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Learn from the Past, Prepare for the Future
Friday, December 8, 2017 6:40 AM

Chris Shipman, CFP, Advisor, Catalyst Corporate FCU

As we enter the holiday season, most of us have wrapped up our strategic planning and are looking forward to eggnog, holiday treats, and a little down time before the hustle and bustle of the New Year. December is a great time for us to stop and reflect on what we faced throughout the year, but it’s also a good time to take a moment and reflect on a few items that sometimes go overlooked as we plan for the future:

Lending Analysis and Review.
Lending is one of the largest drivers of credit union earnings. It is paramount that we review loans booked over the past year, assess the quality of those loans, and determine if lending practices could be refined to help increase earning potential in the future.

During the year, credit unions often get so busy booking loans that they fail to look at what drove growth. Did you add more “C” than “A” or “B” paper? Perhaps real estate loans outpaced member business loans this year? How did your unsecured loans perform relative to historical trends? Of your vehicle loans, what percentage was allocated to indirect versus direct loans?

When establishing lending goals for 2017, did you anticipate and plan for growth in these segments? Was the credit union appropriately compensated for the credit risk taken in your lending portfolio? Did you adjust rates based on loan demand? Did your lending rates increase along with any increased deposit rate demand? What lessons did you learn in 2017, and how can they be applied in 2018 and beyond?

Be intentional about the course and direction. Understanding what drove loan growth and how to plan for it is important for the future of your credit union.   

Policy Review.
Policies are guidelines and should be vetted at least annually. Often, the credit union’s business evolved from dated policies that aren’t reflective of current and future opportunities.

Try to review all policies in conjunction with the credit union’s strategic planning session. Review provides an opportunity to ensure that strategic planning forecasts do not inadvertently violate any limits, and it helps create a road map you can follow as you continue to move toward your goals.

Review, debate, and adjust your policies where needed. Look at the credit union’s interest-rate risk, investment, lending and ratio limits, contingency liquidity plans, approved brokerage lists, borrowing sources, and personnel.

A sound, up-to-date set of policies is invaluable to the board of directors, the ALCO, and NCUA.

Balance Sheet Cash Flows.
Growth in lending is one the biggest drivers for deposit needs. But, when deposit growth slows and lending continues, a solid cash flow stream is vital. A credit union should develop forecast scenarios on loans and investments to prepare for potential liquidity gaps. Strategically placing loans and/or investments to help fill those gaps will ensure a constant stream of capital to help fund future needs.

As shown in the charts below, it may take some work, but filled gaps can turn an irregular cash flow ladder into a regular cash flow ladder.

Credit unions need to have a plan in place to help manage current and future opportunities. It requires taking an honest look at business over the past year and making adjustments where needed. As we enjoy the holiday season, take time to reflect upon your victories, learn from past mistakes, and apply the knowledge from both for continued success in the New Year.

Catalyst Corporate Federal Credit Union is a five-star endorsed business partner of Credit Union Resources, Inc., a wholly owned subsidiary of the Cornerstone Credit Union League.