Making My List and Checking It Twice
As is tradition, Credit Union Times’ Year in Review issue is when I make predictions for the upcoming year. I predict YIR 2012 will be no different.
Last December I wrote that forward-looking leaders (and those with the resources) would grab the reins of Bank Transfer Day and hold on tight; those who chose (I know some were blocked by SEGs or other reasons) to disregard BTD chose to disregard what it is to be part of a movement. The numbers do not lie. The industry overall is experiencing tremendous growth at 2.8% in the 12 months ending in October and 2.4% year-to-date, according to CUNA. However, not everyone is on the member growth bandwagon, Glatt Consulting uncovered. Credit unions with $50 million or less in assets experienced flat to negative membership growth through 2012. Only the larger credit unions reaped the benefits. Those in the $500 million and larger range had 4.59% membership growth.
CUNA Mutual Chief Economist Dave Colby added that 100 fastest growing credit unions accounted for 82% of all the membership growth in the third quarter of 2012. On the other end of the spectrum, 3,241 credit unions or 46% reported declines. They make up roughly 15% of the industry’s assets.
Some credit unions’ strategy is to deepen member engagement, which is very important, and growth for its own sake is not viable either. But any business needs to continue adding new sources of income or it will wither away in the long term. And bringing a new member in with a refi is a no brainer. These new members weren’t just depositors. Northwest Resource FCU said its cross-sell figures went from 1.87% to 2.37%, and the average loan balance for new members doubled.
Credit union membership growth will recede to historic levels of 1% or so in 2013, balancing between a higher number of smaller credit unions losing a higher percentage of members or merging and the fewer in number larger credit unions continuing record pace membership growth through organic growth and mergers. This is indicative of the greater gap between the haves and have-nots I predicted last year.
Credit union mergers got very interesting in 2012 and not necessarily because of the number (279 credit unions went away this year, primarily due to merger, or 3.8% in the 12 months ending in October, according to the most CUNA recent statistics), but also because of the combinations made. In my yearend 2011 column, I noted that Landmark CU was completing its sixth merger of that year, but this year it became the third credit union, second in 2012 after GFA FCU in Gardner, Mass., and United FCU in St. Joseph, Mich. (2011), to merge in banks. I had predicted a “handful” more of these for 2012, so two is close enough for fortune telling. This trickling trend will continue through 2013 as ailing community banks are unable to find appropriate merger partners of the same charter willing to make the offers.
Another interesting case involving a bank is Thrivent, which decided to convert back to a credit union after previously a group of credit unions converted to this bank. Additionally, three credit union conversions to banks have been stalled this year. Technology CU’s members voted down a conversion to a bank, and Har-Co FCU’s conversion has been stuck in one of the regulatory circles in Hell, as has HarborOne CU’s conversion.
Separately, when the $388 million Educational Systems FCU planned to take in the similarly sized and ailing MCT FCU, the new members were originally going to be charged a $35 fee to help the credit union maintain an acceptable capital level. This was an innovative idea and one that I’ve supported as member-owners reap the rewards of their credit unions, so, too, should they share in the costs of bailing it out. I think 2013 will see similar attempts as the NCUA and ailing credit unions become more desperate to find merger partners that can afford to take them on and have an appropriate cultural and field of membership fit. The credit union will have to make up that money and it will in other ways that likely will get applied to all of the members, which the existing members of the continuing institution wouldn’t have to be worried about if no merger had taken place in the first place.
I had also predicted that a larger technology vendor would make its exit from the credit union market, and while we haven’t seen a large one in 2012, I still believe it will happen. That’s a new prediction for 2013. One defection we did see was the disappearance entirely of Pano Logic, immediately after announcing a big deal with Redstone FCU.
One prediction I did nail was that Carla Decker would not be joining the NCUA board in 2012. Now that she’s no longer in the running and Gigi Hyland’s seat is vacant, my guess is that the Democrats will wait another year to appoint anyone. First, these things are done in pairs and Michael Fryzel’s seat is not up until August 2013. Second, the Democratic president can rest at ease knowing he’s still in control of the appointment in another year and give the Democratic appointee the seat to the full six-year term and leave the Republicans with Hyland’s seat, which will only have four years left on it.
Finally, the tax exemption is in gravest danger right now. That it was “accidentally” included in legislation was a trial balloon, if a lead one.