The NCUA classifies small credit unions as those with less than $100 million in assets. Is it surprising that more than 4,000 credit unions fall into that category? Keep in mind that the United States currently has 5,684 operational credit unions. With the majority of credit unions being considered small, what are some of the struggles they face? Aging membership, regulatory burden, succession planning, competition from larger FIs and possibly the lack of capital to invest in new technology.
The NCUA has released Q4 2017 performance data and while the overall credit union industry is improving, the data for small credit unions doesn't look good. Total assets in federally insured credit unions rose by $86 billion (6.7%), total loans outstanding increased $88 billion (10.1%) and net income totaled $10.4 billion (up 9.2%). Compare this to three different asset categories of small credit unions:
$50M - $100M:
- 15 fewer credit unions.
- Hold $50.6 billion in total assets, or 4% of total credit union system assets.
- Credit unions in this category reported a 0.1% decline in total loans.
- Membership declined 4.3%.
- Net worth decreased 0.7%.
$10M - $50M:
- 77 fewer credit unions.
- Hold $44.2 billion in assets, or 3% of total credit union industry assets.
- Credit unions in this category reported a 0.9% decline in loans.
- Membership declined 5.8%.
- Net worth declined 2.8%.
Less Than $10M:
- 126 fewer credit unions.
- Hold $6.4 billion in assets, or less than 1.0% of total credit union system assets.
- Credit unions in this category reported a 5.5% decline in loans.
- Membership fell 8.8%.
- Net worth declined 5.0%.
Now that those dismal numbers are out of the way, what can small credit unions start doing today that can lead to growth?
- Differentiate
Small credit unions are at a disadvantage to their direct competitors in many ways ie. branch locations, capital, human resources, etc. However, there are still ways they can differentiate themselves from other financial service offerings in their community. Differentiation can come in many forms. It can be through your credit unions name, branding colors, message, community outreach, sponsorships, in-branch experience, digital experience, target audience, etc. Know your surrounding competition, study what they offer and be different. Don't attempt to copy what the big competitors are doing. As long as you attempt to copy others, you will never be the best copycat. Be original, be authentic and be different. Even if this is only different for your specific field of membership but is being done in another state.
- Learn How to Market
Many small credit unions struggle with communicating their message. While educating your community about what a credit union is and how it is different from a bank is a noble cause, many consumers simply don't care. Focus your marketing message on how you can improve the financial lives of real people with real problems. If possible, have your members market your message for you. Offer a rate discount on a loan if the member is willing to post to their facebook page announcing the great loan they received from XYZ credit union. Don't have a budget for a video creation company to capture your brand? Start a video contest with your membership and offer a grand prize to the winner. See what Sikorsky Credit Union was able to do:
- Technology
Small credit unions have limited resources and personnel which is why it is vital they leverage technology that helps them automate, scale and multiply their efforts. Take a look at your credit union's efficiency ratio, which is the cost to generate one dollar of revenue. Callahan & Associates recently announced the credit union national average efficiency ratio is 71.6%, meaning it takes 71 cents to generate one dollar of revenue. How does your credit union stack up? The right technology should help your credit union achieve an efficiency ratio at or below 70%. An efficiency ratio under 70% is possible and would position your credit union to reinvest income to further growth.
The Westport, Connecticut-based Tri-Town Teachers Federal Credit Union has grown $12 million in assets, more than doubling their size. This opened up an opportunity for the credit union to increase their lending practices. "In one year our total deposits increased 60%. I had to do something with that money", CEO David Ritch confided.
Tri-Town Teachers FCU funded $900,000 more, per employee, in 2017 than they did in 2007. “We are dedicated to providing our members with the latest and greatest technology. We have online and mobile loan applications and have embraced the app, not only in the Apple App Store but also the Google Play Store. Additionally, we are using the HART Software integration with our core provider, which enables automatic decisioning on loans and gives our members an immediate answer to loan requests”, John Coniglio, Director of Marketing and Member Development explained. Download the full case study to see the rest of the story.