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Financial challenges and opportunities | CUNA News
Credit risk and margin compression are two of the biggest challenges facing Brett Fisher, chief financial officer of $1.5 billion assets. Skyla Credit Union in Charlotte, NC, and a member of Credit Unions of America Financial Council Executive committee.
It offers insights into these and other challenges, opportunities for the year ahead, and the importance of communication.
America’s Credit Unions: What’s Happening at Your Credit Union Right Now?
Brett Fisher: Some things are at the top of the list. We transitioned to contactless debit and credit cards in 2024 and to a new online banking tool in 2023.
We continue to expand our digital offerings for members. This will include a review of new account opening platforms and loan origination systems; provisionally in the second half of 2024.
We completed our second recent merger in 2023 and continue to work on culture and merging the best components of each credit union.
We rebrand at the end of 2022 and are actively focusing on brand awareness and expansion.
Q: What are the biggest financial challenges you currently face?
A: Credit risk. The abrupt increase in industry credit risk certainly catches our attention. Skyla was not immune to the changes in credit risk experienced through loan charge-offs and deposit fraud.
Changing credit risk expectations under a current expected credit losses (CECL) is a first for our industry, so we are as curious as anyone about how quickly loan loss reserves should adjust to new conditions.
The unique phenomenon at play is that many economic characteristics remain positive, including traditional benchmarks like unemployment. Therefore, traditional economic metrics cited in CECL’s qualitative and environmental considerations may not adequately predict the evolution of credit risk.
No credit union is immune to current or projected forecast adjustments, even if the adjustments simply consider changing industry trends.
Another challenge is margin compression. The industry has benefited from margin expansion for years, but escalating deposit rates and, more importantly, the migration of equities to higher rate certificates is catching up and directly affecting margins.
Therefore, certificate concentrations and related interest expense represent a growing challenge for both Skyla and our industry, especially as members consider renewing certificates or look elsewhere for better rates.
Q: What challenges do you see on the horizon?
A: Certificate renewal. Pressure for certificates in 2023, especially late in the year as rate premiums have risen, will come back into focus when expiries arrive.
Many credit unions have followed the yield curve and therefore targeted short-term certificates, many of which will expire at the end of 2024. Depending on the rate environment at the time and liquidity needs, credit unions may be forced to increase fees once again to hold deposits that could be quite volatile.
Plus, regulators and so-called “unwanted fees.” The NCUA now requires credit unions to report overdraft fees and insufficient funds. Regardless of how justified a credit union may be in its position to offer and charge fees for such services, the NCUA’s order will open the industry to the potential for negative public perception due to distorted social media messages.
Negative perception may force credit unions to respond in a way that could reduce services offered to members, especially those in need of personal liquidity protection.
Restructuring services can have adverse financial consequences for non-interest income, but also impact credit risk, as credit unions may need to change and/or eliminate overdraft protection and, with it, lifeline members desperately need.
Another challenge is relevance. Skyla’s mission is “to help make your possibilities a reality” and our vision is to “build financial freedom for everyone.” The open nature of our mission means we are constantly seeking to align products, services and rates to best position members for financial success.
This means we must remain relevant to our members’ expectations. Although it is difficult to define the direct financial impact, it is a constant challenge that we must face, crossing technology with member demand.
Q: What opportunities do you see for 2024?
A: Deposit management. In an effort to offer more succinct and deliberate products to our members, we are revising our checking accounts in a way that better appeals to our members.
We believe that by offering a premium rate checking product in a way that limits interest expense, we will better appeal to new account acquisition and capture some time deposits.
We are also on a continuous search for ways to improve operational efficiency. As margins shrink, the industry may have to focus on improving efficiency to maintain profits.
Q: What advice would you give new finance leaders?
A: Never assume you have the right answer. We are surrounded by so many talented leaders in our industry and within the walls of our credit unions. I am a “learner” according to Clifton Strengths and am always eager to seek new perspectives and processes to improve myself and my credit union.
Financial professionals may not be the favorites in the room, but we are typically highly respected. Be comfortable providing difficult information directly and succinctly.
Communicating is the most challenging part of my job. Knowing your audience is key to delivering information in a way that increases retention. A wise colleague once advised me to have A, B, and C level answers for every topic, knowing that your “smartest person in the room” answer is rarely the best path.
Q: What do you like to do in your free time?
A: Free time is a rarity as I have two young children with active lives. I’m an avid car enthusiast and I always feel more accomplished at the end of the day if I exercise at some point.