The term “small credit unions” is relative. That said, even whentimes are good, the “small credit union” tends to face challengesin a way that “larger credit unions”, another relative term, donot.

Speaking from experience, the pressures on the small creditunion leadership looms large on a daily basis. The leadership mustbe intimately involved in all aspects of the operations. Regulatoryburdens alone loom large for the small credit union. Smallcredit unions have a more intimate relationship with their members.These smaller institutions are under a higher degree of pressure asthey assist their members.

Asset quality in small credit union has not changed over thepast several years. The net worth ratio remains robust. Navigatingthe economic uncertainty can be difficult. Negative trends catchthe eye of examiners, boards and management.

There are no quick answers here. With that said, however thereare common themes which are helpful regardless of asset size.

• Place negative trends in context. Make sure interested partiesknow how other credit unions are faring. Information will helpdirectors and management make informed decisions and transparencyreduces the likelihood of knee-jerk overreactions.
• Most small credit unions have plenty of capital. Avoidpenalizing members with higher loan rates. higher fees, lowerdividend rates, service reductions and layoffs just to maintain netincome. Analyze the impact of those decisions.
• Rising delinquency and loan losses require close monitoring andactive collections. Don't simply tighten underwriting standards.Revisit loan quality parameters. Analyze the remaining inherentrisk in the loan portfolio. Score the loan portfolio and analyzethe scoring migration.
• Mortgage defaults are on the rise. One mortgage delinquency ina small credit union can have a large impact. Develop a mortgagemodification policy and guidelines to assist the membership duringeconomic downturns.
• Avoid big strategic initiatives in uncertain times.
• Loan demand falls during economic downturns. Reliance oninvestments takes center stage. Investments yields are low so beconservative when placing investments. Be SLY (safety, liquidityand yield.) Build a basic ladder.
• Since market conditions are volatile, asset liabilitymanagement becomes more important. Set policy parameters on fixedrate mortgages. The Federal Reserve is out of policy options on theshort end of the yield curve. The Fed through quantitative easingis forcing mortgage rates down to historic lows. Market rates willrise at some point. Credit unions with large portfolios oflong-term fixed rate (rate insensitive) assets will pay a highprice (compressed NIM) in a rising rate environment.
• Engagement with third-party vendors requires additional cautionduring uncertain economic times. Have a robust vendor due diligenceprogram and policy in place.
• Stress to members and potential members that your deposits arefederally insured.
• Reduce to writing your plans and be able to communicate yourcredit union's tolerance for risk. The regulators will expect theleadership has considered where the credit union is financiallyheaded and there is a road map containing a reasonable achievableplan.

During times of financial dislocation, credit unions, regardlessof asset size, can show others the benefits of the cooperativemovement.

Edward Lis isvice president of finance at Fulton County Federal Credit Union inGloversville, N.Y.