Losing Your Core Sponsor: Creating a New Blueprint for the Future

To help all credit unions that have faced losing a sponsor, 5 consultants respond to the challenge faced by Circle-W Credit Union in this theoretical case study.

Below is a theoretical case study of a fictitious credit union we call Circle-W Credit Union. Circle-W CU’s situation is outlined and its financial data presented. Circle-W’s predicament is not unfamiliar to credit union observers.It has been forced to separate from the single sponsor that has supported it since its inception. Now it must construct a new future for itself.

But what kind of future, if any, should be built? A while back, we sent the following case study to a number of interested parties inviting them to make recommendations for how Circle-W management should proceed. We invited them in effect to draft blueprintsfor what they believed would be the best construct for Circle-W given its present circumstances and marketplace.

We are publishing five replies and a varied lot they are, both in form and in content. Some are presented in outline, some as essay, some as concise points. While written during a different economy,the responses hold true for today’s credit unions as well. Respondents had different ideas on how the credit union should reconfigure itself. The variety of these blueprints for the future alone demonstrates that credit unions operate in a universeof possibilities limited only by imagination and the wherewithal to deliver on what imagination conceives.

Asset Growth 6.00%
Loan Growth 5.50%
Share Growth 4.90%
Member Growth 2.50%
Loans/Shares 81.79%
Capital/Assets 14.02%
Interest Income/Avg. Assets 5.80%
Cost of Funds/Avg. Assets 2.56%
Net Interest Margin 3.25%
Operating Expenses/Avg. Assets 2.95%
Loan Loss Provision/Avg. Assets 0.34%
Non-interest Income/Avg. Assets 1.46%
ROA 1.15%

Circle W Case Study

Samantha Sam Mitchell recalled what Harry Truman had said when he suddenly learned he would become president of the United States: It felt like a bale of hay had landed on me. Sam felt that way now. She had just walked outof a meeting with her liaison to Circle-W Industries. Of course she knew change was in the air, but this much change? And a whirlwind rather than a stiff breeze?

Circle-W, she learned, was being sold to an international buyout fund, and some of its operations transported overseas. She’d suspected that. But she hadn’t suspected the degree to which the new owners were ill disposed toward credit unions.She’d now been told that Circle-W Credit Union (CWCU) would within 18 months have to surrender the name it had proudly worn since its inception at the first Circle-W factory in 1937.

In addition, the credit union would no longer be able to retain its five offices in four scattered states within Circle-W Industries plants and office buildings. It had only two branches off-site. One was on land and in a building CWCU owned in Missouri; the other was rented in a suburb of Denver where it served CircleLight, a company Circle-W Industries had spun off five years before. Sam knew that the five officeson Circle-W Industries property were saving the credit union $1 million a year. Another benefit of Circle-W Industries was that its HR department largely took care of the marketing and advertisingefforts of the credit union, which in any event was relatively small owing to the captive market.

Credit Union Snapshot

Back in her office, Sam tried to shrug off some of the weight she felt from the bale of hay. She assessed the credit union’s position. It had $500 million in assets and 50,000 members, who as a group were older than the national creditunion average. Twenty percent of the members were Circle-W Industries current employees; the rest were former employees and family members. Delinquency was far below average for the credit union’s peer group. Its capital ratio was 14% and ithad enjoyed a high ROA for the past 10 years (115 basis points on average), not the least owing to low expenses largely on account of the free office space in four branches. Itsexpense ratio was 2.95%. On the other hand, growth was somewhat below their peer group average.

Sam immediately began to think about the credit union’s options. CWCU’s headquarters branch was just outside a significant metropolitan area and she reckoned that with a community charter the potential membership would be 200,000 persons.The credit union had for decades co-branded with Circle-W Industries and was perceived by the public as an exclusive benefit of employment. The market around her headquarters office was not dominated by any one bank or credit union. Rather there werequite a number of community banks and other credit unions, none of which enjoyed more than a 5% market share. Three hours drive away, in the city that was the economic center of thestate, was a $2 billion credit union, formerly representing state employees. It now had a community charter, and it enjoyed a high degree of technological sophistication aswell as respectable growth.

Ready for Change?

Whatever course Sam might wish for the credit union she wondered if she herself might be a liability; she had been with CWCU 15 years, and a very large part of her job was maintaining a good relationship with the Circle-W Industries corporation. Now thatrelationship as she had known it was going to vanish. Moreover, her six senior managers averaged 20 years each with the credit union, and they were more suffused than Sam was with the comfortable single-sponsor way of doing business. Nor was the Boardany more prepared for significant change; all of its members were current or former employees of Circle-W, and all of them more than 60 years old.

But ready or not, change was going to have to come. And Sam’s planning session with her Board is scheduled in one month.


1. As presented, what are the key issues the Board needs to be considering at their planning retreat?

2. Given the state of the industry today, what options (strategic and tactical) should Sam be presenting to her Board for consideration?

3. What process should the Executive Team and Board use to evaluate options?

4. Is there any additional information that would be essential before making a decision about the credit union’s future course?

5. Given the facts as presented, what direction would you would recommend for the credit union?

Six credit union industry leaders weigh in on Sam’s questions. Click through the Subscriber Package: Losing Your Core Sponsor articles below to read advice and opinions from Chip Filson, Tony Ward-Smith, Jim Cardwell,Randy Karnes, and Rhonda & Kelly Cooke.

Subscriber Package: Losing Your Core Sponsor
Creating a New Blueprint for the Future
Chip Filson:Overcome the Emotional Barriers to Change
Tony Ward-Smth:Reassess Your Purpose To Survive In A Competitive Market
Jim Cardwell:Take Inventory To Achieve Success
Randy Karnes:Focus On Members’ Needs And Your Core Values
Rhonda& Kelly Cooke:Financial Strength And Time Make This Challenge Manageable

April 7, 2016

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