FOREST GROVE, Ore. — For the first time in eight years, credit union full-time equivalent (FTE) employee growth has not exceeded member growth.
But rather than being a negative trend line, one analyst says it's a positive sign for an industry where data show credit unions have become increasingly inefficient from a staffing perspective over the last eight years — to the tune of about $1.7 billion in 2008.
That $1.7 billion represents additional - and possibly unnecessary — salaries CUs have added since 2000, contends David Bartoo, president of The Watch Reports, who developed the inefficiency figure after examining NCUA data for member-to-FTE ratios over the last decade.
Bartoo's analysis comes on the heels of others who have indicated credit unions have been employing too many people. In May, Mike Moebs, CEO of Moebs $ervices, told Credit Union Journal, "Now is a time for credit unions to finally bite the bullet and reduce headcount or make staff more efficient." In April, consultant Brett Christensen told the Journal's Grow Show in San Diego that every credit union needed to ask itself if it was "overstaffed or severely overstaffed" in the lending department.
Would Go to Bottom Line, But...
"Think of what $1.7 billion would do for credit unions to increase their capital positions. They would be more stable today. In 2008 credit unions showed approximately $2.4 billion in net income," said Bartoo. "That number could have gone up nearly 75% if they were as efficient as they were in 2000 with their FTE-to-member ratio."
With the continued practice of credit unions hiring FTEs at a rate above their member growth rate, annual "lost efficiency" totals have risen this decade from a low of $178 million in 2001 to the high of $1.7 billion, according to Bartoo. The efficiency numbers (see chart) were derived by estimating the cost of the number of excess FTEs each year when compared with 2000. For example, in 2008 the member-to-FTE ratio was 400-to-1 based on approximately 90 million members and 224,500 FTEs. In order for 2008 to have the same member-to-FTE ratio as in 2000 (465-to-1), credit unions should have employed about 193,500 FTEs, Bartoo said.
"This is a ratio excess of approximately 31,000 FTEs," Bartoo explained. "Multiply that total by the average pay and benefits per FTE of $55,835 (see chart), and you have an efficiency loss of just over $1.7 billion. You have average salaries going up, but FTEs are being asked to service fewer members. It's totally been going in the wrong direction."
The biggest credit unions are leading the way, according to Bartoo, who said credit unions over $1 billion showed the greatest decline in member-to-FTE ratios in the last seven years, dipping by 21.73%, while $100-to-$250-million CUs saw a decline in employees of 7.86%.
Credit unions seem to understand that it's time to reverse the trend, shared Bartoo and a number of CU economists, and are finally cutting positions. For the first time this decade, beginning in June 2009, CU hiring was negative (see chart). "But banks started cutting back hiring in 2007, right when the recession started," Bartoo pointed out. "Whereas credit unions in 2007 hired on a massive number of employees - nearly a 6% gain in FTEs." Community charters, suggested Bartoo, have played a large role in the growth of credit union inefficiency. "When you had more SEG-based credit unions, there was less overlap in membership bases," Bartoo said. "But the big credit unions are growing much faster and are overlapping the smaller credit unions' membership bases. There will be a breaking point if this trend continues. Something has to give."
CUNA Senior Economist Steve Rick said credit unions are finally biting the bullet and cutting their operating expenses "in these challenging times. I think we are seeing, in a pretty significant way, that they are re-evaluating departments and looking at positions that can be cut to improve the bottom line." Rick added that credit unions' rapid FTE growth did not result as much from inefficient hiring, but from adding on staff to support a rapid growth in products and services.
Other Views of the Data
CUNA Mutual Group Chief Economist Dave Colby doesn't look at the extra FTEs as a sign of CU inefficiency, but as a result of many CUs moving toward full service and needing additional employees to drive more complex products. But that hasn't prevented CEOs from taking a much more careful look at the bottom line today, especially with concerns about additional assessments from NCUA to bail out the corporates. "CEOs only have so many many levers they can pull, and employees are one of their largest expenses," Colby reminded. "They are watching expenses now more than ever because they know there is likely to be another assessment down the road, and they have to protect every basis point."
In addition to the economy and problems with the corporates, NAFCU Director of Research and Chief Economist Tun Wai also cited mergers as a big reason for the recent cutback. "If you are the continuing institution, it's not one-plus-one. You can't keep two CEOs, two CFOs... You absorb some of the staff, but not all," said Wai, predicting that when the economy picks up again, the trend to trim staff "will reverse itself."
