LOMBARD, Ill.-With rising rates a distinct possibility in 2014, Gee Gee Kaufman cautioned that there are a couple of critical balance sheet drivers CUs and boards need to pay close attention to in 2013.
"I am not sure that enough credit unions are watching carefully the relationship between loan-to-share ratio and cost of funds," said the director of consulting solutions at Raddon Financial Group. "I talked to a CEO recently about justifying why, if the credit union has a 68% loan-to-share ratio, it has a 75-basis-points cost of funds. In other words, why would you be paying up for money when you can't lend it out at a reasonable rate?"
Kaufman said rising rates will place greater strain on ALM management and ALCO committees.
"From a strategic standpoint you have to take the mindset that your principal goal is to drive loan growth and that you can always get deposits if you need them by simply advertising a higher rate than your neighbor. I don't think this thinking has sunk in throughout the entire credit union community. Still, many CEOs view asset and deposit growth as principal drivers of successful strategies and business models."
Other Issues To Consider
Additional key planning topics, according to Kaufman:
*Share of wallet. "We need this on the deposit and loan side. It demonstrates how well engaged our members are."
*Stay true to your niche. "Don't try to be something you are not, no matter what other credit unions are doing."
*Non-interest income. "In a margin-compressed environment, as we are, fees are necessary. There are only three ways members contribute to the cooperative: depth of relationship, sufficient balances so the CU earns spread or fees. If members don't have the relationships or the balances, the only way they can contribute is to pay fees. Fees are not bad. Fees can change behavior and generate income."
