PONTIAC, Mich. — Tom Miller knows all about the challenges involved with running a small credit union. Trying to maintain return-on-assets and maximizing scale are things he deals with everyday as president/CEO of the $35.5 million Affinity Group Credit Union. That's why Miller is such a strong advocate of small credit unions collaborating to share resources to achieve scale, and why the credit union is one of eight owners of CU Partner Solutions, LLC.
Like Affinity Group CU, the other seven owners of the multi-owned CUSO are also small CUs. They include Clawson Community CU, $25.6 million; Birmingham Bloomfield CU, $40 million; Crestwood Community FCU, $30 million; Kensington Valley Community CU, $23 million; Rome CU, $18 million; Southeast Oakland Community CU, $42 million; and Unity CU, $45 million.
"In the past, we could afford to come to work in the morning, turn on the lights and wait for our members to come to us. We can't do that now, our members have too many alternative sources for financial services. If you're sitting around and just running your business without reaching out to build it, you're going to miss a lot of opportunity," said Miller, emphasizing that when it comes to offering members alternatives, "scale does matter." Miller's credit union is also an owner of data processing CUSO CU*Answers and the Xtend shared branching CUSO. He was the founder and is the current vice chairman of another CUSO, Mortgage Center, LLC, that originates and services mortgages for 64 CUs.
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"When you have a credit union with $250 million in assets doing a standard 1% ROA, they're going to generate $2.5 million in net earnings. They can really do something for their members with that. But if you have a $25 million credit union, even if they could make 1% ROA that would be difficult because of economies of scale, they're only going to generate $250,000 in net earnings. So there's a big difference in what they can do.
"Scale does matter," Miller emphasizes, "and small credit unions can achieve scale by collaborating through a CUSO. There's power in numbers, they need that kind of solidarity. Through collaboration, small credit unions can experience many of the same benefits of scale their larger competitors enjoy." Formed this past April, Miller describes CU Partner Solutions as a "multi-purpose operational CUSO." Together the credit union owners represent just over $250 million in assets and about 65,000 members. Speaking to attendees at last month's NACUSO CEO Collaborative, he explained the CUSO's three goals–use aggregation to create operating and purchasing cost effectiveness, be a leverage tool for credit union growth, and offer cost effective solutions to meet expanding member and regulatory demands "head on."
"We're looking for things we can do together operationally that can have a positive impact on net earnings by generating alternative revenue or reducing operating expenses," said Miller.
"We need to go back to every relationship we have and ask ourselves: What can the CUSO do for us as a group with our aggregate size?" That includes things like data processing relationships, partnerships with vendors, participation loans, health insurance for employees and members, and cooperative forms purchasing. Although CU Partner Solutions is barely seven months old, Miller said by collaboratively negotiating deals with suppliers, the eight CU owners are also saving 24% annually on paper and ink products. The CUSO is looking for ways to make some of the CUs' forms and paper items like ATM envelopes be a generic style so they can order those in quantity and save money. A collaborative effort CU Partner Solutions is currently testing through Affinity Group CU is its Web-based Retail Direct Program, which allows the credit unions to develop relationships with local small businesses in their respective areas.
If, for example, a local dentist needs to do extensive dental work on a patient who doesn't have sufficient money to pay for the procedure, the dentist can offer to take a loan application from their patient and forward it to the credit union. If there's any information the clients do not want to provide the small business owner, the credit union can follow up with the small business' client. Once the loan is approved, it's rolled into a participation loan among CU Partner Solution's owners to spread the risk and revenue from the loan. Other cost cutting projects underway for CU Partner Solutions are a combined collections and adjustment center, and a compliance help center.
Miller said a CUSO like CU Partner solutions is applicable in any state and can be done if small credit unions collaborate.
"All credit unions feed at the same trough. They need to come together, it's the only way the credit union industry is going to continue to be vibrant going forward," he said.
"When you look at earnings, that's where the rubber meets the road. The report card on credit unions isn't good. Operating expenses and net interest margins have collided and crossed, so credit unions are left operating off of fee income to members. But you can't keep adding fees on members, otherwise pretty soon you're adding bank-like fees. That's counterproductive to what credit unions are trying to do," he says.
"But if we can come together in CUSOs, we can generate scale, incrementally drop operating expenses and seek out alternative sources of revenue. Instead of balancing bottom line earnings on the backs of members, we need to find alternative sources of revenue to bring into the credit union." — [email protected]
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