By Gregg Stockdale, School of CU Financials
Instead of predicting the end of small credit unions, wouldn’t it be nice if we actually went out of our way to help preserve them (at least those that want to grow and be vibrant)? There are those that are waiting for the death of the manager and the board so they can put the members out of their misery and then merge off to someone who actually serves the members with relevant services.
So, let’s see what we have to work with: At year-end 2010 there were 7491 federally insured cu’s in existence according to Callahan’s… and that’s counting the zombie shops waiting for NCUA to get around to pulling the plug on them. Of those, there are 1826 cu’s between $2 MM and $10 MM. Even those are on the smaller size of small. The average cu is now $123,700 in assets nation-wide, and the median is $20,900. We even have 169 cu’s above the $1Billion mark. We are slowly becoming the very large and the very small, with everyone in the middle looking like today’s bait!
Of those 1826, 1066 have shared draft accounts. That’s about 800 cu’s that are missing out on the economic engine that runs / ran credit unions for the last 20+ years.
Only 445 offer credit cards… With returns about 2x that of autos, wouldn’t they benefit from more services?
How about even having a home page? You can’t Google a cu if there is no home page to look up!
The average ROA for the group for all of 2010 is <0.29%>. Do you think adding a share draft program and getting a home page and credit cards would help the bottom line?
From what I’ve seen over the years… there are two types of cu’s in that category… those that don’t know how to get started and those that don’t want to grow (for a variety of reasons). There is also the real threat that the “helper” cu just wants the smaller cu to merge with them. BAD large cu! Shame on you! Especially as those that merge in usually end up being merged.. (Live like a shark, die like a shark… there’s always a bigger shark in the water just waiting to eat you up).
For the first category: Why can’t the larger cu’s with the capacity take on the business operations for the smaller cu until their bottom line improves and they can take care of the programs themselves? Those lucky enough to be on the CU* “Gold” system can actually process the set-up / back office/ and monitor the program for other cu’s on the same system. Collaboration is actually built into the system… you just have to use it!
Or, why not help them determine if they qualify as a Low Income Credit Union or assist them in becoming a CDCU so they can obtain a grant? Are you good at writing grants? I know a lot of small cu’s that could use some financial grants to improve their operations.
And, it’s not like they are without resources… the average capital for this group is 15.27%. They have on average about $2.6 million in investments (remember, we’re looking at averages here) that have increased by 7% over last year.
If we look at the $10 to $20 Million size… we see much the same capital @ 13.95% . Investments are $6.5 Million and growing at 8% over 2009. Both groups have paltry returns of 1.57% and 1.77%, so a good laddering strategy would greatly assist them… There are sufficient excess funds for a cd or step-up bond ladder to at least move those rate up in the 2.5% or higher range.
With 1,107 cu’s in the $10 to $20 MM range, we do see more share draft accounts as a percentage of cu’s. There are 989 with SD accounts, 609 with credit cards, and 1093 have non-interest income. This explains the drop in the efficiency ratio from 104.47% for the 2-10 to 99.93 for the 10-20 group. Nationwide the 2010 average was 86.83% by comparison.
As a group, both have excess capacity to lend, capital to invest in programs and products, and a deep need to grow. What most are short on is man-power. The manager is usually so busy rowing with the other employees, that they have no time to steer the ship. There is no commander on board some of these shops. Just a more experienced worker to keep the regulators as bay. By the time they are done rowing for the day, they have no energy to direct, lead, or set a course of action.
We all need to quit viewing these cu’s as fodder for merger and get busy assisting them to become viable and thriving credit unions. For those digging in their heels and holding the course set 40 or 50 years ago (services and programs, not philosophy), they will meet their end soon enough.
Know a credit union that could use a hand? Why not give them a call and then a hand up? Some of our credit union fellow workers could use a little hope and see a light at the end of the tunnel that’s not signaling an on-coming train!
Read more from Gregg on his blog School of CU Financials.