Many CUs are facing death by a thousand cuts. Amid economic uncertainty, a tough lending environment and prolonged low rates, some executives may have lost their most vital asset—hope. Low rates have forced CUs to rely increasingly on non-interest income, a persistent trend that dates back to 2003, and the low loan demand that owes to the 2008-2009 recession has yet to turn around. The costs of regulatory compliance continue to rise, and the National Credit Union Administration’s current focus on cutting expenses is not only challenging but may represent bad advice. Most CUs have already reduced expenses to the point of adversely affecting service and delivery. Is it any wonder that mergers are seemingly a daily occurrence in our industry?
These trends have combined to create significant obstacles along the road to strong financial performance. How can CUs get around those roadblocks? I recommend charting a path to generate income–focused and intentional income, income with a purpose. To do so requires the right programs, the right staff and the board on board with taking the road less traveled to bolster the bottom line.
Let’s focus on programs that put idle assets to work for higher yields. Many CUs have a huge amount of excess liquidity, some of which should be viewed as available for innovation. The process is to view some portion of these assets already held by the CU as capable of generating income on a scale larger than the standard credit union model generates based on loan and investment yield. A key question is: What can we do with our financial structure, resources, community of members, and operations that will increase income above that of loan and investment yield without the usual associated expenses?continue reading »