BOSTON — How much net worth does a credit union really need? The figure is different for every CU, but one CFO cautions it's important to analyze the CU's risks in order to answer the question.
Dan LeClerc, CFO with the $176-million Lacamas CU in Washington State, said CUs must be willing to consider a wider range of risk scenarios than they have in the past, and across the full spectrum: interest rate risk, liquidity risk, credit risk, operational risk and regulatory risk.
LeClerc urged credit unions to create a strategic net worth requirement between 8% and 10%. Once completed, he stressed getting out of the comfort zone when planning for everything that could put a stress on plans. "I never would have thought my membership capital at a corporate was at risk," said LeClerc. "So you have to think about everything when you're going through your risks."
Other risks LerClerc cited for "what if" scenarios:
- Decoupled debit cards.
- Other corporate costs moving forward.
- "What if in 2011 there is 9% inflation?"
- Potential mergers and affect on net worth.
- "What if 75% of cars purchases are bought online and there is no more dealer interaction? No more financing, no more direct lending. What would that do to your credit union?"
- "What if your mortgage origination dried up because someone developed a business model that does 30-year mortgages, no origination fees, and is easy to do?"
Also keep in mind that when building net worth you are taking money out of members' pockets.Like the California league's Matt Davidson, who also discussed net worth issues, LeClerc noted that "operating expenses are where the tough decisions are. You need to look at salaries and benefits; it's the simplest ways to make an impact, just not the easiest."
Other issues:
- Marketing. "I do believe in investing in marketing. But you need to be efficient in your marketing; are you tracking ROI on marketing? Is it being calculated? Are you tracking advertising to see if it makes sense?"
- Operations. "A big one is closing a branch, but another way to look at branches is if you were going to start your credit union today would you put your branches where they are today...Another item is how efficient are your branch hours?"
- Service contracts. "Do you really need them? Can you renegotiate. Some vendors might be willing to lower rates to keep the relationship, or switch vendors.
