Credit Unions See Significant FOM Expansions

Credit unions have been growing at a record pace in the last few years in terms of assets and members, but their potential has grown even faster.

The nation’s 5,551 federally-insured credit unions as of September 2018 had 116.8 million members, an increase of 10.5% over two years. Meanwhile, the number of potential members grew 25.6% as their definitions of fields of membership have widened.

An analysis of NCUA data by CU Times showed the biggest single impact came from Navy Federal Credit Union of Vienna, Va. ($96.9 billion in assets, 8.2 million members as of December 2018).

In 2016, the NCUA approved a change to Navy Federal’s FOM from military personnel to include veterans and their family members. That change meant its potential FOM went from 12 million to 150 million.

But even excluding Navy Federal, the two-year increase in potential membership was 20%, still twice as fast as actual membership growth.

And the industry can expect more gains this year. For example, Northwest Community Credit Union of Morton Grove, Ill., which reported $55.1 million in assets and 2,757 members as of Sept. 30, increased its potential FOM from 260,000 last year to 3.9 million this year after state regulators allowed it to add territory in the 9.5 million Chicago, Ill., metropolitan area.

Navy Federal and 43 others at least doubled their potential membership in the last two years and increased actual membership by at least 20%.

The reasons varied. While the NCUA’s decision increased Navy Federal’s FOM exponentially, it has been growing more conservatively with its focus remaining on military ties. But the bigger size helps it justify national ad campaigns, like its series of 30-second “We Know Veterans” television spots last year.

Navy Federal’s actual membership rose 20.8% in the 12 months that ended last September – twice as fast as membership growth for other credit unions.

It expanded with branches in Georgia, Florida, California, and Houston and Austin, Texas, where veterans tend to settle. This year it expects to add about 20 to 25 branches and gain about one million more members, according to Jaspreet Chawla, vice president of membership.

Navy Federal leans on its brand awareness and national ad campaigns for growth based on research on what media members use and how they prefer to be reached, Chawla said.

“Members are our best advocates,” she said. “They promote us to their friends and family.”

Mergers aren’t a factor for credit unions in the aggregate, and Navy Federal has had only two tiny mergers in recent years. However, mergers were a major force for FOM growth in many individual cases.

In early 2017, California Credit Union of Glendale acquired North Island Financial Credit Union of San Diego, which then had nearly $1.3 billion in assets and 73,486 members. As a result, California CU doubled in size, surpassing $3 billion in assets and 165,000 members. Its potential membership rose from 150,000 to 20 million, including about 900,000 new potential members from a redefined FOM.

As of December 2018, California CU had $3.1 billion in assets and 163,178 members, representing a net loss of 2,624 members over the past five quarters.

Superior Credit Union Inc. ($917.6 million in assets, 88,658 members) is based in Lima, Ohio, about 70 miles north of Dayton and 80 miles south of Toledo – which is to say it is in the middle of a rural swath of northwest Ohio.

President/CEO Phil Buell said Superior switched from a federal charter to a state charter in 2015 to allow it to expand more easily.

The community charter requirements of federal charters are suited to metropolitan statistical areas, which by definition are contiguous counties or cities with economic and social bonds. This doesn’t work for credit unions serving rural areas, where the common bond is dispersion.

“It’s really tough for a credit union in a rural area,” Buell said. “Rural America is not a growing population. That’s a long-term problem if you’re a financial institution.”

Superior has been trying to gain scale through mergers. In the last two years it has acquired five credit unions, adding $209.7 million in assets about 24,000 in members.

Overall, Superior’s membership grew 23.1% in the last two years, while its potential membership rose from 850,000 in September 2016 to nearly 2.3 million in September 2018. Mergers accounted for about two-thirds of its membership growth, while about seven to eight percentage points are from organic growth, Buell said.

Goldenwest Credit Union ($1.6 billion in assets, 137,495 members) started in 1936 as a credit union for employees of the Union Pacific and Southern Pacific railroads, which had hubs in its hometown of Ogden, Utah. Eighty years later, in September 2016, it had about 112,165 members and 750,000 potential members.

In the last two years, its potential members more than doubled to 1.9 million and membership has risen about 21%.

Kerry H. Wahlen, Goldenwest’s president/CEO, said about a third of its membership gain came from its acquisition of Health Care Credit Union of Salt Lake City in early 2017, when Health Care CU had $76.6 million in assets, 7,513 members and 25,000 potential members who were employees of a local hospital.

However, that merger also allowed it to add to its FOM all of Salt Lake County, Utah’s most populous county with more than one million residents.

The greater size has allowed Goldenwest to justify spending more on advertising to increase its awareness. Its marketing budget this year is about $1.6 million. The Salt Lake City media market encompasses nearly one million television households spanning Utah and parts of three neighboring states.

Goldenwest now has about 40 branches in Utah. “Our goal is to add at least two new branches per year,” Wahlen said, adding, “In today’s market, scale is everything. Scale drives efficiency and net results.”

Jefferson Financial Federal Credit Union of Metairie, La. ($963.2 million in assets, 55,419 members), has expanded in part through two mergers with two New Orleans area credit unions in the summer of 2017, and assuming the assets of a liquidated credit union in Selma, Ala., in December 2017. This year’s growth will include its $14.5 million purchase of three Synovus bank branches near Mobile, Ala., in a deal announced last September.

In the last two years, Jefferson Financial’s FOM has more than doubled to 1.4 million people and its membership has increased 28%. It is now the second-largest credit union in Louisiana and the largest in the New Orleans metro area, which encompasses 1.3 million people.

President/CEO Mark Rosa said Jefferson Financial has been careful to tag its records so it can assess how well it has fared with each of the acquisitions.

“We try to keep the database to look to see if we’re being successful, and had a little better penetration than the credit union before us. Generally that’s been the case,” Rosa said. “That’s why they agreed to merge: We could do something they otherwise couldn’t.”

Jefferson Financial has been building membership through advertising, good locations and competitive pricing. “You get those things lined up, and you can get some business out of it.”