During its search to identify the most pressing issues facing credit union chief financial officers (CFO), the CUNA CFO Council’s Communications Committee identified five key trends facing finance in 2013:
1. Purchase-and-assumption transactions. These instruments will grow in importance, requiring extensive education and communication efforts to minimize service disruptions for new members.
2. Data analytics. Credit unions should take advantage of soft ware that analyzes the huge amount of data they have on members and their loans. Doing so provides an invaluable tool for members of senior management as they create strategies and make decisions. Predictive-modeling can speed up loan decisions and provide more confidence in risk-based pricing decisions.
3. Loan participations. The challenge of lending in today’s economy, combined with weak investment returns, are driving CFOs to get more involved in loan participations.
4. Surplus funds. Historically low interest rates are putting a strain on asset yields, requiring spot-on funding strategies to manage and improve gross spreads.
5. Asset/liability management (ALM). CFOs should resist the temptation to extend investment maturities or invest in unfamiliar instruments to boost yield. Interest rates and yields will increase eventually.
Let’s take a closer look at these five trends.
1. Purchase and assumption
Getting a call from your regulator usually means an upcoming exam or a complaint. But sometimes regulators simply need your help—such as when NCUA plans to liquidate a nearby credit union.
Purchasing a failing credit union’s assets could be one of the most important transactions your credit union makes. But typically there’s a short window to perform due diligence, develop a bid, and make it happen— all while keeping it secret. Aft After all, this isn’t a merger of equals.
Reasons to consider a purchase-and-assumption deal are unique to each acquiring credit union. But remember: You don’t have to acquire everything. Consider taking on only what makes sense for your credit union’s situation.
If the credit union being liquidated serves different geographical areas, there might be an opportunity to carve out deposits and other assets from your geographic area. This allows other credit unions to take on assets best suited to them.
There’s nothing wrong with cherry-picking the best assets, such as bidding only on high-performing loans. Some loans aren’t worth the headache at any price.
Bid only on the buildings or other fixed assets you want. The same holds true with deposits and services such as an ATM network or credit union service organization. The bid must make sense for your credit union.
Once you submit your bid, it’s time to prepare your team. You could have less than 60 days from bid acceptance to assumption, which means your staff will have to be innovative and come up with creative solutions.
At this point in the process, you should have determined your conversion game plan. Do you have the necessary expertise in-house or will you outsource? Don’t underestimate the expertise and time needed to coordinate all of the activities related to the project.
Are your vendors nimble enough to perform quickly? Be creative and explore your options.
Staff must be able to improvise—processing outstanding items can be challenging and automated clearinghouse routing sequences could be useless.
News of the acquisition will surprise your new members. Be prepared for plenty of misinformation, and train your branch and call center staff accordingly.
Remember, not all members read the communications they receive. They might blame any service disruptions on you. Be patient and flexible, and have processing contingencies in place in case your plan doesn’t work.
NEXT: Data analytics