Unlocking Profit

Take a fresh look at common strategies to help improve your bottom line.

by Sue Kappel and Sophie Kelley

Profit is not a forbidden word in the credit union lexicon. In fact, profit is a necessity to increase member equity and support continued asset growth. Taking that idea further, credit union leaders have a responsibility to manage a CU’s profit for the benefit of members and the cooperative.

How can this be done? Take a fresh look at your CU, and you’ll see that every asset or liability has the potential to introduce an element of risk, revenue and expense. Here are some considerations to bear in mind as you lead forward—profitably.

Product Features are Critical

Revenues and expenses are a reflection of what you sell and how you sell it, so it’s important to assess the characteristics of loan and share products to ensure they meet the needs of your membership and your mission. Perform an objective evaluation of the percentage of members using the product, how they use it, whether features meet their needs, the cost of offering the account features, any alternatives, and how the product’s margin contributes to your CU’s overall profitability.

For example, some CUs offer a mortgage product with a fixed-dollar, low closing cost. Evaluating their profitability involves calculating revenue (generated by multiplying the mortgage balances times spreads plus fees) and comparing the result to origination costs. Do this ahead of making the loans to determine the spreads required to break even. This simple understanding of the impact of origination costs on profitability may cause a CU to redesign its mortgage product.

Interest Rate Risk Needs Managing

Interest rates are historically low. Some CUs have adopted a strategy of holding long-term, fixed-rate real estate mortgages or purchasing mortgage-related investments in an effort to maintain current margins. Regulators, meanwhile, are concerned that CUs need a strategy to minimize the impact of interest rate risk in the event rates do rise. Examinations will continue to focus on this risk.