MADISON, Wis.-The numbers make clear how broad the gap is between the yield on investments and the yield on loans. Bridging that gap in 2012, notes one person, will come down to credit union staff.
Dave Colby, chief economist with CUNA Mutual, said that in the new year every CU management team must be focused on motivating employees and getting them to buy in to the necessity of making loans.
"Show them the credit union needs to lend to pay their salaries," he suggested.
Colby noted the Q3 2011 data for all credit unions showed the yield on an average loan was 5.81% while the yield on the average investment was 1.65%. Even after taking into account an average cost of funds of 0.94%, he said credit unions are making 400 basis points more on loans than investments.
"Show these figures to employees and tell them, 'We need to keep making loans to stay in business and keep the lights on'," he counseled. "It is everybody's job to sell lending solutions, not just the chief lending officer," he said.
Members' Perspective
While many CUs and their staffs remain hung up on being "nice" and "not pushy," Colby said employees should be taught to view the situation from the members' perspective: the CU owes an obligation to the members to give them the best possible financial solution.
"Whether it is rate or term, if the members' loans are elsewhere, the credit union probably offers something better," he said. "We can't wait around for Washington to fix things, we have to do it ourselves. One loan at a time; one member at a time."
Colby offered three tips to CUs:
One: Target Mortgages With Low Remaining Balances
Identify older members who have low remaining balances on their mortgages with another lender and allow them to refinance with the CU for a low fee. "The loan would be for a short duration, probably about seven years, so there is little duration risk and little collateral risk."
Colby noted O Bee Credit Union and BECU, both of the Seattle area, are examples of credit unions that have adopted this approach (See "Short-Term Mortgages, Long-Term Results," Credit Union Journal, Dec. 19, 2011).
Two: Change Your Mindset & Price Short-Term Loans While Looking At The Investment Alternative
Historically, CUs made auto loan rates at 6.5% and that was a good rate for its time. But today, Colby said, is a different world.
"If the credit union has to make a 1.99% new vehicle loan it still is better than making 0.39% on a Treasury," he assessed. "Credit unions have picked up a lot of marginal dollars through the door in recent months, but they can be a positive if they can be turned into loans. Just getting the bodies doesn't do anybody any favors."
Three: Get A Strategy In Place To Introduce the CU To New Or Inactive Members
Colby said this is for the many who joined a credit union in the Bank Transfer Day movement, but now don't really know much about their CU, or even those who only have had one account for years.
"A credit union is more than just low fees, it is low loan rates," he said. "Credit unions need to track the value of credit union membership and send those numbers to members on an annual basis. The report should be personalized: state how much each member saves, and point out they can save even more if they brought their loans to the credit union."
