NEW YORK-Small credit unions have always faced profitability and growth challenges. But ongoing assessments and projected new compliance requirements have many sounding more pessimistic than in quite some time.
Still, some small credit unions told Credit Union Journal, healthy reserve ratios and potential collaborations should help in if not overcoming, at least surviving obstacles to.
That is the collective opinion of a number of small credit union leaders and the head of the National Federation of Community Development Credit Unions.
"I think that among some small credit unions there is level of resignation and sometimes despair greater than I have ever seen," said Cliff Rosenthal, CEO of the National Federation of Community Development Credit Unions. "In talking to some of our members we hear more people close to saying that if the situation gets any worse, they are going to throw in the towel."
Rosenthal acknowledged the boost the Community Development Capital Initiative has given some small credit unions. And while many small CUs are doing fine, there are also large numbers fighting to make it. "It's just a struggle," Rosenthal said. "It's not defeat yet. But it's a struggle to keep on keeping on."
According to Helen Godfrey-Smith, the NCUA assessments have had a "devastating effect" on smaller-asset-size credit unions. "It's been a terrible blow to us," said the CEO of the $90-million Shreveport FCU in Shreveport, La. "With small credit unions' already narrow margins and lack of economies of scale, you are already under stress to survive and serve your members in this economy. And when there is an assessment you did not plan for it can send credit unions into a negative spiral where they have to reduce services to members in order to survive."
An outflow of members only makes things even that much more difficult to compete against the larger financials, observed Godfrey-Smith. "Now you can't be competitive and it's just a death knell, almost, for small credit unions."
Not only does it lead to cutbacks in services, but staff, as well, Godfrey-Smith pointed out. "This comes at a time when keeping up with regulatory compliance is extremely challenging for a small credit union."
Compliance demands could be the most challenging, sources agreed, especially with the Dodd Frank financial reform bill expected to lead to more regs. Nancy Mattox, CEO of $7-million Priority FCU in Russellville, Ark., said small credit unions can cope with growing compliance if they have a good data processing system. "Unfortunately many small credit unions do not, nor do they have the money to upgrade."
Hiring staff to address compliance won't likely happen due to budget limitations, said Mattox, who added small CU CEOs will continue to wear numerous hats, including compliance officer. "The compliance task gets very cumbersome and affects your ability to grow. You simply don't have the time to focus on the things you need to do to grow the credit union," she said.
The Need To Collaborate
More small credit unions must collaborate to find ways to reduce costs, improve ROA, and cope with compliance, asserted those who spoke with the Credit Union Journal. Such collaboration is taking place in Pennsylvania, said Richard Myxter. "The problems of ROA and compliance won't go away anytime soon. There needs to be greater and more effective collaboration," said the assistant VP for credit union development at the Pennsylvania CU Association in Harrisburg.
But Deborah Peters, CEO of the $19-million Incol CU in Old Forge, Penn., worries that solutions may not come in time for many. "We have large capital amounts, but how long we can sustain it is another story. This can't go on forever this way."
