Chief operating officers have a finger on the pulse of all areas of the credit union from revenue to asset growth, and ROA to operating expenses. COOs must monitor it all and have an in-depth understanding of not only what is happening but why. The following selection of benchmarks monitor different areas of a credit union’s health and performance and should be on the quarterly performance reports of all COOs.

1. Operating Expense Ratio

Definition: This measure divides operating expenses by average total assets. The operating expense ratio national average as of year-end 2014 is 3.12%.

Operating Expenses / Average Assets
For all U.S. credit unions | Data as of Dec. 31
Callahan Associates |

The operating expense ratio reflects both the operating efficiency and the operating strategy of a credit union. The breadth of a credit union’s product and service line will also have an impact on this ratio.

Expense management has a significant impact on a credit union’s competiveness and the value it creates for members. In comparing expenses to assets, this ratio underscores the idea that a larger balance sheet is the result of a larger operation that requires greater resources. Leaders should compare the operating expense ratio against the operating expense to income ratio, which is subject to larger swings when interest rate changes affect total income.

2. Operating Expense To Income

Definition: This metric divides the credit union’s operating expenses by total income. The operating expense to income national average as of year-end 2014 is 66.4%.

Operating Expenses / Total Income
For all U.S. credit unions | Data as of Dec. 31
Callahan Associates |

A credit union’s expense to income ratio depends on its ability to generate income from its products and services. Institutions with a full-service strategy and diverse product portfolio will generally have higher expense levels than credit unions with limited offerings.

But the ratio is also a measure of credit union productivity. Product-pricing strategies have a significant impact on income; as such, institutions that price products and services competitively generally have a solid expense to income ratio. And when managed successfully, investments in technology can further boost productivity and lower expenses.

3. Efficiency Ratio

Definition: The efficiency ratio divides a credit union’s operating expenses by interest income less interest expenses plus non-interest income. The efficiency ratio national average as of year-end 2014 is 75.0%.

Efficiency Ratio
For all U.S. credit unions | Data as of Dec. 31
Callahan Associates |

Source: Peer-to-Peer Analytics by Callahan Associates

An elevated or increasing efficiency ratio indicates a credit union is losing a larger share of its income to overhead expenses while a lower ratio indicates the credit union is diverting less income into such expenses. Therefore, credit unions generally strive to achieve lower efficiency ratios. In nonfinancial terms, the efficiency ratio measures how much it costs to create $1 of revenue the lower the number, the better.

In theory, credit unions with higher ratios of fee income to total income should experience less fluctuation in the efficiency ratio. This is because credit unions with lower ratios rely more on loan interest to generate income. As income is generally more sensitive than expenses to changes in interest rates, movement in interest rates will result in a fluctuating efficiency ratio.

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