I’ve learned that your attitude is important in life – it’s much more enjoyable from an optimists perspective. Yet on occasion there is still the need for that reality check. So, on the heels of the recent industry group hug that is GAC and NCUA’s release of year-end data touting loan and membership growth I find it necessary to seek out the truth in the numbers. Taking a deeper dive uncovers some startling facts, but the data is of little use unless you do something about it.
REALITY: More than half of the credit unions lost members. As a whole the 6,128 credit unions under $500 million in assets lost 1.2 million members in 2013. The 426 credit unions with assets greater than $500 million actually grew by 3.6 million, netting the industry its overall growth of 2.4 million members.
ACTION: If you’re in the 93% of credit unions under half a billion in assets I’d start by focusing on retention of my existing members. You better make certain you’re keeping them content before concentrating resources on trying to attract new.
REALITY: On the bright side credit unions of all sizes exhibited loan growth for the year. Yet reality confirms the largest 7% of credit unions produced over 95% of the loan growth, with the lion’s share of institutions creating only 5% of the nearly $48 billion in growth last year.
ACTION: There’s very little differentiation between large & small in which products produced the growth – it’s fairly broad across the spectrum. The action here is to refine the processes involved in executing and delivering on a member’s loan request. Being innovative, responsive and convenient as defined by the member is much more important than trying to create new types of loans to offer.
REALITY: Here again the “big CU’s” account for more than $36 billion in growth while the rest of the industry lost nearly $4.2 billion in shares. While the industry as a whole shed $6.3 billion in share certificate balances, less than 9% of it came from CU’s with assets in excess of $500 million.
ACTION: The evidence suggests relationship trumps rate. Members appear to want multiple accounts to distribute and park their money in. Efforts should be targeted at making it easier for members to open, manage and transfer funds among a limited suite of accounts within your institution. The product that seems to create differentiation among larger CU’s is their money market accounts.
REALITY: The entire industry has moved into longer term investments chasing yield with rates at or near all-time lows. Over the last 2 years nearly $45 billion in investments has shifted into the 3-10 year range. While that equates to only 4% of industry assets the change in risk appetite is worth noting. We’ve also added an additional $36 billion in mortgages with maturities or reset dates greater than 5 years out. What will the combined effect be after a few years of rising rates?
ACTION: Consider the advice you would give your own members about committing to longer terms at lower rates. While this shift may be perfectly acceptable make certain your reasoning is sound. Capital levels have been restored to 10.78% as an industry. Are you taking on unnecessary risk for the future to achieve an arbitrary level of earnings today?
REALITY: 1 in 4 credit unions has negative earnings. Over the last 5 years increases in ROA have been driven primarily by a lower provision for loan losses. Over the last decade the industry has only managed to lower operating expenses a total of 7 basis points while growing assets by a total of 74%. Last year’s Provision for Loan Loss Expense of 0.26% was 10-20 basis points below historical averages and should not be expected to continue given the recent loan growth. Fees & Other Income have stabilized or shown modest declines in recent years, any uptick from a decade ago is now more than offset by slimmer net interest margins.
ACTION: Projects and initiatives that are being considered should be evaluated based on their ability to increase revenue and improve efficiency before being given the go ahead. Start with those activities that will most significantly improve both measures. This is easily stated, yet harder to actually achieve.
Regardless of your asset size it has never been more challenging to assess the myriad of strategic options available to you. With CU Succeed in your corner you can feel confident in selecting and implementing the solution that best fits your institution’s needs. That’s why we exist – to CU Succeed.