FORT LAUDERDALE, Fla. — At the NASCUS State System Summit here, Dr. Jim Likens, president and dean of the Western CUNA Management School delivered an assessment of CU balance sheet and growth challenges and some ideas for how they can be faced up to without losing the CU spirit. He did so in an amusing way, managing to make the audience laugh at some stark economic data.

Likens reassured listeners by saying, “The economy will not collapse,” but then gave a presentation of the usual CU ROA model, predicted on actual ROA and covered the squeeze on margins. He showed that it's impossible to predict real ROA except when CEOs manage it by lowering deposit rates (usually downward) to gain ROA. “When loan demand was down credit unions didn't need liquidity and it worked! But banks grew and credit unions didn't, so what else?”

He covered the relationship to asset size and ROA in year 2006. Credit unions with assets of more than $1 billion number 116 and only three are losing money, with 15 CUs having an ROA of less than .50 and 98 having an ROA higher than .50. In the $500,000-$1 billion range (176) three lost money, 33 had ROA less than .50 and 140 had ROA greater

than 50.

Of 656 CUs with assets of $100 million-$249 million 49 lost money, while 156 had ROA less than .50 and 451 had ROA greater than .50. It's the smallest credit unions ($50 million) that have the hardest time earning over .50 ROA. Of that category (6542) 829 lost money, with 1,927 earning less than .50 ROA and 3,786 earning more than .50 ROA.

Likens noted the consolidation in the CU world and how large credit unions are becoming ever-larger credit unions. “The share of the 200 largest credit unions ($627 million and up) have a bigger share of wallet than other credit unions,” he said.

The economies of scale that go with size, allowing such CUs to have lower operating expenses was “the key to everything,” said Likens. “As you move north (from smaller to larger CUs) it gets better. But this is not a funeral for all small credit unions,” he hammered; there are some that have low operating expenses. The key for the small CUs is their field-of-membership. A good FOM is essential, along with finding and keeping a good board and having competent management.”

Have a Voice

Obviously, scale isn't enough by itself to assure profitability. “You need a voice and you must use it to speak to your market. It's the small credit unions in the small markets that can have an advantage. It's tricky, but no credit union in Los Angeles County or Orange County is big enough to serve those counties. So large credit unions in large markets can have a disadvantage,” said Likens.

Marketing is an even bigger challenge than ALM, said Likens. Then he showed a series of slides of

what he thought were the worst examples of CU ads. Most were just so copy heavy that a viewer's eyes couldn't locate a message–if there was one at all. And many used the clip art and photos available online for little or no cost. “Who are these ghoulish people who appear towering over columns of words? Where do they come from?” asked Likens as the audience howled in recognition.

“It all starts with feeling. And you can't sell anything to someone unless you are already on their short list,” he said, with a nod to credit unions developing a solid brand before trying to sell a loan or a service.

He took a swipe at doomsayers who believe “we're becoming a nation of burger-flippers because of the growth of the service sector. Are we good at agriculture? Yes! We can give ourselves diabetes with only 2% in agriculture.” So the idea that we're so good at creating service jobs is a death-knell for a good economy is nonsense, he believes.

When it comes to changes in ethnicity, the inflow of immigrants has been responsible for the changing face of the workforce (with Hispanics and Asians the fastest growing groups) and without that inflow, many states wouldn't be growing at all, Likens said. “Lou Dobbs tells us what to think and it must be true because he's on television,” he bellowed. “He's a blithering idiot!”

But immigration must be considered carefully as it pertains to human resource issues in the workplace, Likens posited, especially because the workforce is no longer growing. “We're living longer and having fewer children–even worldwide–in China and India that's true.” Likens hasn't told his granddaughter yet that she will have to help pay for the fiscal problem of the 21st Century: the ballooning costs of social entitlements, Social Security, Medicare and Medi-caid as a greater percentage of Gross Domestic Product. He showed her photo on the screen and the audience melted. “This is a $51 trillion gap and it amounts to $159,000 for each of us; or, we can let our children pay it off with interest when they grow up.” He snorted that the current administration and Congress' answer to this was to pass a bill to include prescription medicine coverage.

“We continue to cut taxes and expand program benefits. This is life in a democracy. Many Democrats advocate more spending and support taxes to pay for it. Many Republicans advocate more spending and cutting taxes to pay for it,” Likens said. This dilemma of fixing Medicare is easily handled with a choice of three options, he said. Raise taxes permanently by 57%; raise payroll taxes permanently by 79% or immediately cut Medicare by 83% and let benefits grow at projected rate thereafter. None of which will ever come to pass.

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