Big credit unions extend help to small peers — but there are trust issues

Credit unions with assets of $100 million or less don't necessarily have the resources to properly invest in marketing, technology and other needs. For these small institutions to grow, mentorship from a larger peer can be a valuable resource — but only to the extent that the organizations are able to trust one another.

Mentorship is not an uncommon practice, at least in the banking world. This year saw a surge in similar partnerships among banks of all asset sizes. In 2018, the Treasury Department created a Financial Agent Mentor-Protégé program where large financial institutions could partner with both minority/women-owned banks and smaller institutions to mentor them and assist with growth and development. One such mentorship is between JPMorgan Chase and the $338 million-asset Harbor Bank of Maryland. Chase provides its experts to aid Harbor Bank’s growth in varying sectors, and in turn Harbor shares successful tactics for serving low-income communities.

The Credit Union National Association is working to foster similar relationships, but smaller credit unions are sometimes deterred by the fear that a would-be mentor may be sizing them up for a merger.

“I’ll hear from the small credit unions themselves that they don't want to partner or collaborate, because they're worried the large credit unions are just trying to merge them,” said Peter Duffy, a managing director at Piper Sandler who has worked with credit unions on mergers and acquisitions for more than a decade. “The large ones are saying, We'd like to help those guys out, but they think we're just trying to buy them."

The concerns surrounding these partnerships are substantial, but so are the problems these credit unions are facing, Duffy said.

If these small institutions hope to not only retain members, but recruit new ones as well, the demand to upgrade core technologies and provide a larger suite of services is at the top of the list.

“For our membership, we saw the need that we were going to need to be more digitally present," said Karen Montgomery, CEO of the $23 million-asset Union Fidelity Federal Credit Union in Houston. "So we began to offer features such as remote capture, Zelle and we offer bill pay now."

Montgomery is a member of CUNA's Small Credit Union Committee, which recently published a white paper highlighting the main issues plaguing small credit unions and proposed strategies such as mentoring from larger institutions.

“We talked about the importance of cross-industry collaboration, whether that’s between small credit unions or among credit unions of all asset sizes, and the committee came back to the idea time and again that collaboration is the way to solve a lot of these problems," said Tom Sakash, manager of Small Credit Union Initiatives at CUNA and one of the authors of the white paper.

Dale Hansard, CEO of the $38 million-asset Caprock Federal Credit Union based in Lamesa, Texas, and chair of the committee, is himself engaged in one such partnership. Through working with a larger organization, Hansard says he’s given a unique perspective on what the future may hold for Caprock FCU and similar institutions.

“We’re an evolving small credit union, and we are growing,” Hansard said. “If we can get some real like-minded CEOs in the industry to work with our people, it expands their perspective and in turn allows them to help me see where the horizon is.”

But because smaller institutions can be suspicious of the motives of their mentors — even if they acknowledge the need for collaboration — such partnerships are few. CUNA and the Small Credit Union Committee are looking to step in and help facilitate the mentorships between the small and large credit unions and assuage doubts from either institution.

“If we could formalize something, I think that we would have active and willing participants on both sides,” Sakash said. “What I hear more now, is that small credit unions want to collaborate with the larger credit unions. CUNA has the ability to moderate this and ensure that whatever relationships occur are done for the right reasons.”

Sakash emphasized that collaboration has benefits for credit unions of all asset sizes.

“Smaller credit unions are able to innovate new products and be pretty nimble when it comes to creating services and serving members, and we see larger credit unions learning from those things that smaller institutions are able to do,” Sakash said. “It really strengthens the whole movement, when we can bring credit unions together and have them share ideas to serve members in new and innovative ways.”