MADISON, Wis.–Those small credit unions that aren’t just surviving but defying “stereotypes” and thriving are doing so because their leaders have a “puzzle-solving mindset,” according to new research being released by Filene and CUNA Mutual. The organizations say the findings also apply to larger credit unions.
An overview of those findings was shared during a webinar that was part of CUNA Mutual’s Discovery Series and which was appropriately titled, “Thriving Smaller Credit Unions: The Value of a Puzzle-Solving Mindset.”
The webinar was led by Taylor Nelms, senior director of custom research at Filene, and also included Carma Parrish, CEO of NorthPark Community CU, which has undergone a transformation in recent years that has turned the CU’s operations around. Parrish and her credit union have been featured several times in CUToday.info, including here and here, for taking some bold steps that have included closing all of its branches.
In this, the first of the two-part series, CUToday.info offers an overview of the research and some of what it revealed. In part two, a Q&A between Nelms and Parrish that touches on the five “puzzle pieces” and how her credit union has successfully put them together will be featured.
To identify those thriving CUs, Nelms said Filene and CUNA Mutual spent a year reviewing 15 years’ worth of performance data, complimented by six months of qualitative research that included interviews, in addition to two rounds of listening sessions. That, in turn, led to the creation of seven case studies to better understand the drivers of success, according to Nelms, who said Filene and CUNA Mutual have now arrived at a “novel framework for understanding and achieving success at a small credit union.
Nelms noted the vast majority of credit unions in the United States are small in terms of asset size, pointing out that at the end of 2021 there were almost 4,000 credit unions (75% of all CUs) under $250 million in assets, a number that has sharply declined since 1979 when there were more than 17,000 credit unions with under $100 million in assets.
Taylor Nelms
As CUToday.info has frequently reported, Nelms said aggregate CU data indicate all CUs are thriving, but driving down into the numbers shows many smaller CUs are struggling, and as reported here, new NCUA data for Q3 show all asset categories below $1 billion posted negative member growth during the prior year.
A ’Surprise’
But that’s not true for all, Nelms said.
“I think folks may be surprised…but between 2020 and 2021 credit unions with less than $250 million in assets with the fastest member growth actually outperformed the industry at large, not only in terms of member growth but also in terms of asset growth and loan growth,” he said. “In 2021, those same credit unions in that top quartile of fastest growing credit unions under $250 million in assets had effectively the same ROA as a peer group of credit unions that averaged around $5 billion in assets. So, there is a group of smaller credit unions that again are not only surviving, they're actually thriving in a really competitive and challenging financial services landscape.”
What are Thriving Small CUs Doing Differently?
The question going into the research project conducted by Filene and CUNA Mutual was a simple one, according to Nelms: What are thriving small credit unions doing differently?
In general, while many small credit unions are viewed as constrained and even vulnerable, Nelms said the thriving CUs “defy stereotypes” and leverage their strengths to be “flexible, committed, member-focused institutions that are keyed into the needs of their particular markets and communities.
“Ultimately, one of the big learnings is that what drives success at small credit unions also works at big credit unions,” shared Nelms. “It’s universal.”
Puzzle-Solving Mindset
Emerging from all of the work and research is what the two organizations are calling a “puzzle-solving mindset,” according to Nelms. The leaders of successful small CUs “embrace the challenges of running a small credit union like it is a puzzle to be solved,” he explained. “This puzzle-solving mindset seeks to generate the right fit between a credit union-specific membership and market, its organizational identity, its many internal and external stakeholders and, of course, its balance sheet and financial metrics.
“In sum, what we've learned is that size is not the same as market relevance or impact, and small credit unions have many strengths,” he continued. “They serve focused markets with strong and distinct value propositions. They evaluate their success not just on the basis of asset growth by itself, but in terms of how well they're serving their members or fulfilling their mission. They lend very deeply into their memberships and often focus on cultivating loyal relationships with their members to create pipeline value. They prioritize high-payoff products and services as well as strong service, and they make quick decisions, collaborate actively and innovate with a DIY mentality.
“The leaders of these institutions all have a different puzzle that they're trying to solve. There's no one formula for a thriving small credit union, but all leaders really do try to solve their own idiosyncratic puzzle by generating the right fit between five puzzle pieces.”
The Five Pieces
The five puzzle pieces identified by Filene and CUNA Mutual in the research are Identity, Strategy, Balance Sheet, Market and Stakeholders.
Part II will feature a longer discussion of how Parrish’s credit union has executed on those pieces.