Do CUSOs really make a difference?

Forming and operating a CUSO takes time and effort. CUSOs tend to help credit unions reduce costs and make revenue from other sources but are CUSOs really worth the effort?  It is a legitimate question. How can we measure the effectiveness of CUSOs? Jay Johnson, Vice-President of Callahan & Associates and a NACUSO Director, Jack Antonini, NACUSO President and I wanted to measure a subset of credit unions that use CUSOs extensively and compare their performance to credit unions that tend not to use CUSOs extensively.

For the CUSO user group, we turned to the credit unions that use the services of the CUSO, CU*Answers. CU*Answers, Inc. was formed in 1970 as a core IT provider. It is structured as a cooperative non-profit corporation. There are 128 credit union owners serving 182 credit unions.  Xtend is an affiliate CUSO that is owned by CU*Answers and 82 credit unions. Xtend provides services to credit unions that include bookkeeping, mortgage loan support, disaster recovery, business continuity, strategic planning, call center (both incoming and outgoing), shared branching, forms exchange, member texting communications, core conversion support, call report preparation, and cooperative liquidity through loan participations and certificate of deposit sales. Vendor management is also provided through partnership with a third party. While some credit union owner/customers are over a billion dollars in assets, most customers are small and mid-sized credit unions, the very size that should derive the most benefit from collaboration.

CU*Answers pays dividends to the owners. As a Michigan cooperative, CU*Answers pays a stock dividend each year (averaging between 4% and 8% of the investment for each credit union). There is a patronage dividend which is proportionate to the amount of business a credit union does with the CUSO. If CU*Answers has a special project and needs capital, it will issue debentures which have a return slightly above market.  The debentures are often over- subscribed.

The control group consists of credit unions that are the same asset size as the CU*Answers group and do not have a CUSO investment. While the available data does not indicate how many CUSOs a credit union may use for services, it is possible to see from the call reports whether a credit union has a CUSO investment. If a credit union does not have any CUSO investment, it is more likely than not that the credit union does not use CUSOs extensively for services. It is certain that the group does not derive any benefits from CUSO ownership.

Sam Taft of Callahan worked with Jim Vilker and Bob Frizzle of CU*Answers to compare the performance of the CU*Answers credit unions with the control group credit unions from 2013 to 2019 in ten metrics: Fee Income, Other Operating Income, Share Draft Penetration, Accounts Per Member, Size of Average Member Relationship, Operating Expense Ratio, Efficiency Ratio, Return on Assets, Net Worth Growth, and Asset Growth. In every metric but one, the CU*Answers credit unions outperformed the control group credit unions and, in most cases,  the difference was significant. The Operating Expense Ratio was higher for the CU*Answers credit unions but the Efficiency Ratio (the effectiveness of the spending to earn income) was higher in the CU*Answers credit unions, indicating that they are spending more but they are reaping the benefits of that spending.

I note that the CUSOs do not help credit unions, the credit union owners use CUSOs to help themselves. The CUSO is but the means for credit unions to collaboratively create options and opportunity for themselves and their members.

The data shows a strong correlation of extensive CUSO use with high credit union performance. Is the effort of forming and operating CUSOs worth it? You bet it is. If you had any doubt about using a CUSO, just do it.

Guy Messick

Guy Messick

Guy was General Counsel to NACUSO from 1987 to 2020. In that position, Guy advocated for credit unions and CUSOs before NCUA and other regulatory agencies. He is retired from ... Web: Details

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