Credit Unions Can Expect Tighter Margins, Say JMFA Execs; Consultants Advise Managers on Survival in a Low-margin Environment

Share Article

On Sunday in San Antonio, the attendees at a conference of the Defense Credit Union Council, which represents military and civilian personnel of the U.S. Department of Defense, hear from two experts on strategies to endure the tightening profit margins. Dick Miller and Jared Cahill of John M. Floyd & Associates in Houston, provide statistics on the tightening margins and survival tips --including non-interest income ideas -- "the quickest value" --, attention to productivity, optimizing human capital cost, and lowering operating costs. JMFA serves the rull range of financial institutions, making this story also applicable to banks, S&Ls and thrifts.

(ADVANCE FOR RELEASE, Noon, Sunday, 8/6) Managers lacking a strategic plan to respond to tightening margins can expect to endure shrinking bottom lines for unforeseeable quarters, two leading financial consultants told Defense Credit Union Council (DCUC) executives today.

Jared Cahill, Director of National Alliances for John M. Floyd & Associates, Inc. (JMFA) of Baytown, TX (near Houston), and Dick Miller, JMFA Executive Sales Director, addressed the DCUC Conference 2006 at the Marriott San Antonio Rivercenter (Aug. 6-9). Miller, who supervises sales efforts in 22 states, and Cahill spoke on “How to Survive in a Low-Margin Environment.” (Cahill photo: ; Miller Photo:

The Council is an organization of credit unions whose membership consists wholly or in part of personnel of the U.S. Department of Defense, both military and civilian. The Council is comprised of 255 credit unions with more than 14 million members. JMFA is a corporate partner for the Conference – themed “Partners for Life” – which attracts about 300 credit union managers, board members and industry vendors. (JMFA is at Booth # 17.)

Miller, who joined JMFA after a 23-year career in banking, has a broad base of management experience, having served as Chief Lending Officer and President of various small and medium- sized financial institutions. He and Cahill possess a unique understanding of how financial institutions can assess their weaknesses and capitalize on their strengths.

Credit Union Competition & Survival

Cahill and Miller took their audience on a statistical tour, noting that the Treasury yield curve has flattened, which portends tighter margins for credit unions.

“If short-term rates eventually exceed long-term rates, an inverted yield curve is produced, which can be detrimental to the overall health of the economy,” Cahill said. “A recession will typically follow by about nine months. Additionally, rising interest rates reduce overall loan demand.

“Margins are getting tighter; asset and liability pricing elasticity is declining, and competition is getting stiffer,” he stated. “As short-term interest rates rise, credit union bottom lines will be squeezed ever more tightly, requiring some of them to reshape their asset/liability portfolios, to boost non-interest revenue and to invest in developing a sales and service culture that better markets and cross-sells products and services to their members and potential members.”

Cahill is a former vice president of the Credit Union Assn. of New Mexico subsidiary that develops, markets and manages fee-based services to that state’s credit unions. He also organized, chartered and managed the community-based Saguache County Credit Union in Crestone, CO, from 1994-2000. He previously provided merger, acquisition and consulting services to mid-market companies and individuals, and was a V.P.-Commercial Lending for MBank Dallas, N.A., where he managed a $300 million commercial loan portfolio.

Bottom Lines Need Fee Income

“One of the specific challenges in the past six or seven years has been the ability of spread income to generate a positive bottom line,” Cahill observed. “In other words, credit unions have experienced an increasing reliance on fee income to break even. From 1990 to 1997, (ROA) less non-interest income ranged from about 0.2 percent to 0.6 percent. However, since 1998, ROA less non-interest income has been very close to zero, and in both 2003 and 2004 was actually negative by -0.2 percent.

“Based on the economic outlook and rate trends for the past two economic expansions, credit unions may be looking at an average reduction in their 2005 ROA of 46 basis points or 0.46 percent,” he concluded.

Quoting from CUNA’s 2005-2006 Credit Union Environmental Scan (Escan), the leading strategic planning resource for the credit union movement, Miller stated: “Strong core deposit competition from banks and other non-bank financial institutions will lead to additional pressure on funding costs during this rising rate environment.”

Miller suggested that credit union executives should be “less concerned about peers and more anxious about competitors. And consolidations and mergers are only driving up the ante,” he added. “To survive and thrive, credit unions must increase non-interest income, lower operating costs, grow and be competitive,” he emphasized. Surprisingly, Escan reported only about 69% of credit union CEOs surveyed rank “increasing fee income” as “critical” or “very important.”

A concerted effort should be made to increase non-interest income (NII) by enhancing fee income, such as an overdraft privilege program, the men advised. Seek product income from such sources as Credit Disability Insurance and Credit Life Insurance. Prevent overall performance leaks by lowering fee waivers and charge-offs. Add new products and services, and increase income by cross-selling more products to every member encountered.

Operational, financial and delivery systems re-engineering should be re-evaluated, they said, noting JMFA’s broad expertise. The firm also is recognized nationally for its training, incentive and earnings enhancement programs, as well as its product, service, pricing and technology improvement consulting services.

CUNA’s Center for Research & Advice Escan reports that overall, only 48% of credit unions have fee income-producing, overdraft privilege programs to protect and serve their members.

Miller, a University of Tulsa graduate began his banking career in 1972 with American Bank of Tulsa (ABT) and rose to the level of Chief Lending Officer by 1980. ABT was the highest earning bank in the region, posting returns on assets (ROA) near 3% and returns on equity around 25%. After a consulting assignment with a New Orleans financial institution, he joined JMFA in 1995 as sales director for the Southeastern region. He also is a graduate of the Southeastern Graduate School of Banking at Southern Methodist University in Dallas.

“A project to increase non-interest income will bring the quickest value,” he asserted. “Studies show it is faster than account acquisition, sales and service or expense reduction projects.

Credit unions, which have grown capacity at about 15% a year while growing only 8%, can lower operating costs by attracting more members and services to soak up over-capacity,” he said.

To succeed in a low-margin environment, the consultants advised credit union leadership also to work harder to:

  • Improve productivity;
  • Optimize cost of human capital;
  • Reduce costs of new product launches;
  • Reduce full-time equivalent expense.

“The financial terrain is tough; the competition is tough, and you can’t change either one,” Cahill conceded. “But you can change your operating style, your commitment to growth and to member services. And those efforts will have an immediate, positive impact on both your short-term and long-term performance.”

About JMFA

JMFA, a leading provider of non-interest income products for more than 30 years, has provided performance improvement programs in more than 2,000 financial institutions, adding billions of dollars in increased pre-tax earnings for clients in 49 states and Central America. The firm has implemented more than 1,000 variations of its JMFA OVERDRAFT PRIVILEGE®, and is a strategic alliance provider for CUNA Strategic Services and more than 20 state credit union leagues and associations for the program.

About DCUC

The Defense Credit Union Council, organized in 1963, is governed by a seven-member Board consisting of a representative from each of the services Army, Navy, Marines, Air Force -- plus three representatives at large. About two-thirds of the member credit unions are federally chartered; one-third is state-chartered. All are insured by either the National Credit Union Administration (the federal regulator) or an independent or state agency which meets federal standards.

JMFA OVERDRAFT PRIVILEGE® is a registered trademark of John M. Floyd & Associates, Inc.


Jared Cahill, National Director of Alliances, John M. Floyd & Associates, 800-809-2307

Dick Miller, Executive Sales Director, John M. Floyd & Associates, 800-809-2307,

Janet C. Sked, DCUC Conference Mgr., University City , MO, 314-802-8808; fax 314-802-8807; cell 314-712-9520;

Preston F. Kirk, APR, Kirk Public Relations, Austin, TX, 830-693-4447

# # #

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Preston F. Kirk, APR
Visit website