GLENDALE, Calif.-A number of credit union CEOs said that looking into 2013 they are looking for controlled growth, even greater efficiencies, and to mobile banking to drive more business.
Several CEOs told Credit Union Journal that at least two of these strategies are necessary to be successful in 2013, noting the reasons are no secrets: ongoing paper-thin margins and deposit inflows.
Stuart Perlitsh, CEO of the $325-million Glendale Area Schools FCU, stressed how tight margins are now and how difficult growing net worth remains in a market of 2% car loans and 3% home loans and while NCUA assessments continue to drag down the bottom line. He noted third quarter Call Reports reflect some 29% of credit unions reporting negative income.
"I predict this will continue in 2013 because of the low interest rate environment," Perlitsh said. "Credit unions with high operating expenses and nominal net worth can expect to remain negative in 2013."
Perlitsh emphasized the importance of controlled growth as deposits keep rolling in, as did Laida Garcia, CEO of the Tampa, Fla.-based Florida Central CU. FCCU experienced 9% loan growth last year, but that robust number still could not keep pace with deposits. As a result, the $400-million Florida Central will slightly lower deposit rates, but will do so gradually to preserve strong membership growth.
Florida Central has grown members by 6% annually the last two years. "It's not full speed ahead," said Garcia. "It's more gradual growth and taking advantage of opportunities that make business sense for us."
The First Leg
As margins remain tight and it becomes increasingly difficult to lower deposit rates any further, several CEOs agreed that greater efficiency is even more imperative to bolster the bottom line. Jeff Disterhoft, CEO of the University of Iowa Community CU in Iowa City, Iowa, explained that his CU has done well during the recession by having a business model whose foundation is watching costs.
"Efficiency is the first leg of our business model. We try to run an extremely efficient shop," said Disterhoft, whose credit union boasts a 48% efficiency ratio and ROA above 2%.
The $1.8-billion credit union's business model relies on efficient operations to afford top-of-market pricing, which the CEO said leads to more growth. More growth improves economies of scale which then increases efficiency, he added. "It's a cycle."
A Changing Definition
Tim Ames, CEO of $70-million Heritage Valley FCU in York, Penn., says greater efficiency will help offset slow overall loan growth, and improved efficiency will come by expanding mobile services.
"Any financial activity related to the phone we have to be involved in," said Ames. "We can take a loan app via a mobile device and this year we will add mobile deposits. Obviously we are seeing fewer members walk into our branches and the sales of smartphones are way up."
Ames said the definition of good member service is changing with mobile's speedy adoption. "It used to be that the member experience was based just on how members are treated when they walk into the branch. Now a great deal of the member experience is about how good your mobile app is and how easy it is to use."
Helen Godfrey-Smith, CEO of the $90-million Shreveport FCU in Shreveport, La., said not only will a big emphasis on mobile this year extend her CU's reach and reduce costs at the same time, it will lower the average membership age. "Mobile will help us grow more efficiently, and in doing so we will naturally reach a younger member segment, big users of mobile technology."