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From CU Journal – Some credit union executives are saying to their colleagues, “Help me help you.”
To help struggling institutions, a credit union service organization has launched a Credit Union Rescue Team where volunteers from the industry will work with executives who raise their hand for help.
While the effort fits in well with the credit union industry’s collaborative nature, some analysts say it is unlikely to address more systemic issues, such as the increasing importance of size and economies of scale, or do anything to meaningfully curb consolidation across the industry.
“A lot of credit unions are doing well but it’s almost like they are running on a treadmill,” said Ryan Foss, managing director of innovation at Filene Research Institute. “They need help staying relevant. How can they be pushed a little bit to stay relevant in an industry that is changing exponentially every year?”
United Solutions, a CUSO that provides core dating processing and other technology services, is spearheading the project. President and CEO Jim Giacobbe was inspired to start the initiative after witnessing other credit union executives who were willing to help out their colleagues at other institutions.
Giacobbe has also heard from executives over the years about how a simple fix – such as bringing down loan delinquency rates in order to boost the institution’s financials – can greatly improve operations at a credit union. All of that inspired him to found the group.
The plan is for the rescue team to connect advisers – such as credit union executives, consultants and other industry experts – who have volunteered their time with those who need help in pretty much any area. The partnership will run 10 weeks with the pair talking for 30 minutes to an hour each week.
It’s likely that the credit unions needing the most help will be on the smaller end of the asset spectrum, but there aren’t restrictions in terms of asset size in who can ask to be paired with an adviser.
United Solutions plans to stay out of the process and won’t try to solicit business through the effort, Giacobbe said.
This model could work if an institution is struggling with a particular issue, such as how to improve underwriting, said Bob Kafafian, president and CEO of the Kafafian Group, a financial services consulting firm. And the longer the program runs, added Filene’s Foss, the more solutions advisers may develop that can be offered to other participants to quickly address an issue.
Meet the team
Bob Doby, a partner at DJ Consulting, hopes to help credit unions with balance sheet management and their loan and deposit pricing through volunteering as an adviser. He said many credit unions fail to take into account the true cost, such as back office expenses, of a member relationship. He believes this happens due to the lack of experience for some management teams.
“In today’s world, banks are more competitive with pricing, and members want online banking and all of the bells and whistles,” Doby said. “I don’t care if you are a $20 million institution, you can be profitable.”
Joshua Rodriguez, president and CEO at the $37 million-asset Missouri Valley Federal Credit Union in St. Peters, Mo., has volunteered to be an adviser with the program and believes helping others understand the technology landscape better is one of his strengths. He joined the credit union industry in 2002, working his way up from member services to IT before becoming a CEO.
“The majority of credit unions are below that $500 million threshold, and most of us are a small community-based or SEG-based credit union and serve a vital purpose,” Rodriguez said. “Once we lose the small credit unions and community feel then our industry is in trouble.”
Bigger band-aid needed?
But the credit union industry, especially the smallest institutions, faces a range of issues that are forcing some to decide to merge with others. According to NCUA data, the overall number of credit unions fell more than 3 percent year-over-year, to about 5,400 at the end of Q3 2018.
Limited fields of membership, competition from fintechs, evolving technology demands and recruiting experienced executives are all issues plaguing credit unions, industry experts said.
Many see scale as necessary to address many of these challenges, and that’s reflected in the consolidation trends. The number of credit unions with less than $10 million in assets fell 7 percent, to about 1,400, from a year earlier, while number of credit unions with at least $1 billion of assets increased almost 7 percent, to 303, according to third-quarter data from the NCUA.
It’s unlikely a program like the rescue team could greatly affect this core issue, Kafafian said.
“Some of it is there isn’t enough scale in these smaller credit unions, even if they had a higher net interest margin, to see squeeze enough to the bottom line,” Kafafian said. “There are credit unions with $10 million of assets and that’s like a guy putting a card table out at church on Sunday and making loans to parishioners.”
Giacobbe hopes that the rescue team will help some credit unions remain independent and keep the industry vibrant. If the industry continues to consolidate, especially on the smaller end of the spectrum, he fears there won’t be any difference between credit unions and banks.
“Some of the credit unions won’t be able to survive but I think some are on the bubble,” Giacobbe said. “If they do the right things and they know the basics, I think they can survive. It is important for the industry to have smaller credit unions. We are going to lose a big part of our identity if we don’t have some of these smaller ones.”