How Field Of Membership Impacts Credit Union Financials

National performance averages demonstrate the unique merits of both SEG and community charter strategies.

 
 

Part of what makes credit unions unique is their membership requirements. Choosing to be a credit union for a community or SEG is a strategic decision that presents both opportunities and challenges on both sides. Community chartered credit unions have a larger base of members who can join the credit union but may also have a harder time marketing to locals than a SEG credit union, which has the ability to reach out directly through a sponsor.

As of September 2012, only 15.2% of credit unions are community chartered. This is up just over a full percentage point compared to five years ago, due to the conversion of 125 credit unions from a SEG charter to a community charter. These conversions can occur for a variety of reasons, including the loss of a sponsor to acquisition by another company or bankruptcy, a desire to continue to grow locally, or to expand into a different geographic area.  By comparison, only 18 credit unions took the opposite approach of converting from a community to a SEG charter over the past five years.

When it comes to financial metrics, differences between the two strategies can vary from being almost negligible to quite significant. One of the biggest differences is how these credit unions go about acquiring members, represented via their cost per net new member.  This metric annualizes promotional and educational expenses from the call report (account 270) and divides it by the number of members added over the past year. According to the data, it costs SEG credit unions $316 to add a member in 3Q 2012, while community credit unions spent $371 per net new member. Both types of credit unions are spending dramatically less for a new member than a year before, when they were paying $570 and $1,036, respectively. Community credit unions are slightly larger in size than their SEG peers — with almost $10 million more in assets on average. They also have more branches, with an average of 3.6 compared to 2.8.

COST PER NET NEW MEMBER
DATA AS OF SEPTEMBER 30, 2012
© Callahan & Associates | www.creditunions.com

cost-per-net-new-member

Generated by Callahan & Associates' Peer-to-Peer Software.

Annual growth metrics are similar for the two different types, with all the major growth metrics within 1 percentage point of each other. The largest difference between the two is in 12-month loan growth, which is 80 basis points apart. The next biggest difference is in member growth, which has a difference of 50 basis points.  SEG credit unions have a higher average member relationship (excluding business loans) than community credit unions, with $15,516 per member compared to $13,722.

12-MONTH GROWTH METRICS
ALL U.S. CREDIT UNIONS AS OF SEPTEMBER 30, 2012
© Callahan & Associates | www.creditunions.com

12-month-growth-metric

Generated by Callahan & Associates' Peer-to-Peer Software.

Despite the differences between SEG and community-oriented institutions, there are strong performers on both sides. TCT Federal Credit Union ($142M, Ballston Spa, NY) — a SEG credit union focused on education employees — grew its membership by nearly 3% annually as of September and added 13.4% in deposits over the same time frame. On the community side, Dupont Goodrich Federal Credit Union ($222M, Nederland, TX) posted a robust 12.2% loan growth annually and achieved a strong ROA of 92 basis points.

There are credit unions with different fields of membership that play to their strengths and do a great job of adapting their business model to their membership. Knowing the strengths and needs of your individual membership is critical for growth in the current, post-recession environment where consumers are still hesitant to take out loans. Whether you’re a community chartered credit union or a SEG-based one, a strong focus on the unique advantages of your own strategy will go a long way towards future success.

 

 

 

Feb. 11, 2013


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