Grow or die (or merge) has been the message to small credit unions for so long it's become the industry cliché. But there's another old saw small credit unions should heed: cast down your bucket where you are.
Small credit unions have a number of resources and opportunities available to them — if only they took advantage of them, experts told Credit Union Journal, outlining some key strategies these institutions should be leveraging.
And there's good reason for the industry as a whole to take heed, as the imbalance between large credit unions and small credit unions can weigh down the cooperative movement.
"Billion-dollar [credit unions] now control 60% of all credit union loans, but only make up 4.1% of all credit unions," says Steven Rick, Chief Economist at CUNA Mutual Group, "This loan concentration will rise to 65% by 2019."
Control Operating Expenses
Some smaller credit unions are unable to afford full-time staff for certain aspects of their operations. Gregg Stockdale, principal credit union consultant at GS CU Consulting, suggests that smaller credit unions should utilize employee sharing with other credit unions throughout the nation. "A data processing system can be very effective," he said. "You have a potential staff of 8,000 available to you."
Being able to out-source certain in-house functions can save a large amount of potentially wasted money. If a credit union requires a loan officer only 20% of full-time, the CU can utilize an officer from another credit union that also only needs that person for a portion of a day.
If smaller institutions choose not to take the employee-sharing route, strategies to increase worker retention and productivity can make a difference. CUNA Mutual's Rick suggests one way to achieve this goal is for credit unions to adopt "efficiency wages" that are slightly above market rates, which in turn can encourage worker productivity and lower employment turnover.
Another option for reducing operating expenses is a third-party audit. Having a fresh set of eyes take a look at an institution's expenditures can show at lot of areas where money is lost. Management consulting firms offer services to credit unions which can go as far as renegotiating underperforming contracts for in-house services.
Many state leagues also offer a variety of resources for small credit unions, as well.
Remaining Relevant
Finding partnerships may be one of the keys needed for smaller institutions to remain relevant in the ever-changing financial climate. Relevance "matters and matters a lot," according to Mike Schenk, Vice President of Economics and Statistics at the Credit Union National Association (CUNA), "if you are not growing it is very, very difficult to earn money and to remain relevant." Schenk said CUNA believes in small institution viability and offers additional support to small credit unions through their Five to Thrive: Strategic Guide for Small CUs, a CUNA white paper outlining strategies for smaller institutions looking to gain ground.
One of the greatest assets for small credit unions is the cooperative nature of the industry, which encourages these sorts of partnerships, CUNA said. For example, small credit unions can increase their bottom-line numbers by looking at what in-demand services they do not provide and partnering up with institutions who do offer them. This can bring in much-needed technological advancements that were previously unattainable for some small credit unions.
Increasing Memberships
Credit union membership overall has grown by more than 3 million in the last few years, Schenk said, noting that this bodes well for the movement as a whole, but these gains are not seen across the board. The nation's smallest institutions (those with fewer than $20 million in assets), which represent nearly 40% of total credit unions, "did not experience 3.5% growth, they experienced an average decline of 1.3%," says Schenk. "It is a definite concern that many smaller institutions are not growing very quickly in terms of assets and membership growth," he added.
There may be benefits to looking at individuals previously turned away for new possibilities in the lending market. "All of the research shows if you want to be successful and have a healthy bottom line, you want to focus on lending," Schenk stated, suggesting that traditional lending strategies may not be what small credit unions need.
Looking to the lower tiers of the income ladder can provide increased yield from lending, as well as significantly increase word-of-mouth advertising, he offered, adding that the impact of assisting low-income individuals with their first home, car, or even a savings account, can bring recognition within communities, attract new members and develop loyalty among existing members.
And that goodwill can translate into significant growth opportunities, according to Bill Myers, director NCUA's Office of Small Credit Union Initiatives.
"Understand your niche and serve that niche incredibly well," Myers advised, adding that small credit unions need to, "offer services that are not offered in [their] marketplace."
New members are undoubtedly looking for mobile accessibility to their finances. "There is a plausible way for small credit unions to leap into digital services," Myers said. In some ways taking a step into digital services can be less of an issue than many believe, he suggested, because creating a mobile access platform requires no construction of new branches, ATM networks, and other real-world issues that come with physical expansion.
Mergers
The consensus among industry experts is mixed regarding credit union mergers. According to data provided by NCUA, about 60% of mergers from 2010-2015 were for "expanded services," while the remaining 40% were due to poor financial condition (17%), lack of growth (8%), lack of sponsor support (4%), inability to obtain officials (3%), poor management (3%), and other unspecified reasons (4%). "You reach a plateau and what do you do if you can't hit the next level? Stagnation is a death sentence…if you can't do it, you have to find someone who can," says Geoff Bacino, partner at Bacino & Associates. Finding "someone who can" can be as little as sharing services between other credit unions or as impactful as merging with another credit union.
"There is a sense of sky falling around mergers," says OSCUI's Meyer, who noted that mergers can be beneficial to a credit union if the viability of collaborating is not present. And if they're done right, he added, it's the little guy who is actually in charge.
"Small credit unions get to make the decision, large credit unions do not have a vote…the only time [they] have a say is when the credit union fails and is closed down for auction," Myers pointed out.
Bill Myers hopes that credit unions work as cooperatives, utilizing Credit Union Service Organizations (CUSOs), vendors, or directly with other credit unions. "Collaborative approaches are really interesting alternatives to merging with scale."
While some in the industry believe mergers are not a terrible situation to be put in, others disagree entirely. "I do not like seeing needless mergers," Stockdale stated, "Small credit unions need to stop living in the past."
A former small credit union CEO himself, Stockdale suggests that as the credit union model changes, those in the industry have ample opportunity to adjust and remain viable. These opportunities can present themselves through cooperation among small institutions and by finding what products your member base is seeking.
Though credit unions typically are member-centric, Stockdale said they can't afford to ignore the financial realities of staying in business so they can keep right on serving those members.
