While the second half of 2014 may be foremost in many CU executives' minds right now, some observers say that it's what lies beyond 2014 that may be most important to focus on.
Many CEOs and CFOs have acknowledged what a gradually improving economy means for the bottom line, particularly when it comes to interest rate risk. CU Journal asked several credit union executives to offer their predictions for what lies beyond 2014.
1. How Improving Economy Could Prove Challenging
One CFO is warning that an improving economy could also have a serious impact on credit union employment trends.
"I think you're going to see that credit unions have been pretty lucky in some ways to keep their payroll down," said Bill Kennedy, CFO at $149 million Interior FCU in Washington. "I think when the economy changes and gets better, you're going to see some of your good employees wanting increases in pay. And there might be an outflow of staff. You could lose some staff because they've been sitting tight. When the economy turns, the good people might start looking for better salaries," and they may not care whether or not that salary is coming from a credit union.
The good news, added Kennedy, is that this trend may be a ways off, and he predicted that it won't really begin until interest rates start to rise. He added that many credit union executives at the C-suite and in senior-level management positions may begin to think seriously about retirement around that same time.
"We're going to see more of an exodus of senior management," he predicted. "There's the entry level people who will jump and then a senior level who are looking to move on and retire once the economy improves and they can afford to do so."
2. Long-Term Excess Liquidity
On the other hand, David D'Annunzio, CFO at $876 million Miami-based South Florida Educational FCU and chair of the CUNA CFO Council, noted that the long-term, low-rate environment has led to increased competition among credit unions, even as the overall lending picture improves.
In the meantime, however, "most financial institutions are sitting on a lot of liquidity that they'd love to put to work in a loan portfolio, so the competition is just going to continue to be very fierce," he said. "However, if you look at economic indicators, it would appear that certain types of borrowing are picking up again."
D'Annunzio cited rejuvenated purchase mortgage markets in Charleston S.C., Miami and elsewhere, pointing out that improvements in home valuations have led to an increase in home equity loans, as well as the auto market.
"Purchase money [for mortgages] is starting to come into play again, the auto industry is coming up, lines of credit and other options are showing some modest signs of improvement — but it's just modest," he said. "We're not seeing anything like a wholesale shift in the economy and people's approaches to borrowing. I think [the industry is] going to be sitting on excess liquidity for a long time."
3. Mobile Payments On The Verge Of Breakthrough
While the liquidity situation might not change anytime soon, one CFO pointed toward one breakthrough that many have said is long overdue.
"The [mobile] payments landscape is challenging, because you've got a lot of players out there that have not been able to really come together on standards, so I think there are a number of folks still working on it," observed Jason Peach, SVP/CFO at $161 million West Community CU in O'Fallon, Mo. "There could be a breakthrough there in 2015 — we've been talking about it for a while."
The other good news, according to Peach, is that there may not be a bubble anytime soon, including the student lending bubble that some have predicted.
"I don't see a lending bubble, per se," he said. "I think the challenge is that we're having to lend at such low margins. If we can lend a little long and lend to some middle credit tiers, that's where we want to be, but reality is there's a population we're still serving at very low rates."
