Find Your Purpose, Find Your Path

For many credit unions, a rocky start to 2023 turned into a better-than-expected year, but that’s not to say it was an easy one.

In response to tighter liquidity and with few signs of relief in the near term, many credit unions intentionally slowed balance sheet growth. Competition for deposits remained intense, and — at 84.7% — the industry’s loan-to-share ratio at the end of the third quarter was near a five-year high.

Loan balances were up, too — 9.0% annually over the past year — although member borrowing is slowing and originations were down 30.1% from the first nine months of 2022. The net interest margin was wider compared to one year ago; however, it’s not expanding as 2023 progresses, and higher deposit and borrowing costs offset a pick-up in loan and investment yields. Third quarter return on assets of 0.75% was 13 basis points below 2022, but the 11.0% net worth ratio was 42 basis points higher than a year ago due in part to slower balance sheet growth.

These results reflect the impact of the Federal Reserve’s 18-month campaign to tamp down inflation and slow the U.S. economy. The strategy appears to be working. Inflation is trending down, and the Fed is pausing its interest-rate tightening for now as it waits to see how this cycle plays out. Most members of the Federal Open Market Committee now expect the Fed to cut interest rates at least once in 2024.

The Mortgage Bankers Association reported a 33% decline in mortgage originations through the first nine months of 2023, due to both higher interest rates and low housing inventory. However, unemployment remains low and consumers are still spending. New car sales were up 12% through October 2023 versus 2022 and revolving debt was up 15% over the same period.

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For credit unions, there are opportunities to support members in the new year. Banks are pulling back from both consumer and small business lending. Fintechs are navigating an interest rate and economic cycle they have not previously experienced. Credit unions can expand relationships, particularly in lending, as the competitive dynamics shift.

Still, the 2024 outlook for many credit unions is cautious. Efficiency is a priority as credit unions look to manage expense ratios at a time of low — or even negative — balance sheet growth. Investments in technology and people, with an eye toward improving member service, are ongoing, but evaluating and prioritizing initiatives is an important part of the planning process given growth expectations.

Purpose As A Differentiator

As credit unions look to differentiate themselves from their competitors, more are engaging in discussions about their institution’s purpose. A purpose statement should capture why a credit union’s work matters. It should reflect a connection between the organization’s authentic, distinctive strengths and the needs the credit union is addressing.

In planning sessions Callahan has facilitated where purpose is on the agenda, discussions are not just about wordsmithing a slogan. They are focused on thinking deeply about the credit union’s role for the members and communities it serves. The dialogue often includes some reflection on the credit union’s history, a discussion of the current economic environment — particularly local conditions, what help members seek out from the credit union, and the credit union’s aspirations for helping members and the community.

A well-defined purpose drives member and employee engagement, which in turn drives sustainable growth. Learn more in “8 Steps For Building A Purpose-Driven Growth Strategy.”

There is good reason credit unions are investing time and thought into purpose. Research shows nearly two-thirds of consumers globally look to do business with companies that are belief- or purpose-driven, are a positive cultural force, and are authentic. The latter is essential as consumers, particularly younger generations, quickly see through inauthenticity.

Consumer preferences are important but so is performance. The Boston Consulting Group studied 25 large publicly traded U.S. companies in the consumer, technology, and financial services sectors over 10 years and found a strong correlation between companies with a deeply embedded purpose and

their stock market performance.

Finally, MIT Sloan Management Review reports that nearly three-quarters of employees say it is “very important” they work in an organization with a purpose they believe in. Employees are critical to ensuring an organization lives its purpose, although in the same survey only 25% of respondents said their organization was as purpose-driven as its leaders believe it to be. In other words, although authenticity is important, so is action.

Bringing Purpose To Life

Four key elements ensure purpose is embedded across the organization and acted upon on at all levels.

The purpose is clear and compelling. Has leadership communicated the purpose in a way employees know and understand? To ensure employees across the organization understand the organization’s purpose, it can be helpful to share the context of why leaders chose to include certain words in the purpose statement. For example, including the word “cooperative” provides an opportunity to reinforce the unique aspects and benefits of being a cooperative. If “members” is included, it is helpful to clarify this means not only current members but also future ones and that members could be businesses as well as individuals. Clarifying the meaning behind the words is an important step in limiting ambiguity and misunderstanding among employees.

The purpose is inspiring. Simon Sinek’s TED Talk on The Golden Circle underscores the importance of

understanding an organization’s “why.” According to Sinek, companies across an industry essentially do the same thing — Apple is a technology company, credit unions and banks are financial institutions. Some organizations create differentiated value by how they do what they do — Apple designs user-friendly devices, credit unions provide great rates and service. But the emotional connection with a

company comes when it explains its “why.” Apple’s is grounded in the “Think Different” campaign from the late ’90s. It innovates better than other technology companies because its leaders think differently compared to every other computer company, and its employees are inspired and driven by this approach.

The purpose guides business decisions. This step is the most important and the most challenging to implement. For some companies, it is helpful to provide a list of questions tied to the purpose statement to use as a filter when making strategic decisions. Leaders can reinforce purpose by highlighting examples of how they used it to address member needs in product or service delivery decisions or how employees have delivered on purpose through their actions.

The community recognizes the purpose. If a credit union addresses the above elements, members — and ultimately non-members — will see and understand its purpose. This provides growth opportunities as consumers respond to an organization that is authentically living its purpose.

Purpose In Today’s Environment

Members are paying higher prices for daily expenses and for housing; they are managing debt; they are looking to live within their means; they are looking for help. Credit unions are designed to step toward challenges like these. Providing members with education, guidance, and solutions is how credit unions can deliver on their purpose. In an uncertain economy, purpose that is authentically lived can be an advantage. Today’s environment presents an opportunity for credit unions to demonstrate their difference.

Let Your Purpose Guide You

With the right leadership skillset, your credit union can outperform the market, attract and retain top talent, and improve your organization’s impact — and Callahan can help. Join the hundreds of credit union leaders who have learned how to do well while doing good. Don’t wait! The deadline to apply for an upcoming cohort is Jan. 17, 2024.
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