CFOs: Thin Margins Putting Focus On Expense Management
The eyes of the credit union community are increasingly on its chief financial officers.
The reasons are simple: margins can't be sliced much thinner, with less-than-desirable net interest margins and the flat yield curve, interest rates on long and short-term investments are nearly identical. That has put the pressure on CFOs to find new opportunities for generating revenue. Add the rising cost of healthcare and base salaries (and just about everything else), and managing operating expenses isn't getting easier.
Needless to say, the CUNA CFO Council will be busy this year. According to a bi-annual survey of its members, expense-management issues are the hot topics to address this year. The council will work with various areas of CUNA's professional development center to provide the best resources possible for its members.
"In today's environment, it's very critical that those two areas get together and work together," said Brian McVeigh, CFO Council Chair."
The same is true of CFOs with their respective credit unions. As number-crunching becomes more imperative, CFOs are feeling a greater need to partner with other business units within their organizations to find revenue in ways that have the best impact on the members, said McVeigh, SVP/CFO with State Employees Credit Union in Michigan.
"As the margin has suffered from the rate environment and the competition, there is a trend toward fee-based services, but it has to be approached in a way that delivers value to the member. We're not just going to fee them because we need to find money," said McVeigh.
Factors that have to be considered on a fee-based service include whether or not the competition is charging and how often the member is using the product or service. According to McVeigh, the trend is moving away from how much the member has in terms of balances.
That no doubt affects any profitability models in place- another area in which CFOs are turning to others in their organizations for input. "I think ideally it's a joint effort," McVeigh said. "If you don't have the buy-in from all disciplines, there's a good chance you're going to miss something critical. There are enough assumptions to be made that you have to warrant involving other people."
It wasn't too long ago that the word profitability was frowned on by many credit unions. McVeigh said most are now embracing it. "Credit union executives have started to understand that we are not for profit, but we are a trust-based institution that has to establish a built-in safety net called capitol. We have to earn something to establish that capitol. It's okay to earn that profit as long as we pull back the reigns before we fall into the mindset that more is better," said McVeigh.
The question is, where do they find that balance between revenue and expenses in the current rate environment? McVeigh said it depends on the needs of each credit union and each organization is unique.
To educate its members on these issues, the council uses a combination of efforts including an annual conference, several white papers annually and an e-mail listserv.