CECL among hot topics at CFO Exchange

CECL among hot topics at CFO Exchange

Credit unions consider pricing and analysis strategies in a rising rate environment.

May 21, 2018

Participants shared ideas, concerns, and even a few frustrations during Sunday’s CFO Exchange at the 2018 CUNA CFO Council Conference in Austin, Texas.

Among the topics participants discussed:

  • Current Expected Loan Loss (CECL). Most credit unions continue to ensure they are collecting their data accurately and create different methodologies for each subset of their loan portfolios. Shari Weber, chief financial officer (CFO) at Honor Credit Union in Berrien Springs, Mich., says her credit union has modeled the Weighted Average Remaining Maturity (WARM), which is relativity simple compared with other methodologies.
  • Deposit pricing strategies. Right now, members are spending more than they’re saving according the participants. Many credit unions are offering checking accounts with interest rates as high as 3% that require a balance of $10,000 to $25,000 and a certain amount of debit card transactions each month to offset the credit union’s cost of funds.
  • Rising rate strategies. One participant says his credit union is investing in short-term securities as one way to offset rising interest rates. Other participants say they have found it hard to raise interest rates on auto loans. One participant estimates his credit union loses 25% in auto loan production for every 25 basis points in increased interest rates.
  • Loan profitability. Determining the profitability of loans can be difficult when you try to integrate the cost of fund and employee costs, participants say. Steve Arbaugh, CFO at SECU, Linthicum, Md., says it’s worth the effort. “Even if you have to make some assumptions you should be doing something,” Arbaugh says. “It gives you a better understanding of your loan portfolio."
  • Branch profitability. Branch profitability continues to be a challenge for credit unions, especially in assessing overhead costs as more members use online and mobile services. Amber Stevens, of KALSEE Credit Union in Kalamazoo, Mich., says her credit union has created a branch scorecard that ties productivity to profitability. Employees are measured by the quality of interactions they have with members that enter branch rather than simply tying a member to a branch. “I don’t think there’s a single scenario for branch profitability,” Stevens says. “It depends on how your credit union defines it."
  • Data analytics. Participants are still in the early stages of using data analytics, but they understand the promise that it holds. “We need to think more like technology companies,” says Ed Connelly, CFO at Sigan Financial Federal Credit Union in Kensington, Md., “For example, if you gain an understanding of a member’s spending at the account level, you can predict where that next loan or product is going to come from.”
  • Liquidity and cash forecasting. Participants say NCUA examiners continue to push for 10% liquidity ratios during examinations, but through a patient, and diligent “education process” that identifies contingency sources and forecasting models credit unions have been successful in getting examiners to OK lower ratios.

Visit CUNA News for more conference coverage, and get live updates on Twitter via @CUNA_News@cumagazine, and @CUNACouncils, and by using the #CFOCouncil hashtag. Learn more about the CUNA CFO Council, a member-led professional society for credit union executives, at cunacouncils.org.