Phillip Buell
By Ray Birch
LIMA, Ohio—One of the “top-performing” CUs in the nation says the key now—and certainly down the road—is diversifying the revenue stream.
As CUToday.info reported earlier, Superior Credit Union here was recently ranked second in the country among “top performing” CUs, behind Idaho Central, by S&P Global Market Intelligence.
S&P Global Market Intelligence ranked the nation's credit unions using five core financial performance metrics: member growth, market growth, operating expense as a percentage of operating revenue, net charge-offs as a percentage of average loans and delinquent loans as a percentage of total loans. To be eligible for the ranking, a credit union had to report more than $500 million in total assets and a net worth ratio of at least 7.0% as of Dec. 31, 2016.
Some of the reasons for the honor are clear in Superior’s performance data which is, well, superior—the $685-million credit union boasts 1.65% ROA, 14% capital, pays 65 cents to make a dollar, and delinquencies stand at 20 BPs.
CEO Phillip Buell cited an interesting formula that has helped put the credit union in its strong position. He said Superior relies a great deal on fees, but that the fees are well below the market average. For example, the CU charges $20 for an overdraft, while the median OD charge among all FIs, according to Moebs $ervices, is about $30.
“We generate a lot of fee income that actually offsets our operating expenses,” said Buell. “Now, some people might think that means we have a lot of high fees, but the situation is actually the opposite, and our business philosophy is opposite to that thinking as well.”
Fees Frozen For 15 Years
Buell said that if the credit union was looking to make money off the backs of its members it would charge more for overdrafts, which, again, are well below market average.
“We could increase our overdraft fee, still be below market, and pick up another million and a half dollars in overdraft revenue each year,” noted Buell.
Since the credit union has frozen fees for the last 15 years, Buell said that the ample fee income is derived from new revenue streams for which Superior Credit Union is charging fair, below-market fees.
“We are a $685-million credit union, but we service about $744 million in mortgages for Fannie Mae,” said Buell. “Fannie pays us, so we are generating fee income. We actually service over $1.1 billion in loans if we count our loan portfolio of consumer, MBL, and mortgages, as well.”
The credit union also has title insurance and property/casualty businesses that generate fee income. Moreover, Superior recently purchased a real estate brokerage company. Buell said the credit union views the additional business lines as value-added services members like having at the credit union, as well as additional revenue streams.
“So on all of these services we generate fee income. But these are fees our members are paying to someone else in our community, so why not get these services from us and pay a lower fee?” said Buell. “This is money that is going out of members’ pockets to someone else, so why not give the money to their co-operative?”
CUs Need Options
Buell said that it is time more credit unions begin adding additional revenue sources to keep up with regulations that are eating away at interchange and threatening to impact overdrafts.
“Interchange revenue has been important to us. If you look at our checking accounts, about 10 years ago 42% of members had an account with us, today that has risen to 55%,” said Buell. “It’s been wonderful to add so many checking accounts and the debit interchange has been great.
But moving forward Buell acknowledged that he is concerned about interchange.
“So the more we can diversify our fee structure, the same way we diversify our loan portfolio, and have different revenue streams coming in, the better off I believe we will be in the coming years,” said Buell. “All of these little streams make a river. But if one stream gets cut back, you have others to rely on.”
Superior is generating 1.6% ROA, well above peer. But Buell said that might lead some to think the credit union operates on a wide margin.
“But we do not. It would probably scare a lot of credit unions to operate on our margin, which is skinny at 2.37%,” said Buell. “Yet we are earning 165 basis points of ROA.”
14% Capital
Strong ROA has pushed Superior’s capital cushion to a very comfortable 14%.
“We believe in capital, but we don’t hoard it from our members because we give it back in great rates and low fees,” said Buell.
Superior’s No. 2 ranking by S&P Global is also contributing to the bottom line by attracting new members, said Buell.
“We are promoting the ranking locally with billboard advertising and press releases,” said Buell. “When people learn that we are the No. 2 credit union in the nation, they want to be part of it. It’s generated a nice vibe for us in our communities.”