RUSSELLVILLE, Ark.-The only way many small CUs will generate enough ROA to stay in business is to increase unrelated business income, according to one small credit union CEO.
Nancy Mattox has assumed the helm of the troubled $7-million Priority FCU here and said she is turning the ship around-ROA will soon be above 1.5%-by generating unrelated business income. She told Credit Union Journal the approach is "radical" for many small credit unions, but insisted it is the only way her credit union, and many other CUs of the same size, can avoid merger.
"Unrelated business income is where we are going to make it," said Mattox, who came out of a five-year retirement after leading Seaboard CU in Jacksonville, Fla., for 25 years. NCUA asked her to take over as CEO a few months ago, after placing PFCU under Prompt Corrective Action. "Small credit unions do not have to go to fee income to make it. With ROA pressure, raising fees is usually what people think of doing. But that really hurts members, runs them off, and does not help the credit union."
Mattox has PFCU offering gap insurance, guaranteed life, identity theft protection, and credit life and disability. She credits those offerings for bringing ROA-after setting aside for assessments-to 1.09% this year from negative levels in 2009. Mattox predicts ROA will hit 1.5% by year's end.
Mattox contended that many small CUs avoid unrelated business income opportunities because they are afraid to offer something different, are concerned about regulators, have boards that don't like change, and don't like offering products that are not endorsed by the trade associations. "I recently talked with 10 small credit unions in Tennessee, Arkansas, and Florida and asked them what is the danger of offering these products," Mattox shared. "They could not cite any reasons, yet they still hesitate. Are they afraid of CUNA, so they think they better take on a CUNA product and not make as much money? You go to the companies that can help your bottom line. Some credit union leaders are old-fashioned and prefer to use the trade associations, which is very sad."
While at Seaboard, Mattox had the credit union generating significant unrelated business income and grew the credit union rapidly, she said, while growing assets. "We kept up the income stream and our ROA-over 1.5%," she said.
At PFCU, Mattox has continued efforts to reduce assets to boost net worth, now at 7.52%. Net worth has risen in part due to a decline in assets to $7-million from $8 million when 2010 began. "You just can't dry up on the vine and keep losing assets," Mattox said. "We want to maintain the assets we have now, but not rapidly grow them. We have improved net worth the first half of the year primarily because we lost assets. We'll increase net worth in the second half of the year due to income."
An identity theft protection product will play a big role, Mattox insisted, as it is the most lucrative of the non-core products. Identity Theft Shield, offered via Pre-Paid Legal Services, charges members $12.95 a month to cover an entire family. The CU gets $40 from the sale. PFCU gets $25 from the sale of an Allstate workplace guaranteed life insurance product, with potential for residuals of 5% of the premium. "What makes this product so attractive is that no one can be turned down for the $20,000 coverage," Mattox said. The CU's gap insurance and credit life and disability are offered through CUNA. Gap returns $100 per policy, and Mattox termed credit life and disability revenue "nominal, at this time."
