As we begin the new year, many of us find ourselves taking stock of our performance in 2017. What worked, what did not, areas to build upon, ideas to leave behind and new directions to pursue. Similar to the message we hear from our Commander in Chief in these early days of January each year, it’s time to construct our own State of Union assessment, a sort of ‘State of the Credit Union’ if you will. Just how efficient were you, what is the average credit union efficiency ratio for your state, and how do you stack up against it?
By calculating your own efficiency ratio, you can determine just how much you spent to earn $1 of revenue. It can serve as an indicator of your success or suggest there might be some room for improvement, and generally help you monitor the relationship between your operating revenue and your overhead expenses. The efficiency ratio is calculated by taking the CU’s operating expenses and dividing it by Total Interest Income (Interest Income – Interest Expenses) + Non Interest Income. This information is available publicly on the call report and can be accessed through the NCUA’s website. Take a moment and see how you stack up.
Though there are several additional and helpful ways to assess the strength of your credit union, the Credit Union Efficiency Ratio is the key metric used to measure its overall efficiency in operation. An efficiency ratio of 70%, for example, indicates that you spend $.70 for every dollar of revenue earned… so the lower the percentage the better.This is a great goal to aim for and if you have accomplished this, you are in the top 10% of all credit union operations nationally.continue reading »