SEATTLE -- A few more credit unions successfully stepped uptheir efforts to expand the average number of the products andservices their members use and build their average account balancesin 2007, but most did not.

That is one of the conclusions drawn by credit union consultantTony Ward-Smith. Each year, Ward-Smith analyzes NCUA's year-enddata with an eye toward discovering and documenting the CUs that heidentifies as "high performing." In Ward-Smith's definition, a highperforming credit union averages 2.5 accounts per member, anaverage of at least $4,264 balance per all accounts and a positiveyear end return on average assets.

According Ward-Smith's analysis of NCUA's year-end data, 546credit unions in the U.S. were high performing institutions lastyear versus 536 last year. Further, while only 7% of CUs in theU.S. have become high performing credit unions, fully 33% of thetotal U.S. credit union membership belong to a high performingcredit union.

But Ward-Smith said he viewed the data from CUs that were nothigh performing to be the more important set and that these shouldact as a wake up call for the CU industry as a whole.

"The data show credit union membership growth is not keeping upwith U.S. population growth and suggests the majority of creditunions are not marketing their products and services to theirmembers effectively," Ward-Smith said.

Ward-Smith worries that the bulk of credit unions are graduallylosing the competitive battle to meet their members' financialneeds, pointing out that the number of credit unions overallcontinued to drop last year and credit union membership growth hasnot even kept pace with U.S. population growth.

While higher performing credit unions improved their performancematrices in many areas, Ward-Smith noted, most credit unions, as awhole remained flat. In 2002, for example, his data showed that41.8% of CU members had checking accounts, but that number had onlyincreased to 45.2% by the end of 2007. Likewise, the percentage ofmembers with their CU's credit card actually declined over the sameperiod, from 15.7% in 2002 versus 14.3%, and the percentage of CUmembers with first mortgages from their CUs rose only two-tenths ofa percent from 1.5% to 1.7% over the same time.

"I think sometimes that there can be unwillingness among somecredit union leaders to really look at and confront some of theseissues," Ward-Smith said. "I think as an industry we really need tolook at what our unique market niche is as credit unions and whatwe can really offer our members that other, for profit, financialservice firms are not going to offer."

Ward-Smith stressed that he does not have the answers to thesequestions but estimated that part of the answer will likely befound in credit union's identity as financial cooperatives, asinstitutions which exist not to make a profit from their customersbut to serve their members as people helping people.

But Ward-Smith has not been alone in considering thesequestions. Jim Blaine, CEO of the $15 billion State EmployeesCredit Union, which did not make Ward-Smith's high performing listfor this year, cautioned against using standard for-profit metricsto judge credit union performance.

"If you use only the metrics from the for-profit world, creditunions are always going to lag behind in those areas," Blaine said,suggesting instead that credit unions make meeting their membersfinancial needs, whatever they are, the more importantstandard.

"For example, one problem with looking at the number of productsand services per member is that not all of your members are goingto need all of your services," Blaine pointed out. "If we have amember who is a 19 years old, a student and a part time DOTemployee, if we have helped him out with a car loan and or astudent loan, we have all the business he is going to give us rightnow."

Other credit union leaders have also begun to investigate whatit is about higher performing credit unions that makes them higherperforming.

In 2007, the Filene Research Institute published a study called"Thriving Midsize and Small Credit Unions," which looked at why, atleast in part of the industry, some CUs were thriving and otherswere not.

Researcher emeritus Robert Hoel authored the study and foundthat thriving credit unions do a number of things differently thanthe bulk of other CUs, which he identified as the "laggards," andthe strategies the higher performing CUs (the stars) employ getinto choices about both the products and services they emphasizeand how they market them.

"Aggressive lending is key to the overall superior performanceof star credit unions. More than offering a lengthy menu ofconsumer loan products, aggressive lending requires aggressivemarketing and selling. In fact, many stars do not offer moreextensive loan menus than laggards do," Hoel wrote.

"Stars emphasize auto loans, particularly used auto loans, whichcontribute handsomely to their overall asset yields," he wrote."More stars than laggards are engaged in indirect lending."

"Real estate lending has become more important to the nationalcredit union movement over the past 10 years. Because of stars'aggressive pursuit of mortgage opportunities, including secondmortgages, their real estate loan portfolios grow considerablyduring the study period. Real estate lending grows at laggardcredit unions, too, but does not reach the share of total assetsachieved by star credit unions," he added.

Ward-Smith said he hopes the annual compilation of data fromhigh performing credit unions will help spark conversations in theindustry overall about how credit unions can become a bigger partof their members' financial lives. He pointed out that the marketfor financial services is crowded with competitors and consumershave more choices than they have ever had before. It's up to creditunions to help them make their way to the choices which will bebest for them, Ward-Smith said.

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