MIAMI — Many credit unions looking for more ways to boost the bottom line in this low-interest-rate environment are running out of options.
"Most of the proactive credit unions have probably pulled the levers that they can in terms of enhancing the bottom line and now we're really down to options that are fairly minimal in their impact," said David D'Annunzio, CFO/VP of finance at South Florida Educational FCU here and chair of the CUNA CFO Council.
"I think at this point most credit unions have already looked at their fee schedules to make sure they're appropriate for their marketplace," D'Annunzio said. "They've gone through the review of their cost infrastructure, reviewed their staffing models, looked for opportunities to save percentages by renegotiating larger contracts and even looked at minor examples of cost savings.... It's hard to continue to find levers."
But some credit unions have found a few lesser-known levers to get around the protracted low-rate environment and boost their bottom lines.
One strategy employed by South Florida Education: bring in third-party negotiators to help renegotiate vendor contracts.
"Where we may have relied on internal expertise in the past to negotiate third-party contracts, now we're looking to see if third-party negotiators can help save expenses by being part of the process," D'Annunzio said.
Sonya Jaynes, CFO and strategic planning coordinator at Red River Employees FCU in Texarkana, Ark, said she is seeing an increasing number of CUs outsource vendor negotiations.
"I don't know how many [credit unions] are utilizing it, [but] I do know there seem to be more and more vendors out there offering that service," said Jaynes. "Just for that, I would think more and more are looking at it if they don't have the internal resources."
She added that while many of those vendors receive a percentage of the credit union's overall savings, most of the time "you still came out ahead, and you didn't miss those funds, because you would've been paying them out to somebody anyway. It can get expensive, but if you look at it in the sense of 'I'm still coming out ahead anyway,' it may not be that expensive."
Red River Employees does not use third-party negotiators to renegotiate contracts, according to Jaynes because the CIO handles most of these matters.
Bill Kennedy, CFO at Interior FCU in Washington, noted that even with third-party negotiators, vendors will still be looking to get something on their end of the negotiations.
"If the original vendors are willing to negotiate, wonderful," Kennedy said. "But I find it hard to believe that they're going to be willing to negotiate unless there's something in it for them like the credit union being willing to extend the term."
While most insiders and experts agree that the refi market has dried up, one CU executive noted that there are some lessons that can be learned from the last time that happened.
"You have to understand what portion of your mortgage revenue streams come and go, so that means looking back over time and seeing the peaks and valleys," said Jason Peach, SVP/CFO at West Community CU in O'Fallon, Mo.
"Since 2001 we've had three peaks and two valleys, and we're entering another valley now. When I look at our earnings and I follow the market, I don't think we're unique. Understand how much of that can go, and build an operating budget that can withstand that as you enter those down periods."
That's one reason West Community continues to focus on diversifying its revenue streams, according to Peach.
"When we believed refis would slow down like many did, we deployed a strategy to hire outside mortgage loan officers to start to build relationships with real estate agents, because that's a way to get front-end purchase business," he explained. "When refis slow, purchase activity grows, and if you don't have pro-active relationships, you don't get an opportunity to get those mortgages."
The $161 million-asset CU has also worked with John M. Floyd & Associates on its overdraft programs to maximize how the program runs, as well as ensure that it is both efficient and compliant.
Participations are also an option some CUs are exploring, said Interior FCU's Kennedy, pointing out that CUSOs, corporates and others are often willing to work with CUs on participations.
"I don't know if participations are on the rise, but a lot of credit unions are looking to get into that that haven't previously done so as another avenue to manage the balance sheet," he said.
Student lending was one avenue Kennedy pointed to as an option for participations, and he dismissed some recent comments from the Federal Reserve Board of St. Louis about fears of a student lending bubble.
"When you look at private vs. federal, with [private student lending] you have much more control over who you're giving your loans to and what schools they're going to. So there are parameters placed in there," he said.
Kennedy advised CUs to look online to find the default rates for various schools and then use that in their underwriting and decisioning process.
"You can check the default rates for each school, and your program can be tailored to that," he said. "There's a need out there for student loans. Unfortunately it's very expensive to go to school today, and students need to supplement their education borrowing with this type of product."
