WASHINGTON – Continued downward pressure on the net interest margin combined with a rise in operating expenses highlights the need for credit unions to focus on efficiency gains within their organizations. Based on analysis of just-released midyear data, Callahan & Associates, Inc. found that the 14 basis point spread between net interest margin, a traditional measure of earnings, and operating expenses is at its lowest level since Callahan's began tracking the data. This spread has been declining over the past 10 years, falling from 80 basis points in 1994. "Competition has been an ongoing factor in the 47 basis point decline in net interest margin since 1994, and the low interest rates of the past three years have intensified the margin pressures," said Jay Johnson, Callahan's executive vice president. "A continuation of this trend will soon mean that the margin will no longer be large enough to cover operating expenses in credit unions." While the net interest margin continues to be squeezed, reaching 3.31% as of June, operating expenses are rising as balance sheet growth remains strong. Operating expenses have been growing at a 9.3% rate annually over the past 10 years, faster than the 8.6% annual rate of asset growth. With employee compensation accounting for 50.2% of operating expenses, it is also worth noting that the growth rate of credit union staff has exceeded the membership growth rate in each of the past 10 years, Callahan reported. "Credit unions must look to generate a higher level of efficiency from their operations and staff as well as new revenue from non-traditional sources in order to continue to compete effectively in the marketplace," Johnson said. "Examining member service processes, leveraging technology, and expanding cooperative efforts across credit unions are ways to address this issue." [email protected]