Winning On 'Survivor'

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For many small credit unions, "Survivor" is more than just a popular TV show-it's their frame of mind every day.

As The Credit Union Journal reported May 10, 25 credit unions of $5 million in assets or less were involved in mergers during March alone; 50 similar-sized CUs were eliminated during the first quarter. And all that follows the 200 small CUs that were liquidated or merged during 2003.

All of those gravestones prompted Elliott Gregg, chairman of the Washington league's Government Affairs Committee, to ask regulators in attendance at a Small Credit Union Roundtable here, "Help us understand why credit unions that don't make it, don't make it."

As previous research from the Filene Research Institute has revealed, often, whether a small credit union survives or prospers is the result of a simple choice to do so. Linda Jekel, who heads up the Washington Division of Financial Institutions' Division of Credit Unions, observed, "The survivors that choose not to merge are saying 'how do I compete?' instead of 'I can't compete.'" She added that one solution has been found in a combination partnership of improved communication and education between the credit union's management and board.

For those credit unions that have disappeared, Jekel cited three primary reasons that her agency most often encounters: continuing difficulties with controlled growth under prompt corrective action; a lack of succession planning and retirement benefits, and increased competition. "The competition is so fierce. A lot of smaller credit unions say they can't offer the services they need and they decide to merge."

Melinda Love, director of NCUA's Region V office, listed other reasons affecting survival rates of small credit unions that have been assembled by NCUA Chairman, JoAnn Johnson, including:

* Expanded services: "Sixty-nine percent of credit unions merging nationwide are saying they want to expand services."

* Income pressure: "Thirteen percent of merged credit unions attribute mergers to poor financial conditions. Smaller CUs have less reliance on fee income. Small credit unions are more dependent on loan and interest volume. In a low-interest-rate environment you guys are hit hard."

* Declining membership base: "Eight percent cite declining field of membership."

* Inability to attract new board members and qualified staff: "Six percent identify their inability to obtain officers."

* Management woes: "Two percent cite poor management."

Many of the approximately 40 small credit unions represented at the roundtable told regulators that what would really help is regulatory relief. "Survival is the biggest issue we face," said Demaris Krummel, CEO aof the $3.8-million Inland Empire Trades CU, Spokane, Wash.

Byron Edgett, chairman of the Washington league and president of Spokane FCU, said The USA PATRIOT Act is a major regulatory burden for small CUs. "The penalties could put a small credit union out of business and the CEO in jail," he said.

But the regulators on hand responded that they share much in common with small credit unions. In response to criticisms about inconsistencies between regulators, Texas regulator Harold Feeney said, "Our operations are just like yours. State regulators are not the NCUA. We don't have unlimited resources. We have much responsibility, a small staff and limited resources just like you."

But many of the factors contributing to the decline of small credit unions are internal, according to Feeney, a former chairman of the National Association of State Credit Union Supervisors (NASCUS). Feeney said there is an aggressive merger climate in Texas where larger credit unions are encouraging smaller healthy credit unions to merge. "They offer incentive packages," said Feeney. "There was one situation where a president's bonus was predicated on how many credit unions he acquired."

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