BAXTER, Minn. — With so many things beyond their control-NCUA assessments, increasing regulatory burden, interest rates and others-CFOs will continue to turn in 2011 to one of the few things they can control: costs.
"We've been hit with so much regulatory burden-with the corporates, examination issues, the whole regulatory piece-that this is the top concern for CFOs," said Pam Finch, CFO of Mid Minnesota FCU and chair of the CUNA CFO Council. "Examination issues, and the inconsistency of exams, as well as all the regulations that are still coming down the pipe from all of the legislation that was passed [in 2010] means this is going to be a big deal for the next couple of years. Who knows what they're going to hand down to us next?"
Also vying for the top spot, however, is interchange income. "We have to figure out how we're going to supplement the bottom line and our net worth, when they continue to attack non-interest income," she noted.
That's closely followed by managing interest rate risk. "If rates stay where they are, then the loans we make now will still be on the books for a long time, as no one will be moving their loans through once those interest rates start to move up," Finch explained. "Managing interest rate risk is going to be a major challenge. Add in the assessments, which we know NCUA will be handing down, and you have a lot of things that simply are beyond our control."
That, she said, leaves cost-cutting as one of the few things over which credit unions still have some real control. The problem, of course, is that credit unions have spent the last couple of years desperately trying to cost-cut their way to success. The question, then, becomes at what point will such cost-cutting lead to anorexia at credit unions? "That is a real concern, how cost cutting can ultimately hurt the member," Finch related. "If we are going to promote our customer service and boast about the relationships we have with our members, we have to remember there's a cost involved in providing that kind of service and developing those relationships."
This is especially a concern since those costs have to do with the people who provide that service and develop those relationships, yet compensation and benefits packages are still typically the largest cost on the balance sheet and therefore the most favorite place for CFOs to sharpen their pencils, Finch observed.
Other areas that CFOs will be looking at include provision for loan loss and investment in new technology.
"What it's really coming down to is operational efficiencies," Finch offered. "Most CFOs have picked apart expenses line-by-line. They've already gone through the easy stuff, like renegotiating vendor contracts. They've already frozen salaries and hiring. Now it's time to start looking at the hard stuff: improving processes."
But picking apart existing policies and processes in search of more efficient, cost-effective methods has some soft costs of its own, she noted. "There's an emotional component to those processes, and getting people to change the way do things is not easy," she added. "You'll see some credit unions back away from that and really focus on the attack on non-interest income, with a lot of CFOs looking to restructure their products and services to make up for that."
Perhaps the only good news for CFOs is that their jobs likely are safe. "We are so involved right now, people are looking to us more than they have in the past," Finch commented.
"It's nice to feel needed, it's nice to be wanted. Of course, sometimes the messenger does get shot, but credit unions are really relying on their CFOs right now."
