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credit union strategic planningToday we have a special treat. We're bringing you a guest blog post from our friends over at Credit Union ResourcesDean Borland, SCMS, CUDE, VP Product Assurance, presents some great insights about the strategic planning process.


It still feels like summer but it must be fall; baseball is winding down, football is winding up, ragweed is in full bloom, and strategic planning season is upon us. Even though the planning season is just getting into full swing there are already some emerging trends you might want to consider as you start thinking about your credit union’s future.

credit union strategic planning2Overall, profitability has improved since the depths of the recession. However, profits have increased more for large credit unions than for small-to-mid size credit unions. It is becoming increasingly difficult for small-to-mid size credit unions to post a solid bottom line. Although all credit unions are different, many small-to-mid size credit unions are experiencing similar issues.

Expense ratios are down, but not necessarily expenses. Many credit unions point to personalized service as their greatest attribute and market differentiator. Unfortunately, staffing costs are typically the largest single expense on the credit union balance sheet. If high expense is standing in the way of producing a solid bottom line, turning back the thermostat and reducing copy paper usage will not be enough to fix the problem. Addressing operating efficiency (and headcount) will be necessary to make significant expense reductions. Or, you have figure out how to generate enough income to pay the bills and have something left over for the bottom line at the end of the month.

Gone are days of marketers promoting “free” or “no fee” this or that. The truth is that non-interest income is necessary to pay for the services credit union must offer in order to compete, things like home banking, electronic bill payment services, remote deposit capture, or mobility without checking account fees. If you have not looked at your fee structure (and the rate at which you actually collect the fees you disclose) in two years, it is time to make an assessment.

Car loans are credit union’s “bread and butter,” or at least they used to be. Auto loans outstanding have been declining for most credit unions since 2008. New car sales slowed in 2008 through 2011 as consumers opted for more affordable used cars. Credit union portfolios reflected the shift with fewer new car loans and growth in used car loans. But the average used car loan amount is significantly lower than the average new car loan so many credit union loan portfolios declined as old loans rolled off the books.

Fast forward to today. New vehicles are virtually flying off dealer lots. I recently heard that a new Ford F150 pick-up is sold every 40 seconds. Unfortunately, very few credit unions are getting a respectable share of the new auto financing market. The truth is, financing has become part of the actual purchase process. If you are not represented at the point of sale, it is difficult to be in the lender of choice. This tends to explain why the largest credit unions are seeing growth in new auto loan portfolios and small-to-mid size credit unions are not – the big guys have indirect auto lending programs. It is increasingly looking like credit unions will have to get involved in (and good at) indirect lending or find something else to build their loan portfolio on.

Risk tolerance is another consideration that affects the bottom line. Regulators worry about risk; that is what regulators are supposed to do. They are the stewards of the deposit insurance fund and generally oppose anything that raises the risk posed to credit union safety and soundness and ultimately the NCUSIF. Regulators like credit unions to make “A” paper loans because the risk of loss is minimal. However, margins for “A” paper are razor thin and an “A” paper borrower can get a loan anywhere. Of course, MANY of your members are NOT “A” paper credit risks. If you pride yourself in being an “A” paper lender with high asset quality and a low loans to assets ratio you have some strategic thinking to do. What percentage of your members are you actually serving with your loan policies? Can you extend your risk tolerance to serve more of your members, make more loans, and increase revenues (assuming you have risk-based loan pricing policies)? Do you have the expertise, policies, and processes in place to underwrite, close and collect higher risk paper? If not, what will the credit union have to do to serve mid-to-low tier borrowers?

Whether your objective is to grow assets while maintaining financial soundness or just become more profitable, strategic planning is a necessity. Do you need to trim expense? How much? Does income need to be enhanced? How much incremental income do you need and from where will it come? What unrealized opportunities exist today, or may emerge tomorrow, that could help your credit union become more profitable while better serving your membership?

It is fall, time to put on your strategic thinking hat and plan for the credit union’s future.

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