Branching Out

The Future of Small CUs

Their viability depends on how well they exploit niches and meet members’ needs.

January 7, 2014
As a habit, when I hear a memorable quote I like to write it down in case I find it helpful in some piece of writing later in life.
Recently, I came across an article that quoted Bill Myers, director of NCUA’s Office of Small Credit Union Initiatives: “…below $30 million in assets, it’s hard to establish a fully functioning, sustainable credit union.”
Huh? Is someone really saying the end of the small credit union is near?
Statistically speaking, lending, deposits, and even membership growth have been strong recently. But one statistic isn’t so rosy— unless you like your flowers black and thorny. We’re losing about 300 credit unions each year.
While this reflects some mergers of large credit unions, most of the contraction takes place among smaller credit unions.
When small credit unions merge, they often cite the growing regulatory burden, the rising cost of technology, and the lack of CEO succession. Since these pressure points aren’t likely to disappear, conventional wisdom says small credit union mergers are as irreversible as a season-ending meltdown for the New York Mets.
But is this an example of statistics predicting the future or statisticians explaining the past?
That leads us to this quote from Scottish poet Andrew Lang: “He uses statistics as a drunken man uses lampposts—for support rather than illumination.”
Is the death of the small credit union imminent, for all intents and purposes?
Like the old man’s favorite brand, the answer is “depends.” As in, it depends on the overall strategy.
If the small credit union is community- based and attempts to offer all types of products and services to compete with larger financial institutions, then the best advice might be to ask, “Would the last person to leave please turn off the lights?”
But if the strategy focuses on offering certain types of loans to consumers who aren’t being served by other institutions, the future is more than bright, it’s downright dazzling. With fewer players in the financial services world, smaller players can outmaneuver larger rivals.
Carefully and thoughtfully exploiting a niche by offering muchneeded products and services to specific membership segments is a strategy not easily duplicated. Specialize in nonqualified mortgages. Or focus on microloans. Or really go out on a limb and offer rehab loans to ex-politicians.
But going counter to the herd can be risky behavior, unless you’re the one lemming not running toward the cliff. To quote Thomas Edison: “There are no rules here—we’re trying to accomplish something.”
One trait smaller credit unions possess in greater abundance than their often wary larger brethren is a fanatical desire to push the envelope. Smaller credit unions are more attuned to their members’ needs and adapt accordingly. It’s kind of like a liberal church deciding to go with six commandments and four “suggestions.”
These smaller credit unions focus not on FICO, but on character.
The industry trend toward fewer and larger credit unions is by no means the end of small credit unions. In fact, this could become a renaissance period for small credit unions if they can find their niche. Being small, nimble, intelligent, and nonconforming can be a very big advantage.
This brings us to our last quote, a classic by Mark Twain that accurately describes the state of small credit unions: “The reports of my death are greatly exaggerated.”
JAMES COLLINS is president/CEO at O Bee CU, Tumwater, Wash. Contact him at 360-943-0740.