BUENA PARK, Calif.-Adam Denbo, CEO of Agribusiness CU, is taking a decidedly sunny approach.
"It is great to be a credit union now-we don't have the problems banks do," he declared. "We are loving life and have to put our capital to work."
Denbo said the first step is to review "reality" on the CU balance sheet - and to do so by removing the provision for loan losses variable at the start.
If the income statement still is negative, then management will know where it should put its focus, he counseled. If income is positive other than the PLL, then Denbo advocates using liquidity and capital to make more money.
Liquidity is not "cash on hand" but rather a CU's ability to quickly "get its hands on cash," Denbo continued. He said credit unions should apply to their corporates for the highest-possible lines of credit. Many would benefit by joining their local Federal Home Loan Bank, which he described as "low-cost money."
"Borrowing is a good thing, and credit unions should be investing the money they borrow from their corporates, their members and other sources" he said, while acknowledging borrowing has potential drawbacks, including reduced capital ratio and/or ROA.
Indeed, one of the keys, Denbo suggested, is not to constrain yourself out of habit. "If a credit union thinks small, then it is small. Some 63% of credit unions with more than $1 billion in assets borrow, as do 72% of the top 50 credit unions, but only 4% of those under $39 million borrow. Most credit unions have high capital, so they should use it to make more money," he said.
Among the investment options in which Denbo recommends CUs invest their capital are: callable certificates, step-up certificates, agency bonds, and agency CMOs and MBS pass-throughs. In addition, he said CUSOs that include collaboration between credit unions are excellent opportunities.
"There are lots of ways to have partnerships with other credit unions, including shared staffing. And, credit unions should be owners of CO-OP Network," he insisted.
