Strategies Smaller CUs Are Using to Grow, Cut Costs, Be in Compliance

HARRISBURG, Penn.-Credit unions of all sizes scrambled to stay in compliance with a bevy of new regulations proposed or enacted in 2009 and are bracing for more in 2010. As a result, many smaller credit unions have had to get innovative in meeting compliance demands.

"What we see is that small credit unions, especially those that have minimal staff, are spending all their time trying to be in compliance and not trying to grow their credit unions," said Rick Myxter, Assistant VP of CU Services at the Pennsylvania Credit Union Association. "There has to be a way for them to stay in compliance but free them up to get out there and meet the public and grow their credit unions."

The Pennsylvania CU Association is making its best effort to facilitate cooperation through a mentoring program, which compiles a list of larger credit unions that have staff available to help their smaller counterparts at no charge.

"The [large CUs] that have signed up are very serious about helping their fellow CUs. There isn't a hidden agenda. [Small credit unions] can pick up the phone and call these compliance people, get the help they need, without fear of being merged or something like that," Myxter said. "We can't do everything for them, they have to collaborate and work together to get the solutions they need, but we will be a catalyst for that."

On this page is a look at how many small CUs are looking to leverage cooperation in compliance, and other areas.

#1: General Acctg. Challenges

RIDGECREST, Calif.-Eric Bruen, CEO of Desert Valleys FCU is among those who agree that while new legislation such as the CARD Act, a potential consumer protection agency, and changes to overdraft protections are onerous, the biggest challenges small CUs will face in 2010 will be meeting compliance standards for their general accounting practices.

"The allowance for loan losses, especially over the next year, is the critical account that determines the viability and health of an institution," he explained. "While small credit unions are very well capitalized it doesn't take a lot to hurt the balance sheet of a small CU."

Compliance is a serious problem for small institutions, but just as critical is maintaining momentum in an economy that has seriously damaged many businesses including small CU SEGs. Smaller CUs have a tendency to simply run their businesses the way they have done for decades, but in the "second worst market" since World War II, that simply is not going to cut it, Bruen maintained.

At an institution such as the $19.7-million Desert Valleys FCU, just one or two big loans not adequately accounted for can "significantly impact net worth," Bruen said. With limited resources, small credit unions are forced to be extremely creative in finding ways to keep up with new regulations, grow their institutions and remain financially sound.

#2 Talk Is Cheap (& Helpful)

TORRINGTON, Calif.-With just $3.2-milllion in assets, C.H.H. CU, is relying on "cooperation more now than in the past," said CEO Lauren Taft.

Taft frequently speaks with other CUs in the area to learn about products and services they offer that her institution is considering adding. Those larger institutions appear happy to help, she said, and the idea that a consolidated credit union industry would lead to fewer CUs helping one another is simply wrong.

"They realize that while we are small we do provide a valuable service to our members," Taft said.

C.H.H. CU has to rely on the state league for almost all of its compliance training and even some of its annual planning according to Taft. In just one day last year, the Connecticut league developed policies and procedures for C.H.H. CU following the Red Flag Rules changes.

#3 Partnerships Lower Costs

NEW HAVEN, Conn.-"For small credit unions, it is only through collaborative efforts that we can become the financial institution of choice for our members," Josephine Savino, CEO of $23 million Yale-New Haven Healthcare FCU, told Credit Union Journal.

"We have looked to the (Connecticut) League to help us in many different areas - ALM, BSA, strategic planning and other partnerships... It's a challenge being a small credit union where everyone wears many hats. The more partnerships we form at lower costs the obstacles we face will be easier to overcome."

#4 Staff-Sharing Agreement

ONTARIO, Calif.-California credit unions of all sizes are consistently engaged in a number of collaborative efforts from political advocacy to back office functions to even sharing branch locations, according to Cathy Arra, manager of credit union growth at the California/Nevada leagues.

A number of credit unions in the Golden State, including $41-million United Health CU, have formalized a staff-sharing system in the form of a CUSO. Linda White, CEO of the Burlingame-based institution, explained that under the new organization a credit union would bring an employee on board, or utilize existing staff, and loan him out to another institution that requires his skills.

The original credit union remains responsible for all of that employee's benefits and keeps him on the payroll, but bills the institutions for the full price of his salary and benefits for the number of hours he works at the other credit unions.

Agreements need not be that formalized to work, according to Eric Bruen, CEO of Desert Valleys FCU, who suggested that bringing in a freelancer to work just a few hours a week and having handshake agreements to form a schedule to share that specialist could be just as effective.

"A small CU doesn't need a compliance officer for 40 hours a week," he noted. "Right now you have a labor pool of talented people who have been let go because of excess capacity, there has been no greater opportunity to find talent in the market than now."

White encouraged smaller credit unions to tell their stories and suggested that for those with better performing SEGs, the opportunity to grow has never been better. United Health FCU is heavily promoting its unique services, such as 7:30 a.m. branch openings and is using cruise packages to entice referrals. Every member that passes along two names of potential members will be entered into a drawing for the vacations, and the best part is that the credit union already had the packages sitting unused on the books from promotions in years passed.

"We forgot that we had them, so this is an opportunity to use those and they're not costing us anything," said White.