DALLAS — Credit unions looking to bolster their bottom lines have a whole host of ways to measure just how profitable — or costly — various aspects of their business are, but they don't always have the right tools to do that all-important measuring.
"Credit unions need to be able to do full loan analysis, for example," suggested Tom Manley of ALM First, which offers financial advisory services to credit unions. "They need to know how profitable is this loan package, this mortgage portfolio, this indirect lending portfolio."
Being able to slice and dice those kinds of numbers allows a credit union to determine what products and services it may need to tweak as well as make decisions about outsourcing loan servicing, for example.
"There is no silver bullet, particularly in investments," observed ALM First's Emily Hollis. "Credit unions are doing a nice job diversifying their investments."
Where once credit unions may have relied only on one corporate credit union, they have not only branched out to work with multiple corporates, but they are looking at other investment resources, as well, she added. And once again, being able to monitor and measure exactly how those investments are performing for the credit unions — and what other options are available — is the key to maintaining a healthy investment portfolio.
One way to get more bang for the buck in investments, they suggested, is to take advantage of the cooperative spirit of credit unions. By aggregating the financial strength of a pool of financial institutions, credit unions can command better rates. "When you work with us, you have more clout," Manley said. "We become a virtual financial department for credit unions."
As credit unions continue to look at mergers as a means of boosting growth, the importance of measuring how a merger can — or can't — help both potential merger partners is vital.
"We have seen validation of the value of merging," Hollis offered, but noted that CUs considering such a move first need to determine that value. "What are the non-mature deposits worth? What will we look like as a merged entity? These are questions to ask before merging."
Manley agreed, noting that the true value of a merger is well below the surface. "If you dig deeper, you can see some of the economic benefits that don't show up immediately," he observed. "When you look at the cost to acquire a member [in your current field of membership] and then suddenly you are able to get into a new neighborhood, you get new veins of business."
And what of the much-vounted "economies of scale?" Sometimes that's not all it's cracked up to be. "You often can and do see more efficiencies after a merger, but that is not usually the case if you merge two mediocre credit unions and just move people around," Hollis advised.
(c) 2007
