Unique Visions Produce Extraordinary Results

Chip Filson examines credit unions that are performing phenomenally well in an environment that has many financial institutions struggling. The common factor in all of these cases is a unique vision which drives strategy.

In an environment that has many financial institutions, including credit unions, struggling, some are doing phenomenally well. Three include: a New Jersey bank with extraordinary growth, a credit union that helps faith based organizations, and a credit union offering expanded services to the University of Southern California. A common factor in all of these cases is a unique vision which drives strategy.

The planning season is over for credit unions. Now the focus is implementation. How will strategy and the plans for next year improve performance? The question is critical because many credit unions are facing performance challenges. Collective sharegrowth is in the low single digits, ROA is below 1% and operating expenses continue to rise.

While these averages are below par, within the credit union system 4,602 (49%)credit unions reported losing members, 1,427 (15%) had an operating loss and 3,166 (34%) had negative share growth for the year ended June 30.

But at the other end of the performance spectrum some organizations are reporting results that are literally off the charts. How do a few credit unions regularly achieve superior results, while the majority struggle to be average? I believea critical factor is the credit union’s visions and especially how it is translated through strategy into concrete results.

Before looking at credit union examples, there is a dramatic case of growth from the banking industry that demonstrates the power of a unique vision, one that defies the traditional thinking about how banks grow quickly.


One of the most phenomenal examples of year in and year out financial performance is Commerce Bank in New Jersey. Begun in 1973 with $1.5 million in capital, today the $29 billion bank is posting growth, earnings and expansion efforts that leave virtuallyall competitors in the dust. The most amazing factor is that all of the growth, contrary to virtually every other bank example, is organic. That is, the bank has increased its share by winning it in the marketplace rather than buying it through mergers-thetraditional bank growth strategy.

The numbers are shown in the chart below. The 39% compound annual growth in deposits has been achieved by delivering a superior service experience through an ever-widening branch network. These new branches have been opened in some of the toughestretail markets in the country: Manhattan and Long Island. The bank has achieved this growth while having a lower cost of funds than all of its well-known competitors.

The chart below tracks the growth in deposits, total branches and cost of funds for the past six and one half years.

The bank’s success has created much notoriety. The Harvard Business School wrote a case on the bank’s history and business formula using data through 2001. Imitators have tried to copy the strategy in many markets creating a frenzy for locationsto build new branches in selected markets.

Th Commerce model has even been given a name by the financial press: power banking, meaning the combination of heavy marketing, longer branch hours, extra branch staff and hooks like free coin-counting machines.

The Bank’s founder, chairman and chief spokesman Vernon Hill, has created a retail culture that is unequalled or as he states: It’s everything we do, from the way we expand, to the way we market, to the way we operate, to the way we hire.It is us.

Perhaps the best summary is the bank’s email address yesbank.com, which captures its customer service focus. While the vision may not be new, the execution is unparalleled

A Values Driven Organization

A credit union that for the last 10 years has a growth rate three times peers’ and an average bottom line performance 50% higher, is Evangelical Christian Credit Union in Brea, California. Today ECCU is $607 million in assets with total loans undermanagement of $1.4 billion, of which $522 million are on the balance sheet and the remaining amounts in participations with other credit unions.

Organized over 40 years ago, for the first three decades its focus was traditional consumer services. About 14 years ago the credit union began to shift its emphasis to the wholesale or commercial financial needs of the organizations from which it drewits members, that is churches, schools and other faith-based organizations.

What the credit union saw was underserved sponsors who needed financial expertise in cash management and developing expansion plans. The goal in the credit union’s words was to help God’s people become better financial stewards. Thisstrategy created a powerful alignment of the credit union and their sponsors’ missions.

Transforming the credit union took over 10 years of finding the expertise, developing the relationships, creating the best products and convincing regulators and lawmakers that this was a valid credit union business model. The strategy entailed differentrisk factors, with average loans in excess of $120, 000 and several loans in the tens of millions of dollars. New funding sources, primarily participations, were developed that entailed teaching other credit unions about their lending policies andrisks.

The most important change was aligning the credit union model around the needs of the sponsoring groups, rather than trying to drive products at the market. The change was facilitated by the alignment of values between the credit union and its sponsors.This ministry minded banking means the credit union does what it does well so that ministries they serve can do what they do better.

A Market within the Field of Membership

Until the mid-1990s the University of Southern California Credit Union had focused only on the faculty and administrative staff; the then $40 million entity did not admit students. In 1996-1997 the University approached the credit union about assumingthe cashier-bursar duties that were then done by University employees. These included collecting all student tuition, fees and other payment transactions through the school year.

The credit union agreed to take over the function, which saved the University almost a million dollars over a five-year period. As part of the agreement to help the credit union absorb any unrecovered costs, the credit union bought $20 million in studentloans that had been funded by the University. To serve these students and alumni, the credit union expanded its field of membership to these two new groups.

The cashiering function quickly became an entre to every student and their family. As the single point of contact for handling all of a student’s financial transactions with the University, the credit union opened two new offices in the centerof the campus. It became involved in the University’s annual Road Show orientations in Dallas, Chicago, New York and even Hong Kong, where the credit union’s role and advantages were part of the presentations. The credit unionwas an integral part of the two-week on-campus activity fair at the beginning of each semester. And it produced the orientation booklet.

The student accounts at the credit union were integrated with the campus card program. An electronic handshake was created for the credit union to move money to the University on behalf of students and their parents from the credit union or any otherfinancial institution. The credit union has become an integral and featured part of college life for every incoming student-a tremendous opportunity to engage the next generation of members.

The USC Cup Runneth Over

But the most important benefit was creating and managing the student loans under the U.S. Government’s Stafford and Plus programs. At the beginning of each semester about $40 million are created of these balance sheet friendly, variable rate loans.The credit union has outsourced the servicing and has forward commitments to sell the loans when the student leaves the university or graduates.

The credit union’s positioning within the student body has been so successful that it now is generating more loans than it can fund on its $200 million balance sheet. The credit union is in the process of developing the next leg of its strategy, whichis to ask other credit union to help with this opportunity-through purchases, participations or other forms of funding or securitization. Even with an ROA of 1.5%, share growth of 15% and a net worth ratio of 8%, the credit union is out of capacity.In addition through its CUSO, Education Loan Resources, USC is showing other credit unions how to implement value-added student loan programs.

What Makes for Extraordinary Performance

Last week we featured an article with the story of Whitefish Credit Union, another organization with phenomenal results over many years. What, if any, are common characteristicsof these success cases? I believe they all share the following factors:

Once defined, a strategic direction that is adhered to and constantly improved;
Focus on a specific field of membership rather than a mass market;
Creation of a superior value opportunity for members;
Close alignment, even integration, with the members whether this be physical proximity, shared values or a common community;
Enthusiastic leadership that enjoys sharing its message.

These are examples of credit unions with vision. If that is what really makes these strategies successful, then might extraordinary outcomes be within in the reach of many more credit unions?

The three credit unions profiled in this report all gave details of their strategies on a Callahan webinar. To order a copy of this event,click here for details.

April 19, 2016

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