Regulatory burden isn’t the only challenge hitting small credit unions harder than others. Schenk cites two others:
1. Succession planning. This challenge is more nuanced than a simple lack of planning.
“It’s not that small credit unions lack succession plans,” Schenk says. “It’s that, frequently, the plans that are in place aren’t workable. That’s because, in the real world, it’s very difficult to find the talent to replace a retiring small-credit union CEO.
“Leading a highly-regulated, operationally complex financial institution requires an astonishing amount of know-how and grit,” he continues. “And people who have the breadth and depth of knowledge required for these jobs—assuming you can find them—often aren’t willing to work so many long hours for modest pay.”
For many, merger becomes the only option, Schenk says. Many of these stalwarts are nearing retirement age.
“So you have this big demographic that is close to retirement, and they have no succession plan,” he says. “It’s hard to find a replacement who’s willing to put in that amount of time and who also knows regulations, lending, and the subtleties of operating a financial institution. For many, a merger presents the best option going forward for all parties.”
2. Lack of scale. Small credit unions don’t benefit from the economies of scale their larger credit union counterparts enjoy.
Larger credit unions have substantially larger asset bases over which they spread fixed costs associated with HR, accounting, and IT. That difference is clear in credit union operating expense ratios.
In the first nine months of 2016, credit unions with assets of $100 million or less had average operating expenses of 3.62% of average assets vs. 2.77% for those with more than $1 billion in assets, according to CUNA’s economics and statistics department.
That 0.85% difference gives larger institutions more pricing flexibility and the ability to offer more products and services, which means greater membership and asset growth.
“Small credit union managers increasingly recognize that a key to overcoming this challenge is engaging in partnerships that allow them to spend more time running their business and less time doing those tasks for which they have less expertise, such as HR and accounting,” Schenk says. “But collaboration can be messy. It takes time. And there are often out-of-pocket costs involved. It’s not a cure-all.
“CUNA’s primary focus is advocacy but we also provide a broad portfolio of no-cost or low-cost services to help small credit unions meet challenges head-on,” Schenk explains.
He cites the roll out of an online Small Credit Union Community during CUNA’s Governmental Affairs Conference (GAC).
The community, Schenk says, “will make interactions more common, richer, and more frequent because the audience will be larger and more interactive. And the hope is that it will foster more ambitious collaboration efforts as well.”
NEXT: A member lifeline