Aim, Fire: Understand Your target

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SCOTTSDALE, Ariz.-It's pretty straightforward when it comes to credit unions and their bottom lines, stated Mike Kohl: Determine the products that are the most profitable and promote the heck out of them.

The CEO of Kohl Advisory Group said that important profitability management principle is often overlooked as credit unions "go about measuring the profitability of branches and members, but kind of forget about their products. It should be the other way around. A product can make money or lose money. But a member or a branch cannot make money or lose money for the credit union unless a product they acquire or sell, itself, makes money."

Kohl acknowledged that first mortgages can have the greatest impact on the balance sheet, but should not make up more than 25% of the balances on the books to avoid interest rate risk. Mortgages should be in fixed rates, and not ARMs or hybrids, because all the credit union accomplishes by offering those products is giving away a lower rate, he believes. "Members refinance as soon as rates go up," Kohl pointed out. "So you take your couple thousand dollars of origination expense and have to write it off in couple years."

If credit unions sell first mortgages to limit interest rate risk, they should retain servicing to keep the loan, in members' minds, at the credit union, he added. Kohl also placed checking accounts and credit cards high on his list of products to push. "If the credit union promotes checking, they need to do it with direct deposit. If they give away a 50-basis-point loan reduction for opening a new checking account and do not require direct deposit, they have just wasted their time because that account will just sit idle."

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