They say everything’s bigger in Texas, and if a new credit union service organization is successful, that will apply to credit unions, too.
The CUSO CU Evolution aims to narrow the number of small credit unions by helping boost those institutions above the $100 million-asset mark.
Launched by $24 million-asset Living in Fulfillment Everyday Federal Credit Union of Denton, Texas, along with $14 million-asset Family 1st of Teas FCU, CU Evolution plans to offer customizable services that allow CUs to select specific areas of focus such as board leadership, succession planning, marketing and more.
However, the big question remains: What can a CUSO co-owned by two credit unions totaling $40 million offer small CUs that’s not already being offered elsewhere?
According to Deke Alexander, CEO of CU Evolution and chief lending officer at LIFE FCU, one key differentiator is that the CUSO is owned by small credit unions rather than regulators or trade groups, giving its leaders unique insights into their clients’ challenges.
CU Evolution is currently working with 11 institutions, including its two owner credit unions. While all 11 CUs are currently Texas-based, the goal is to grow regionally within the next 18 months and to go national within three years.
The CUSO’s clients "are small and that is their unique competitive position, which we would never seek to change," explained Alexander. "When we talk about growth, we are talking about building a sustainable, revenue-generating model that ultimately gives its largess back to the members. We’re not talking about a small credit union exploding in asset size overnight."
According to call report data, LIFE FCU posted a loss of just over $250,000 during the first three quarters of 2018, compared with a $170,000 loss during the same period last year. Co-owner Family 1st realized losses of more than $111,000 through Q3 of this year but just a $23,000 loss for the same period of 2017.
Alexander conceded that while the CUSO has yet to establish a methodology whereby it will determine success, a one-size-fits-all strategy is not in the cards. Rather, he said, “we will collaborate with each [credit union client] individually to determine what success looks like for them.”
One strategy the CUSO won’t take, however, is attempting to make small CUs more attractive merger targets for larger institutions.
Credit unions with under $100 million in assets make up the lion’s share of the industry’s overall number of institutions, so CU Evolution will have no shortage of potential clients, but there are also plenty of competitors.
Chief among them is the National Credit Union Administration’s Office of Small Credit Union Initiatives and Office of Credit Union Resources and Expansion, which provide training on regulatory and supervisory matters, offer resource guides, webinars and more. And Alexander signaled a willingness to work in concert with other CUSOs attempting to help small CUs grow.
"We believe that individual credit union’s success rolls up into larger success for the movement," he said. "Imagine if 4,000 people all have an amazing experience with their credit union. If even half of them encourage a friend or family to join their local cooperative, that's 2,000 lives changed for the better. That’s the vision we see for the movement, and it starts with the small credit unions that have the trust and the loyalty of their members already."
A rising tide lifts all boats?
Despite services already available for small CUs, a number of voices within the industry were bullish on the new CUSOs chances to help grow the movement.
According to Guy Messick, president of Messick Lauer & Smith, Media, Pa.-based law that advises credit unions and CUSOs across the country, small CUs in particular face needs around receiving strategic assistance.
”Small credit unions face big challenges in survival and quite often they have negligible net interest margins,” he said. ”In some cases, their net interest margins are actually negative. Thus, a CUSO that targets smaller credit unions can be very beneficial.”
And, he added, small larger institutions tend to be more likely to utilize credit union service organizations, so “a CUSO focusing on smaller credit unions can provide crucial services.”
The concept of a one-stop-shop for small credit unions could also be a crucial differentiator, said Jack Antonini, president and CEO of the National Association of Credit Union Service Organizations.
“While smaller credit unions can find other sources to help evolve their strategic planning, lending, leadership and marketing capabilities, finding it all in one place with experienced credit union leadership is more challenging,” he said. “Having a CUSO partner who is there to help with your challenges, and understands what it is like running a smaller credit union should be a significant asset in helping small credit unions to focus and grow.”
Looking for partners
Alexander said the CUSO aims to become an extension of its client credit unions’ staffs, and pledged to ”stick it out to see the plan we develop collaboratively all the way through."
For now, CU Evolution will market itself by word of mouth with two different pricing tiers: CUs can either become a member of the CUSO and pay 4 percent of its annual gross revenue or become a member-owner, requiring an additional investment and 2 percent of annual gross revenue.
"We want to help [CUs] serve members better," Alexander said, adding that helping boost lending will be a key component of that mission. But, he noted, there are some tough lessons to be learned in that arena.
Credit unions, he warned, "have to get serious about their risk tolerance, and those are scary conversations to have," especially at the board level.
"We’ve had those conversations with our early clients, and they have sparked a tremendous mindset change, which ultimately leads to growth and a better member experience," he added.
