The past few years have been a difficult time for credit unions to generate net income. Consumer loan demand has been weak and interest rates have been low. Operating costs continue to rise. Intense competition has suppressed rates and services fees andregulatoryscrutiny is leading credit unions to reduce or eliminate risk. Credit unions need answers, and Veridian Credit Union, a $2 billion cooperative enterprise based in Waterloo, IA, is finding solutions in several sources.
At year-end 2011, approximately one-third of credit unions reported having an investment with a Credit Union Service Organization (CUSO). Veridian invested in its first CUSO in 1990and to date has investments with two CUSOs: The Veridian Group, a wholly owned subsidiary of Veridian Credit Union, and Student CU Connect, a student lending CUSO that caters primarily to ITT Technical Institute students.
We got into CUSOs because we were looking for non-interest incometo help offset the escalating costs of insurance and benefits, says Jim Kacher, chairof Veridian Credit Union’s board of directors. We looked for other areas, alternative ways to keep costs down, other than just from the members.
As the financial world evolves, Veridian continues to see value in the opportunities CUSOs offer. For example, The Veridian Group is invested in six CUSOs [see sidebar in 4Q 2011 CUSP] and over the past 22 years has built a reputation as a go-to resourcefor conversations about CUSOs and other ventures that support the local economy.
We’re mostly an investmentCUSO, for lack of a better term, says Nick Evens, president of The Veridian Group. A lot of people only investin CUSOsthat they’re going to use the service or product. We don’t necessarily take that attitude. First and foremost, we look at if it is a viable product.
Although it doesn’t invest in every opportunity, it is aggressive in what it does consider. The credit union’s amenable attitude makes it an approachable collaborator, and when it comes to investing in its community whether that communityis defined as Waterloo, Iowa, or the larger credit union system Veridian practices how thinking.
We’re open-minded, Evens says. So a lot of opportunities come our way.
Adventures With Venture Capital
In addition to its CUSO investments, the credit union invests in ventures that are geared to spur economic growthin Iowa. Veridian’s total investments and trading increased 9.7%to $11.2 million in December 2011 compared with $10.2 million in December 2010, according to Callahan & Associates’ Peer-to-Peer software.
The state of Iowa credit union code has a provision that allows credit unions to invest a small percentage of their assets in small businessor venture capitalfunds that are headquartered in Iowa, says Monte Berg, senior vice president of finance at Veridian. The intent of the code is to encourage economicdevelopmentand new business investment in Iowa.
According to the code section 533.304 credit unions can invest up to 5% of their assets, but a Veridian board policy limits totaldollars invested in venture capitalfunds and small businessesto 1% of net capital.
Because this area of investing is new for Veridian, we have taken a conservative position, Berg says.
Want to learn more? Watch the video series: Anatomy Of A Leadership Culture. Read more about Veridian Credit Union’s leadership culture in the forthcoming 4Q 2011 edition of Credit Union Strategy and Performance (CUSP).