What are next year's top issues for your CU?

What's in store for the year ahead? Rates will continue to drop, spreads will narrow, and the economic jitters won't go away just yet, say some credit union chief executive officers (CEOs).

Banks may be off licking their wounds or merging with each other, but they'll be back with a vengeance. And if you don't know what Y2K means, you're in trouble.

While there are a host of issues concerning CEOs, speculation over the economy is the hottest topic. "A lot of people have gotten used to a good economy," says Rob Holder, CEO of the $9 million asset Dowell Federal Credit Union in Tulsa, Okla. "It's been strong for several years. Any drop in the economy would be a tremendous blow."

But with the battle over H.R. 1151 fading, credit union executives say they're ready to meet any economic challenges thrown their way in the coming year.

"Right now the banking industry is licking its wounds and deciding which battle to fight next_" Holder says. "I'm sure it will be taxation-and all the same old issues that go along with it."

"I think all the bank mergers actually help credit unions. I don't see them as more competition. I see them as clearing a path for us. The larger the banks get, the better off credit unions are. Everyone wants to do business with someone they know. There are advantages to being small-being member-owned and having a real person there answering the phone. It's what people like.

"Our primary goal next year is going to be our membership. We hope to pick up new select employee groups. We have a couple of companies that have been waiting for the membership issues to be resolved.

"We're behind the times in product lines. We do consumer lending and share accounts. We're trying to offer debit cards in '99. Basically, our goal is to catch up on technology.

"We have a Web site and we have plans to expand it and make it more user-friendly," Holder says. "Right now, it just gives some rate information and explains who we are. We hope to get more forms online and make it more interactive."

Year 2000 (Y2K) fever is running high at Buffalo (N.Y.) Metropolitan Federal Credit Union. "Y2K compliance is the biggest issue right now," says Pat Edinger, CEO of the $35 million asset credit union. "We just hired a company to come in and do beta testing. We have to test with our data processor. We have to re-create days of business. We have to make sure that all the vendors we use are compliant so we can continue to do business in the year 2000. We're constantly testing our system here and with our vendors.

"This Y2K issue takes a lot of time, and it takes away from your job at hand. It's not going to promote new business or do anything for members, but it's something that needs to be done. It's having a great effect on employees because they're working overtime on this issue and trying to fit it in with all their other daily work."

Like many CEOs, Edinger is keeping earnings expectations modest. "When I do my budget, I always project 1% of my average assets, so that's what my projection will be for next year. I'll barely make 1% this year because of Y2K. I have a lot of overtime and equipment that needs to be replaced."

As for overall business trends, "We have to be careful about people coming in for consolidation loans and then filing bankruptcy. Debt is something that needs to be looked at. There should be some security there. Bankruptcy is getting out of hand. It's a license to steal. We've never sent out a preapproved credit card application.

"Our share certificate rates are pretty good right now. I don't expect much change there. We just had to lower interest rates on our share accounts from 3% to 2.5%. We've been at 3% for about five years. But that's the way the economy is going. You can't give out 6.25% 15-year mortgages and offer a 3% dividend.

"Everyone is worried about the economy with rates falling the way they have been. The ripple effect is the interest rates. They're dropping, dropping, dropping. You need to watch the market and see where it's going. You have to stay competitive.

"What happens if mortgage rates jump to 9% or 10% in a few years and you're sitting back with a portfolio of 7% yield? It would be difficult to stay afloat."

The economy is also a concern for Bob Harris, CEO of the $51 million asset Pacific Cascade Federal Credit Union in Eugene, Ore. But he's also looking over his shoulder for competition from other credit unions.

"Competition among credit unions is going to heat up," Harris predicts. "I'm already in a very competitive marketplace for credit unions. With H.R. 1151, it could be possible for any number of us to obtain community charters.

"If some credit unions do that, it's certainly going to change the competitive nature of our area as far as credit unions go. Our population base is right around 300,000 for this county, so it might be possible to look at a streamlined community charter. There are 14 credit unions in the county, and it wouldn't surprise me to see a few of those consider community charters.

"We're going to get more aggressive with whatever H.R. 1151 gives us. We're looking at hiring a business development person. Until the dust settles, we don't know how that's going to shape up. But we'll work to take advantage of any opportunities.

"In the long run, the public wins. If we're truly in it for members, then that kind of competition is healthy not only for credit unions, but for members, too. It's good for folks to have a choice of credit unions. "

Surprises may lurk elsewhere as well, Harris warns. "What surprised me the most about 1998 was our asset growth. We expected So/o to 6% growth, and it's been three times that. We might have been a little aggressive with our rates, and we've backed off that. Historically, our loan growth has been solid year to year, but because of low mortgage rates, refinancing has flattened loan growth. Our portfolio is no larger 10 months into the year than it was at the beginning of the year.

"Our rates were aggressive, but they certainly weren't the top of the market and the money just kept flowing in. And I wonder if part of that is that the strength of our membership is baby boomers. Are they becoming net savers? I know my savings habits have changed significantly in the past five years and I'm a baby boomer. If I'm saving more and spending less, then I suspect there are more people like me out there.

"If the same scenario continues in '99, we're going to have to pay greater attention to our spreads and our asset/liability management. Not that we don't, but, frankly, it's been pretty easy to make money in the past few years. But that environment is changing. So we're going to keep a closer eye on it through this next economic period.

"Longer term, we might find that our loan-toshare ratio is going to trend back down and we're going to have to find other ways to make the spread and provide dividends to our members.

"I'm fortunate in that my field of membership is a little sheltered. We have two tiers: government and health care. We're somewhat insulated from major economic problems. We're not complacent by any means, but I'm not facing layoffs and the kinds of things that would be affected by the Asian financial crisis.

"It's going to be an interesting time because I think some of us have been complacent. It's been pretty easy to build capital. I don't imagine our bottom line is going to be as healthy in '99 as it was in '98, but I don't expect it to be significantly lower."

Any New Year's resolutions?

Harris: "Continuing to be the best credit union we can be and remembering that we're here for members."

Edinger: "To make sure that everything works with Y2K and that my employees stay happy and healthy during this time. I have great people working for me here. It bothers me to see them get frazzled. I want to make sure my employees stay sane."

And Holder: "Keep members first. It's easy to get wrapped up in income and growing membership and new products. But the question we like to ask ourselves is, Are we serving members? Our main goal is keeping members happy."

Copyright Credit Union National Association, Inc. Dec 1998
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