WASHINGTON — As Groundhog Day arrives today and with it its annual question about how much long winter will last, a growing number of credit unions and analysts say the bigger risk is not enduring tough conditions — but waiting too long for them to change.
After several years of margin compression driven by higher deposit costs, uneven loan demand and rising operating expenses, some credit unions have moved away from what industry analysts describe as “hope-based planning” and toward deliberate efforts to reprice products, restructure operations and exit lines of business that no longer make financial sense.
This analysis appears here as part of the CU Daily’s Profitability Imperative series and its theme, “Mission Requires Margin.”
As one economist told the CU Daily, “The environment hasn’t been forgiving, but the institutions making progress are the ones that stopped assuming relief was right around the corner. They’re planning for sustainability, not a seasonal rebound.”
Rather than waiting for interest rate cuts to restore margins, some credit unions have taken steps that were often deferred in past cycles. Those include rethinking their approaches to branches (not necessarily closing them but redesigning branches or investing in new but smaller branches), tightening loan pricing discipline and reassessing products that generate volume but little or no profit.
All About Economics
“Branch decisions are no longer about symbolism — they’re about economics,” one long-time CU consultant said. “Credit unions are asking harder questions about where capital and people actually produce returns.”
Pricing discipline has also shifted. Some credit unions have scaled back aggressive deposit promotions, even as others have continued with market-leading pricing. Others have exited niche products altogether after concluding that scale and pricing power were insufficient to justify continued investment.
That reassessment marks a cultural change for an industry long accustomed to forecasting improvement rather than planning for prolonged pressure, one veteran CU economist said.
‘Intentional Trade-Offs’
“For a long time, the mindset was that margins would normalize on their own,” the economist said. “What’s different now is the recognition that sustainability requires intentional trade-offs.”
Not surprisingly, technology spending has also come under sharper scrutiny. While credit unions continue to invest in automation and artificial intelligence, projects are increasingly being evaluated on measurable efficiency gains rather than long-term promise alone.
One area of operations that will not be part of a Groundhog Day-like scenario when it comes to forecasting the next six weeks is regulatory scrutiny, especially for federal credit unions. That’s because NCUA has now made clear that movie forward it is dialing back numerous regulations and exam procedures, having announced 16 such proposed changes to date, as the CU Daily reports here.
Less Groundhog, More Phil Connors
But the agency has also signaled some concerns that are Groundhog Day-related, in this case, the classic Bill Murray movie and not whether Punxsutawney Phil sees his shadow. That issue is worries over concentration risk, a concern that often comes around in credit unions. The agency has said it is monitoring concentration risk in
Regulatory expectations have reinforced the shift. Examiners are paying closer attention to capital resilience, concentration risk and earnings durability, adding pressure on boards and management teams to demonstrate that current strategies are viable under extended stress.
A Clearer Divide
The result, analysts say, is a clearer divide between credit unions waiting for conditions to improve and those reshaping their models to operate profitably regardless of timing.
In another reminder of the movie rather than the day itself, Doug Wadsworth, CEO of Tri Cities Community FCU in Kennewick, Wash., said a problem for many CUs is that Groundhog Day comes every month, not every year.
Wadsworth, whose comments came as part of the CU Daily’s Profitability Imperative, said that every bill (paper or electronic) should be personally inspected by you before being paid.
“Keep doing this for at least your first two years to catch annually recurring ones. After that, continue to inspect them randomly, forever! Some bills you’ve been paying for years may not even be legitimate, i.e., the “legally required” federal wages poster (get it free online from the government website and no, you don’t have to update it every year),” he wrote. “Or the ‘Who’s Who List of CEOs’ (that nobody looks at), or some wonky ‘Best Business Recognition’ award (massaging your ego for a fee), or those Routing Number or Yellow Pages directories that nobody uses anymore?”
6 More Weeks—or Years—of the Same?
Similarly, Ancin Cooley, founder of CUCommunities.org and principal of Synergy Credit Union Consulting, told the CU Daily that there is a Groundhog Day opportunity in visiting several strategic issues that may not have visited in much longer than six weeks.
That is, credit unions often have the most opportunity to improve, but are unaware, is brand awareness, risk appetite selection, and talent risk, according to Cooley. “
There is significant anxiety around technology and economies of scale. One of the most valuable investments a credit union can make is in its brand, because how you communicate it flows through everything else you do. Strong brand equity makes everything else easier. Think Trader Joe’s, Costco, and Buc-ee’s,” he told the CU Daily. “Second is risk appetite, both for the loan and investment portfolios. A lot of credit unions have very vanilla investment portfolios,” he stated. :It would not take much for many of them to pick up an extra 15 to 20 basis points without overly exposing themselves. That helps fund what they need within the organization.”
Winter’s Not the Problem
As numerous sources have told the CU Daily, as Groundhog Day arrives, the message is that sustainability will not arrive with the weather, it has to be built.
“Winter isn’t the problem,” one analyst said. “Staying there is.”
