA | $178,802,359 | 38.1% | 0.78% | 1.27% |
| 4 | Southern | TX | $91,427,727 | 38.4% | 1.63% | 1.47% |
| 5 | APCO Employees | AL | $2,736,929,668 | 39.7% | 0.55% | 0.76% |
| 6 | California Lithuanian | CA | $114,089,333 | 40.6% | 0.84% | 1.20% |
| 7 | Merck Employees | NJ | $1,984,893,972 | 40.7% | 0.27% | 0.40% |
| 8 | Employees | IA | $89,808,852 | 40.7% | 1.52% | 1.85% |
| 9 | Dawson Co-op | MN | $153,586,927 | 41.4% | 1.46% | 1.79% |
| 10 | Star One | CA | $8,820,886,843 | 43.1% | 0.57% | 0.75% |
Source: Callahan & Associates.
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