Dear Leaders & Directors,
For 35 years, Callahan & Associates has been trusted by thousands of credit unions to provide comparative analysis and strategic insight. Our 36th year will likely be nothing like the previous 35.
As we talk with credit union leaders, it is clear there are two priorities: Keeping employees safe and giving members the service and support they need. Nothing else matters right now. Nothing.
With that context, we thought we could use our insight and experiences to start a conversation around setting new expectations for the next 12-18 months. Bottom line: the definition and measurement of success likely needs to change.
There certainly are a great number of unknowns, and any analysis is full of assumptions. With that disclaimer, here is what we believe the macro-trends will be for the foreseeable future:
Loan delinquency will increase. Many members are facing unplanned economic hardship.
Expenses will go up. Pivoting business models quickly and doing the right thing by employees and members is not cheap.
Fee income will fall. Waiving transaction and penalty fees as well as lower interchange fees will lower fee income.
ROA will go down. Lower interest rates, lower fee income, and higher delinquency will lead to lower earnings.
In our experience with credit union management and boards, these are traditional metrics of success. As we face this crisis, we should remember the success our movement has had on traditional measures the past 10+ years. In 2019 credit unions grew capital by 10.6% to a total of $188.2 billion. The net worth ratio for the industry is 11.4%. This means credit unions have the ability and resources to be part of the solution in getting members and communities back on their feet.
This is why credit unions have capital, so they can invest it back into serving members and communities when they are most in need.
Every credit union has its own set of priorities and ways to measure success. And we believe in the mantra what gets measured gets done. We know many credit union leaders are already measuring success differently, but we’ve gotten several questions from others regarding where to start. Thus, we feel compelled to provide some guidance or frameworks for boards to consider changing the way they measure success.
Employee physical, mental, and financial wellbeing. Most credit unions compete on service, and that starts with the people who make you unique. As we navigate through this, how are our teams doing? Is there more we can be doing to support their wellbeing?
Member physical, mental, and financial wellbeing. How are we investing in helping members navigate this unprecedented time of uncertainty? How do we know if we are actively being part of the solution?
Community health and stability. For most credit unions, the communities (both geographic and SEG/common bonds) they operate in are suffering. Small businesses may need a helping hand, community organizations need assistance, and people need to feel their wellbeing matters, especially when it is safe to go back outside and start rebuilding bonds.
We encourage boards to look back in history. Picture yourself at the kitchen table when your credit union was founded. As those pioneers passed the shoe box around, how did they measure success? How do we measure up to that standard in today’s terms?
Now is the time for credit unions to distinguish themselves by being part of the solution to the challenges our society is facing. Your members and communities need you. There will be a time to get back to traditional measures of success and report on them with pride, but we urge you to rise to the challenge and think bigger and bolder in this time of crisis.
Together, our movement and our society will get through this. At Callahan & Associates, we are inspired by seeing the impact credit unions are already having. The next 12-18 months will be challenging, and your member-owners are counting on you. Please let us know how we can help.
—The Team At Callahan
Want to pass on a copy of this letter to send to your board? Download the letter here.