A Bend in the Road Is Not the End of the Road...Unless You Fail to Make a Turn
In today's legislative and economic climate, the credit union industry is facing myriad unknowns. The recent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, with the creation of the Consumer Financial Protection Bureau, looms large on our horizon, and many of the implications remain to be defined.
In addition, we are facing two significant assessments from the NCUA. The first is the already announced Corporate Stabilization Fund expense of 13.4 basis points; the second is the assessment to replenish the National Credit Union Share Insurance Fund, which as of this writing has not been finalized. Both will have a significant impact on credit unions' bottom lines, and NAFCU continues to work diligently with the NCUA to minimize the impact of these two assessments on credit unions. Specifically, NAFCU successfully collaborated with the NCUA to secure legislation allowing the agency to spread the corporate stabilization expenses over seven years, giving credit unions some welcome relief.
Of course, given all these factors, it is not easy to be optimistic. Nonetheless, I believe that is precisely what is required. In order to successfully manage the twists and turns of the current business environment, we have to look for the opportunities that our existing challenges provide. As leaders of our industry, we must embrace change and create a new vision of future success. Alexander Graham Bell once said, "When one door closes, another opens; but we often look so long and so regretfully upon the closed door that we do not see the one which has opened for us." ?Indeed, there are some bright spots in our economy, including:
Corporate profits have been rising to a level not seen since 2006.
For the week of Sept. 4, the advance figure for seasonally adjusted initial claims was 451,000, a decrease of 27,000 from the previous week's revised figure of 478,000. The four-week moving average was 477,750, a decrease of 9,250 from the previous week's revised average of 487,000.
Consumer spending rose at a 2% annual rate in the second quarter, slightly higher than the first quarter's 1.9%.
The Institute for Supply Management's factory index rose to a three-month high of 56.3 from 55.5 in July. A reading of more than 50 generally signals growth.
From the credit union perspective, we, too, have some encouraging indicators.
Net worth has held stable around 9.9% for the past three quarters and actually inched up slightly in the second quarter from the first quarter.
Credit unions are managing expenses more wisely. Net operating expenses as a percentage of average assets decreased from 2.985% in June 2009 to 2.51% in June 2010. Aggregate delinquency and charge-off ratios inched lower in the second quarter.
Credit unions' return on average assets is up. In the second quarter, ROA was 0.41% compared with 0.27% for the same period in 2009.
Despite a 2.9% decline in the first quarter, unsecured credit card loans grew 1.7% in the second quarter. Used vehicle loans also grew 1.7% in the second quarter.
Additionally, we may also take comfort in the fact that there are companies that have withstood similar trying times and are finding an open door with renewed strength and vigor. Starbucks, the coffee retail giant, underwent a major upheaval in 2008. Though it required letting go employees and closing locations, today Starbucks has rebounded thanks to clever reinvention through customer reward programs, free Wi-Fi and a variety of new foods and drinks. The Ford Motor Co., which had been a bankruptcy candidate when car sales dropped dramatically in 2007 and 2008, was the only company of the Big Three automakers to stay out of Chapter 11. Today, Ford has improved market share with a new line of cars and trucks, and it may become the No. 1 U.S. car company between now and the beginning of 2011.
I believe we can do the same for the credit union industry. We can explore the opportunities to deepen our relationships with existing credit union members and attract new members with different products and services. Credit unions can pursue new methods of communication and engagement, including social media, online banking and iPhone applications. Technology has afforded us many low-cost, high-impact ways of reaching members. In fact, there are many ways to connect with members. For some credit unions, it may be the bundling of accounts, others may provide free checking for members with direct deposit, and still others may offer a new credit card program or free financial education programs for members and nonmembers in the community.
I recognize there are many issues that remain to be resolved, including relief from the member business lending cap, addressing alternative capital needs, the disposition of legacy assets and the restructuring of corporate credit unions. Yet, I believe the keen management skills that have served us well over the years, as well as our prudent business model, will help us successfully navigate this winding road and arrive exactly where we want to be.
We must continue to innovate and redefine ourselves to not just survive but thrive in this new competitive environment. As NAFCU's new chair, I welcome the prospect of being part of these efforts.
Michael N. Lussier is chair of NAFCU and president/CEO
of Webster First FCU, Worcester, Mass.
He can be reached at 508-671-5051 or