Is the sky falling on credit unions: How to climb off that ledge

The Callahan report on 2023 earnings – and the especially dismal Q4 performance – has exploded like a bomb in credit union land.

Another publication poured salt on the wounds with this subhead: “CU results are even worse when the most recent three months are extracted for earnings and originations.”

And then there has been a wave of abrupt CEO departures, with many tongues wagging that the abrupt dismissals resulted from institutional performance that fell far short of expectations and the results of peers, so the CEO was forced to walk the plank by a cranky board.

Is this the end of good times for credit unions? There is no denying times are difficult as credit unions wrestle with a tough lending environment, rising consumer credit card debt and resulting concerns about defaults, probable substantial deduction in fee income, and colossal money center banks and ever more competitive fintechs that are eyeing smaller institutions such as credit unions the way lions size up gazelles on the savannah.

That’s when I reached out to Kirk Kordeleski, the onetime CEO of Bethpage Federal Credit Union and now a credit union consultant, because if there’s a shrewd reader of the credit union tea leaves it’s him. In an hour conversation he talked me—and probably now you too—off the ledge.

Kordeleski’s main point: “Credit unions excel during challenging financial times due to their lower risk balance sheets and access to the lowest cost of capital.” Credit unions also do not pay income tax and, often, they can play and win at offering low interest rates on loans and high returns on savings and CDs.

Two more advantages over banks that credit unions have, per Kordeleski: their ability and eagerness to collaborate with other credit unions (in CUSOs and more informal arrangements) and now, too, “new leadership is embracing digital transformation, data analytics, and innovative retail models to enhance efficiency and service.”

That last is crucial: yes, there is a CEO exodus occurring but it’s also a generational shift as Baby Boomers – the youngest are 60 – exit the c-suite and younger execs who have grown up with computers and smartphones are taking the reins.

Kordeleski also pointed to expanded charters that more credit unions are getting and this gives credit unions “virtually unlimited potential.”

So why are we seeing dismissal of CEOs not for gross misbehavior but for subpar performance? Kordeleski pointed to the rising use by big credit unions of outside recruiters to fill board seats and in many cases those seats are going to present or recently retired executives in publicly held companies where the norm is that when the numbers go sour the CEO walks the plank.

He also added that those same recruiters are bringing different types of leaders into credit union leadership roles – namely onetime bankers taking the CEO reins at a few very big credit unions. Those new leaders know the penalty for subpar performance.

More fuel for these flames of change are coming from the rising number of credit union – bank mergers and there also is a growing number of mergers involving two large and apparently healthy credit unions.  In all these cases, a desire to scale up and—often—to add new lines of business are the reason for the merger. These newly bulked up credit unions believe they will be ready for competition with big banks.

Is all rosy for credit unions? If credit unions work together and if—a crucial if—credit unions succeed in improving their time to market in rolling out new technologies, Kordeleski says he is very optimistic about the industry’s ability to compete in today’s fast changing financial services environment.

One last to-do according to Kordeleski: Credit unions have to get much better “at building awareness of our solutions.” That means doubling down on smart marketing and really getting out the message that there’s a credit union for every consumer and for most consumers a credit union genuinely is the better choice.

Bottom line—The sky hasn’t fallen. It may look a little cloudy but the credit unions that accept that it’s critical to be aggressive and competitive—to avoid being left behind—will prosper.