Common Themes Among High-Performing Credit Unions

Over the past three years, my first-hand strategic consulting engagements with more than 100 high-performing credit unions revealed several uncommon and common themes. The uncommon? Size, location, field of membership and charter. No two credit unions were alike – a testament to the localized and unique superpowers of credit unions. The common? Read on.

Defining high-performing credit unions was simple: A high return on assets (ROA) of 1% and above and sound net worth ratio (10% and above) yielded a return on equity (ROE) of 10%. In short, these credit unions had the capacity to grow 10% in assets each year with cash flow and profits from current operations. Membership growth was impressive (about 7%), but member lifetime value (revenue and profits) drove long-lasting success and sustainability.

So, how do they generate such a first-rate ROE? With all, or nearly all, of the elements listed below.

Lots of loan production. Back in the day (2019), loans-to-shares told the story of asset utilization. Enter stimulus funds in 2020-2021 and that ratio takes a break. Instead, a focus on greater-than-normal loan production offset the effects of share growth and rapid repayment speed. When loans-to-members approached saturation (around 70%), expanded fields of membership drove strategy. In all cases, these credit unions never decelerated marketing. Instead, they invested in more promotion.

A Northeast credit union enjoyed an 80%-plus borrowers-to-member ratio, but realized “there are only so many loans a member can hold.” It expanded its field of membership to a set of potential members closely aligned with its original field and took its proven loan production model to a ready group. High loan production continued because the credit union expanded its capacity for a fuller loan pipeline. And, it never stopped marketing.

Twice the industry norm for non-interest income. This was not about account maintenance fees; the basics of banking were pretty much free for all members. However, interchange, overdrafts and insurance sales dominated non-interest income. Strategies included instant debit cards, alternative products for underserved markets, and a wide array of insurance products (loans, homes and phones). Most importantly, each product delivered value to a member in great excess of the fee exchanged.

One Southeast credit union with a low net interest margin (but high ROA) set a strategic initiative aiming for a debit card in every member’s wallet – from day one of membership. The credit union knew that members’ loans would come in time, but members’ use of daily funds would begin immediately. The strategy provided for instant interchange income, but also payment data that helped in crafting unique marketing messages for loan awareness.

Low operating expense ratios. Revenue was the driving factor in strategic initiatives, but minding costs was a common business practice. These credit unions aimed to utilize automation, scale and outsourcing to capitalize on a classic case of comparative economics. In-house work was dedicated to the highest and best use of resources; all else expanded the use of partners for better returns and results. Growth and technology produced expense ratios that fell, while service and revenue metrics rose.

A West Coast credit union shifted the bulk of its accounting and human resources administration to a specialty CUSO. For the employees once in those roles, all remained employed with the credit union but performed new roles in sales, service and support. Their new contributions to the credit union provided more value – to the credit union and their professional fulfillment.

Lots of digital services. From mobile access to marketing to engagement, members could take care of business – start to finish – via mobile. Member experience was high; administrative costs were low. While branches remained relevant, they were advisory in nature, with members preferring self-service. Digital wasn’t limited to members – operations benefitted through automation, data decisioning tools and artificial intelligence. A credit union-wide, digital-first philosophy was prevalent.

“My largest, busiest and most profitable branch is right here,” an Ohio credit union CEO shared as he held up his iPhone. “I have the data, usage trends and financials to back up our continued investment in A-to-Z digital services. If our members can’t start, engage and finish anything with us outside of mobile, we are not leading at the speed of members.”

Business beyond retail. Retail deposits and loans built a business; new markets to serve extended and expanded the brand. Commercial lending, insurance services, wealth management offices, trust divisions and cannabis banking took the proven model of a credit union to new markets ready for growth. Every credit union generated significant revenue and profit from at least one of these ventures, and susceptibility to disruption lessened with expansion into these peripheral markets.

One Midwest credit union leveraged its history of being a retail “lender of choice” to being a small business “lender of choice.” Small businesses sped to the credit union because of its history in the region; business loans and services now represent a significant part of its stream of income (interest and fee-based), market share and public image.

As you expand, refine and enhance your credit union’s business model, consider the practices of credit unions experiencing and poised for growth. These methods aren’t reserved for a small set of credit unions – they are followed by a wide array that are delivering and receiving value every day. These credit unions are focused on creating value for members and, as a byproduct, are rewarded with profit, invested back into members and the credit union they own and choose for the long haul.

Jeff Rendel President Rising Above Enterprises Corona, Calif.