As we begin the new year, many of us find ourselves taking stock of our performance in 2023. 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?

Calculating the Efficiency Ratio

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. 

Average Efficiency Ratio

According to the report from Callahan & Associates, the average efficiency ratio for all credit unions in the country at the end of the third quarter 2017 was 71.54%. That’s 1.92 percentage points below the Q3 2016 average of 73.46%. The most efficient state in the country was Virginia, with a ratio of 55.4%. There is not much surprise there since the two largest credit unions in the country are based out VA, and when it comes to efficiency, economies of scale plays a crucial role. In most cases, larger institutions have lower relative costs and larger revenues.

How to Get a Better Efficiency Ratio

If you have just missed the mark and come in higher than the national average, consider adopting new core technology and watch your efficiency grow exponentially. As you consider investing in this new technology and incorporating more efficient credit union software, keep overhead expense in mind. There's no need to break-the-bank in trying to achieve efficiency. Remember to take into account many hidden expenses, especially when calculating the Cost of Technology per Member (total cost of your credit union's technology divided by your member base.) Consider not only the initial outlay for the investment, but also re-occurring charges and the potential cost of third-party integration. 

With the right technology in place, you can see your day-to-day operations streamlined, data managed securely, and be able integrate cutting-edge fintech smoothly, all while still providing impeccable service to your members.

We invite you to learn more about your credit union's individual Efficiency Ratio and how technology can help you achieve the highest Efficiency Ratio possible. Comment below or reach out to us and we will reply privately via email with your CU's Efficiency Ratio.