Challenges and Opportunities for

Small Credit Unions

Office of Small Credit Union InitiativesMartha Ninichuk, Deputy Director

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Many small credit unions are struggling to survive and thrive

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Challenges

Strategic Operational Regulatory

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Challenges

Shrinking fields of membership

Loss of income (loan, investment and fees)

Inability to obtain and maintain credit union staff

Retiring CEOs/Managers Lack of Succession Plans

Strategic

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Challenges

• Failure to update computer systems

• Ability to offer relevant products and services

• Or try to offer products and services when the credit union isn’t ready

Operational

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Challenges

• New Small Credit Union Exam Program

• Fraud, Fraud, Fraud• Call report – Late filing penalties– Electronic filing requirement

• Home Credit Union Rule

Regulatory

Challenges and Opportunities

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Impact on Small Credit Unions

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Credit Unions by Asset Class

Challenges and Opportunities

2003 vs 2013

Greater than $50MM

Less than $50MM

$10MM-$50MM

Less than $10MM

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1930

7558

2934

4624

2269

4484

2230

2254

2003

2013

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5,864

5,350

4,969

4,576

4,2544,020

3,8053,599

3,275

2,9942,782

2,572

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Number of Small Credit Unions (Assets less than $10 million), 2000-2011

2,348

2012

-224

2013

2,254

2000-2013

-94

Challenges and Opportunities

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Membership Trends at Small CUs

Challenges and Opportunities

2003 - 2013

8,000,000

16,000,000

24,000,000

32,000,000

Members Potential Members

50,000,000

100,000,000

150,000,000

200,000,000

Members Potential Members

CUs with less than $10MM in Assets CUs with less than $50MM in Assets

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Net Worth Growth 2003-2013

Challenges and Opportunities

Greater than $50MM

Less than $50MM

$10MM-$50MM

Less than $10MM

-50%

-25%

0%

25%

50%

75%

100%

61%

27%

6%16%

89%

-25%-19%

-44%

NW Growth Per Credit Union 2003 to 2013

NW Per Asset Class 2003 to 2013

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How it Shakes Out

Challenges and Opportunities

0 500 1000 1500 2000 2500 3000 3500 4000

836

3686

597

3313

59

251

Small CUs from 2000-2013 (q3)

Liquidated

Assisted Merger

Merged

Shrunk

Grew

Grew Big

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What can be done to stop the decline?

Challenges and Opportunities

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Let’s Look at the Facts

• Small credit unions need to update their current business model.• Define the credit union’s niche market. Who has the

need?• How does your credit union become relevant in your

community?• What do they need? Check Cashing, small loans, financial

education

• In other words, how do you plan to survive?• Who can assist you?

Challenges and Opportunities

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What about Collaboration?

Not merging, partnering.

Challenges and Opportunities

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Benefits to Collaboration

Small Asset Credit Unions

• Ability to provide a product or service not otherwise able to

• Assistance in HR, Compliance/Regulation, Back Office, etc.

Large Credit Unions

• Fee income opportunity• Mission Oriented• Small credit unions ARE

needed to continue tax exemption

Awarded NCUA’s First Collaboration Grant in April, 2013

NCUA Awards $50,000 Collaboration Grant to South Carolina Credit UnionsGroup Will Create Talent Management Project for Small Credit Unions

ALEXANDRIA, Va. (April 16, 2013) – A group of South Carolina credit unions are collaborating on a groundbreaking project to improve talent management with the support of a $50,000 National Credit Administration (NCUA) collaboration grant.

Health Facilities Federal Credit Union, a low-income credit union located in Florence, will collaborate with South Carolina Federal Credit Union, located in North Charleston, and its credit union service organization (CUSO), Optimal Talent Solutions, to provide free talent management consulting and training in areas including succession management, recruitment, performance management, and diversity and inclusion.

Two other credit unions, Greenwood Municipal Credit Union, Greenwood, and Spartan Federal Credit Union, Spartanburg, will also participate. NCUA’s Office of Small Credit Union Initiatives (OSCUI) manages the process used by the agency to award the grant.

Collaboration at Work

Challenges and Opportunities

$50,000

Participating Partners

South Carolina Federal Credit Union

Health Facilities Federal Credit Union

Greenwood Municipal Credit Union

Spartan Federal Credit Union

Assets $1,306,358,502 $24,905,031 $35,955,714 $11,800,377

#of Members 151,357 8,680 5,825 2,769

# of Staff 384 14 16 4 FT; 3PT

Field of Membership

Community Multiple common bond - primarily health care

Multiple common bond - primarily federal, state, local government

Community credit unions

Low Income Designation?

No Yes No No

• Optimal Talent Solutions

Purpose: Focus on the Human Resource Needs of 3 small credit unions

Challenges and Opportunities

Why HR?

Typically, small credit unions do not have

the resources and means to support a

human resource staff, leaving the credit

union at a major disadvantage.

Challenges and Opportunities

The Collaboration

• Corporate Culture

• Human Resources

• Performance and Development

• Succession Planning

Challenges and Opportunities

Collaboration Makes Sense

Uses the services and expertise of a larger credit union to provide HR services to 3 very small credit unions.

The larger credit union has the HR professionals already familiar with a credit union and the associated HR challenges.

These professionals have the resources to provide the needed analytics and training the small credit unions could not afford-in either costs or time.

Robert Harris, CEO of Health Facilities FCU in Florence, SC

Challenges and Opportunities

Why Collaborate?

The larger credit union uses the capacity of its staff to provide services for a small credit union which could not afford the services.

The larger credit union helps to offset it’s costs with fee income paid by the small credit union for the services.

Challenges and Opportunities

Obstacles?

Small credit unions fear large credit unions will take-over opportunity.

Part of due diligence is to investigate and become comfortable with any partner.Challenges and Opportunities

Building the Collaboration• Look for partner credit unions– Attend League functions, Chapter Events– What are commonalities of need?– Determine Collaborative effort

• Find larger credit union that may be a good potential partner– Look at websites and call reports. – Ask your peer credit unions.

• Get to know the CEO. See if they have extra capacity.

• Be open with your needs and wants.

Challenges and Opportunities

Collaboration Opportunities

• Back office • Collections• Marketing• Products & Services• Training• Shared executive officers

Challenges and Opportunities

Think of Alternatives

• What may be an expense for you may be an opportunity for someone else or, the expense for one may be an opportunity for you.

• Look at every aspect of your operation. What is draining your desire to better serve your members? How can you release yourself of that burden?

Challenges and Opportunities

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Available Assistance

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Are you a Low Income Designated Credit Union?

0200400600800

100012001400160018002000

Low-Income Designated Credit Unions Per Year

Challenges and Opportunities

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Low-Income Designation

NCUA Designation

• A federal credit union qualifies for LID when a majority of its membership (50% + one member) qualifies as Low-Income

• Low income members are those who earn 80 percent or less than the median family income for the metropolitan area where they live

• or the national metropolitan area, whichever is greater.

• State chartered credit unions must work through their SSA

Challenges and Opportunities

BENEFITS OF LID

1. Non Member Deposits2. Office of Small CU Initiatives

1. Loans 2. Grants3. Consulting Services

3. Transactional services to potential members4. Member Business Loans (MBL)5. Secondary Capital Accounts

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Challenges and Opportunities

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Grants and Loans

Challenges and Opportunities

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2014 Grant Round 1

Grants and Loans

Initiative Applicants Amount RequestedCDFI Certification 108 $270,000

Student Internship 167 $646,640New Product 247 $1,673,000

$2,589,640 Requested from 320 Applicants!

Next Grant Round June 14

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Consulting Enrollment• Nomination cut offs are May 31 (for consulting in the third

and fourth quarters of each year) and November 30 (for consulting in the first two quarters).

• www.ncua.gov/OSCUI/Consulting

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FOCUS Sign Up

Challenges and Opportunities

Other Grant Programs

• Many low-income credit unions also obtain assistance from the Treasury by qualifying as Community Development Financial Institutions.

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As of December 15, 2013, there are 808 certified CDFIs; 177 are credit unions

Challenges and Opportunities

www.cdfi.gov

2013: 38 cu’s received an aggregate $26,322,093

2012: 25 cu’s received an aggregate $17,191,358

OSCUI will be releasing CDFI information videos in May.

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Other Resources

State Leagues/Associations

National Federation of Community Development Credit Unions www.cdcu.coop

National Credit Union Foundation www.ncuf.coop

Filene Research Institute www.filene.org

Challenges and Opportunities

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NCUA OSCUI Contact Page

Feel free to contact our office with questions:

Consulting OSCUIConsulting@ncua.gov.

Grants & Loans OSCUIApps@ncua.gov.

Partnerships & Outreach Partners@ncua.gov.

Training OSCUITraining@ncua.gov.

Challenges and Opportunities