Does credit union size matter? You bet it does. NCUA statistics clearly show that larger institutions enjoy the strategic advantages of increased member growth, loan growth, earnings, more services for members and reduced operating expense ratios.

Regardless of your asset size today, you can achieve thoughtful growth that will improve your results. The recipe for growth is simple: Combine capital, expanded field of membership and non-member deposits.

Capital is the engine for growth. Excess capital, or the ability to access secondary capital, is a necessary first step to fire up growth. Accessible capital allows for asset growth and the ability to attract new members.

Once your net worth has risen, you can expand your field of membership and increase your growth potential. FOM and secondary capital are two separate issues, but they should be viewed as complimentary and work together in a credit union's strategic growth plans. At the NCUA's October board meeting last year, the agency took significant steps toward improving the growth potential of credit unions when it finalized field of membership reforms and conducted a briefing on secondary capital.

While all credit unions benefit from FOM regulatory relief, federally insured, low-income designated credit unions have additional options available. In addition to expanded FOM options, LICUs enjoy access to both secondary capital and non-member deposits, which enhance growth potential and provide even more options to manage growth.

As assets and deposits grow, earnings growth will follow and member services can be further expanded. As member services are expanded, the member experience is enhanced and earnings are increased. This results in increased capital levels, which fuels future growth and further enhances the member experience. All the while, non-member deposits help manage growth and specialized assets help to diversify asset risk as growth occurs.

Steps taken by the NCUA board over the past year to improve the growth potential and competitiveness of all credit unions are game changers for the industry … particularly LICUs. Never before have credit unions had all the ingredients necessary to cook up growth like they have today. Since it is a fact that size does matter regarding both earnings and member services, it is important for all credit unions to learn how to utilize the new tools they have been given to increase their size, improve their earnings and expand member services to remain relevant.

However, if these tools aren't applied correctly, the results could leave a bad taste in the mouth of your board, your members and the NCUA. It is crucial that credit unions create a capital optimization plan before seeking secondary capital. Credit unions interested in this type of growth must undertake the following steps:

  • Create a secondary capital plan;

  • Apply to the NCUA for secondary capital authority;

  • Find investors to fund the secondary capital plan;

  • Plan for the efficient deployment of the capital once received;

  • Seek sources for non-member deposits to complement member deposit growth;

  • Secure access to specialized assets to complement member loan growth;

  • Develop policies and procedures to manage the secondary capital/balance sheet plan to manage associated risks; and

  • Monitor the process to help ensure the plan's success.

Over the past year, the NCUA board has increased the availability of ingredients necessary for credit union success. But while the ingredients are available, what makes a chef successful is knowing how to combine the ingredients for the best results. That takes both skill and experience. Because secondary capital is relatively new to credit unions, and finding the right investors and successfully deploying capital can be tricky, make sure you have the resources you need to create savory results.

Robert Colvin is President & Chief Strategist for CU Capital Market Solutions. He can be reached at 913-402-2616 or rcolvin@cucmsllc.com.

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