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The strategic planning season is upon many credit unions, and the discussions taking place across the country this fall should be like none of the preceding five. Today’s climate offers an opportunity for credit unions to take action, to look far into the future and begin to shape where they are going to be and what they are going to be in five, 10, and 15 years.
In 2008, the industry confronted a once-in-a-generation emergency that required nearly all its attention. It had to concentrate on dampening delinquencies and boosting ROA to power through. The country is pulling out of the crisis now, and credit unions are thriving. Continuing to focus solely on present problems — such as too few loans and too much liquidity — will set the industry behind in system advancement and improvement. Now’s the time for the industry to step out of the weeds, look ahead, and set a course for how to get where it wants to be.
Move On From The Recent Past
Credit unions are in the proper shape to take bold steps and new initiatives. Midyear results are impressive. The industry posted the highest ROA since 2005 and will generate the largest bottom line in its history. It has captured its highest-ever market share in first mortgages, credit cards, and more. The most troubled regions during the recession are bouncing back to health, and some are even outperforming the industry in key ratios. For example, the Sand States lead the country in improved loan originations, asset quality, and ROA.
Qualitative measures look as good as quantitative ones. More CEOs are retiring, indicating credit union leaders are confident they have weathered the worst of the storm and can pass the helm to younger executives. More credit unions are moving to larger headquarters, again, displaying confidence in their growth prospects.
Even NCUA is seemingly brushing itself off and looking further out. It is pressing to raise the member business lending cap and for access to alternative capital. It also is looking at using derivatives for balance sheet hedging.
Now’s the time for the industry to step out of the weeds, look ahead, and set a course for how to get where it wants to be.
Build For The Long-Term
The Rockefeller Foundation, a 100-yearold philanthropic institution dedicated to promoting the well-being of humanity, has set a centennial goal to uncover and address the challenges facing the world’s poor and vulnerable people for the next 100 years, according to its website www.rockefellerfoundation.org. Judith Rodin, president of the Rockefeller Foundation said in May, “We have the advantage … of being able to take risks. We’re not driving to the next quarterly earnings like businesses. We’re not worrying about the next election. We have tax-advantaged risk capital, but that doesn’t mean we should be less disciplined. It means we should be more nimble, more risk-taking, more innovative to get to the goals that we’re trying to achieve.”
The credit union industry is kicking off this era in a firm position, so how might it begin to shape the kind of future it wants? There are both shorter-term and longer-term measures to consider. For the shorter-term, credit unions should embrace the technologies that are currently available, or coming soon, to satisfy present members, attract new ones, and reach the younger generation. They should avail themselves of conveniences like mobile banking apps and remote deposit capture. The entry point for these services is dropping as vendors and CUSOs, such as CO-OP Financial Services and CU*Answers, strive to support credit union adoption.
Now is the time to increase member value. Banks have been raising fees and changing account terms to increase revenues at the expense of customers. This gives credit unions the opportunity to score impressive good will among members — and gain positive PR through word-of-mouth — by rewarding members with better loan and share rates or bonus dividends tied to their credit union activity. Members need more money in their wallets, and if credit unions are actively helping those members improve family finances, credit unions are going to reap the benefits.
Technology and member value are short-term considerations. Longer term, now might be the time to plan for core system upgrades. Or what about expanding into new sources of revenue such as student and member business lending? The latter could encompass lending for community and social investment as well as merchant point-of-sale lending.
Some credit unions are starting CUSOs to provide technology services or compliance assistance. Some credit unions are purchasing realty firms, others insurance brokerages. These are serious investments that require significant planning and capital. The credit unions involved in such activities believe the time is right to make these strategic and game-changing efforts. We do as well.
More credit unions are expanding their branch footprint via new stand-alone locations as well as alternative branch solutions. Suncoast Schools Federal Credit Union in Tampa, FL, is a notable example. The $5.2 billion credit union recently opened its first new branch in five years and plans to bring another one online before the end of the year, which would bring its full-service branch total to 52 across 15 Florida counties. It also added four in-school branches in September to its growing network. [Click here to read a Q&A with Suncoast Schools CEO Tom Dorety.]
Now is a great time for any credit union to examine how it might better reach members and potential members, the better not to be caught flat-footed as the economy picks up and consumers increase their demand for financial services.
Finally, take a look at the system’s new charters. Some new institutions are the result of support and cooperation from existing credit unions or CUSOs. This is a testament to the health of the American credit union system. By contrast, there have been no new bank charters for 18 months.
How To Measure Success
As credit unions set a forward-looking course and start thinking, planning, and acting for the long term, it is a good time to assess how the industry measures success. The hard numbers on the balance sheet and bottom line are no doubt important, but credit unions would do well also to think about how they are impacting people and communities. Traditional metrics understate and undervalue things like helpfulness and impact, so how can the industry fully measure the important work it is accomplishing?
For example, total assets is a common and important metric to monitor. However, total assets does not take into consideration assets under management, which include approximately $45 billion in off balance sheet investment programs and $130 billion in mortgage servicing portfolios. These two components combined exceed approximately $180 billion, based on our data.
Additionally, how does the industry think about and measure the ways in which credit unions reach into and help the communities in which they operate? It’s easy to measure the dollar value of loans to members, but it’s not so simple to measure how those loan dollars empower member-borrowers and build better communities. Credit unions have an excellent reputation for providing highquality, low-cost financial transactions. Now is a great time for the industry to focus on building a reputation for providing high-quality financial advising and guidance at a reasonable cost.
For better or worse, we live in a Steve Jobs age where even temporarily diverting your attention can easily put you behind the curve.
The Age Of Steve Jobs
This new way of thinking about what’s ahead for our cooperative financial services industry means credit unions must plan less for operations and more for strategy. Institutions must be willing to put operations into the hands of people skilled in operations, those who can keep a firm, steady hand on the tiller. Strategic personnel, then, must stretch their imaginations in the quest for fresh methods and lofty goals.
This article originally appeared in the October 2012 issue of The Callahan Report. Click here to read a Q&A with Tom Dorety, CEO of Suncoast Schools Federal Credit Union ($$5.2B, Tampa, FL).
Past credit union leaders did not build this industry into the trusted, cooperative financial services provider it is today solely by thinking about the present. If they had, credit unions would still be working with paper ledgers and attending credit committee meetings once a week. Likewise, today’s leaders must not shrink from their own rendezvous with destiny. It’s time to stretch and imagine. Today’s world requires this.
Ten years ago few people expected to be reading emails while walking down the street, watching movies during a morning commute, or shooting quality video with mobile phones. For better or worse, we live in a Steve Jobs age where even temporarily diverting your attention can easily put you behind the curve. Credit unions have pulled through an economic hard patch with extraordinary momentum. Now is the time to look into the territory in front of the curve as well as the territory way out in front. It’s time to think about where you want to be in 10 years and start planning how you’ll get there.