The 2012 strategic planning season has come to an end, and it has been by far the most interesting yet. Since late summer, I have spent quality time in urban and rural credit union shops spanning six times zones, and at select credit union gatherings ranging from the vibrant Texas 12 Young Professionals Conference to the more seasoned Elected Leaders Conference in Pigeon Forge, Tenn. While the environments and groups are all different, successful credit unions have many things in common.
News of good report
I spent most of my time with the 70 percent of credit unions with less than $100 million in assets. Conventional wisdom would have us believe that the era of the smaller credit union is coming to an end, that smaller credit unions are just plain tired and have business models that are outdated and irrelevant. The good news is that most of our smaller credit unions defy conventional wisdom. Here are some items of good report:
Loan growth: There are scores of smaller credit unions that consistently demonstrate solid loan growth, especially those with a real commitment to serving the rising number of lower- to moderate-income consumers. The leaders of these credit unions are focusing on loans they can compete for and win, as opposed to going head-to-head with larger credit unions for the 1.99-percent new auto loans or impersonal, indirect loan programs. For those who think these credit unions are taking on too much risk, think again. They have consistently lower loan-loss ratios.
Membership growth: Scores of smaller credit unions are growing membership as well, and most are growing it the old fashioned way through direct referrals. Many of the credit unions I visited this year don’t have much of a marketing budget. Most don’t have the newest technology, although their leaders have made strategic commitments to getting it. Instead, these credit unions work very hard at finding ways to say “yes” to more loan requests, and that leads to impressive new membership referrals.
Service: There isn’t a credit union out there that doesn’t believe in service as a core value. However, the definition of service is definitely open for interpretation. Like everyone else, smaller credit unions are focused on delivering quality service, better access, and product benefits. The interesting thing for many of the smaller clients I visited this year is that they were still growing in spite of very limited access. For these credit unions, service investments grow from the bottom up. More and more credit unions are focused on serving lower-income members with development products like credit repair loans and alternatives to payday loans, and personal one-on-one financial counseling. Service investments also include training and certifying front-line staff as financial counselors, and sending member-contact staff to CUNA’s world class Financial Counselor Training School. In a time of economic turmoil, rising poverty levels and shrinking credit scores, these credit unions thought it would be a good idea to have professionally trained member-contact staff members who are fully qualified to teach and rehabilitate their members – future prime borrowers that will likely have a lot more loyalty. It’s a very strategic approach, and I love it!
Profitability: Lower average loan balances require more production and consulting time for the growing number of lower-income and credit-challenged members. But higher expenses are more than compensated for with significantly higher average loan yields and fee income. It’s amazing how an average loan yield of 8.5 percent can cover higher expenses and still deliver a very strong bottom line. The business model of these credit unions is just a little different, but it works!
Action that is Praiseworthy
Each year there are always a few things that garner great praise, and this year wasn’t any different. This first example of praiseworthy culture demonstrates the power of team work, courage and empowerment. Strategic planning always begins with a review of the credit union’s financial records. The interesting thing about this credit union is that their growth and profitability numbers – dating back to January 2011 – were phenomenal. My first assumption was that the credit union might have merged; I couldn’t wait to find the reason behind the amazing growth and profitability. Management credited the board and staff, citing the board’s trust in the management to make the big changes that needed to be made. The board credited the management’s courage in standing up for what they believe in and willingness to take bold action. A change in leadership precipitated a change in thinking and direction that led to real unity, stronger trust and bolder action. Bottom line, this $56 million credit union has had double digit loan and membership growth for nearly two years.
My final example harkens back to clarity of mission. This credit union is unique in that its primary mission is to serve its local lower-income and Native community. The credit union has a clear purpose to help its members build assets through specific development products and services, each designed to migrate members from predatory to mainstream financial products. This credit union took its mission statement to a higher level by creating a one-page map that illustrates the journey their members will make through the developmental process. What a powerful tool! The board and staff worked together to design the map, and there was no doubt that each member of the team understood the process and their role in helping the member through. No wonder this credit union continues to experience phenomenal year-after-year membership, loan growth and profitability.
If I had to sum up my experiences this fall into a single word, it would be “hope.” Spending time with and learning from the leaders of successful smaller credit unions is inspiring. They demonstrate that unlimited assets are not a prerequisite for differentiation and growth, but rather a sense of purpose and a little creativity. I have hope that their moxie can and will be replicated throughout the country until every credit union – and its members – are thriving.