KANSAS CITY, Mo.-It's likely no job title will get more scrutiny in 2010 than chief financial officer.
CFOs told Credit Union Journal that excess liquidity, growth management and the threat of interest rate spikes in the coming years are forefront in their minds as the new year gets under way.
Brandon Michaels, Secretary/Treasurer of the CUNA CFO Council and CFO at Mazuma CU here, is concerned with the deluge of deposits credit unions across the country have seen, as there are few avenues for that money to go to work.
"Lower-yielding investments are going to place some continued compression on the net interest margin," he said. "I don't see that reversing itself in 2010 with the Fed not increasing rates until at least late in the year."
Though he doesn't see core inflation as a problem until 2011 or 2012, Michaels is staying short of two-and-a-half-years on most of his CU's investments, though he is using some hedging strategies to reduce what he sees as very real interest rate risk. "If we didn't do hedging strategies we would not be able to book any more loans because of the interest rate risk."
Michaels is also looking at MCU's marginal cost of funding and searching for lower cost alternatives to borrowing.
Low interest rates combined with still increasing delinquencies is further reducing the spread in consumer portfolios, Michaels added. While the consensus seems to be that inflation will not be a problem in 2010, rates cannot go much lower and the specter of a steep rise in inflation due to economic growth or federal debt concerns are going to keep many credit unions short on investments.
A 2010 Lesson For CUs From The 1980s
ST. LOUIS-In looking forward, Kevin Brueseke, COO/CFO with the Missouri CU Association, sees a lesson from the past.
"I think a lot of credit unions are going to try to manage their growth because of the capital ratio concerns," he said.
Brueseke concurred, saying that credit unions would be wise to learn from the S&L crisis of the 1980s and exercise "some caution in terms of attracting long term borrowing at these locked in low rates."
Managing For Future Liquidity Challenges
COLORADO SPRINGS, Colo.-With the yield curve as it is, Dan LeClerc, vice chair of CUNA CFO Council and SVP/CFO for the $130-million Aventa Credit Union, is concerned that some CUs could get bitten if they keep too many mortgages or longer-term investments on the books. LeClerc noted that the three-, four- and five-year curve is "not too hard to swallow" right now, but that could quickly change if inflation heats up by next year as he anticipates. "That, in turn, might lead to liquidity issues down the road," he said.
While finding an investment channel for any new-found liquidity will be a problem in 2010, one piece of good news is that most credit unions appear to have adapted to the deteriorating credit environment. "I think credit unions have really looked at underwriting and made changes, and if they didn't make those changes they made changes to pricing," LeClerc said.
'Intensive' Reviews of Credit, Interest Risk
BAXTER, Minn.-Pam Finch, CFO for Mid Minnesota FCU and chair of the CUNA CFO Council, expects her peers and their staff to be "much more intensive" in their evaluations of credit and interest risk over the coming years as both board members and regulators step up the pressure on finding cracks in their portfolios and taking steps to repair them.
"Credit isn't done yet. Unemployment may be plateauing and may potentially trail off next year but delinquencies tend to lag that," said Finch. "We're in such unprecedented times, there is no history that can predict what will happen in the future."
Finch expects CFOs and their staffers to be "much more intensive" in their evaluations of credit and interest risk over the coming years as both board members and regulators step up the pressure on finding cracks in their portfolios and taking steps to repair them.
