WASHINGTON-Credit unions that have financial ties to CUSOs have, on average, higher long-term growth rates and lower expense ratios, according to Callahan & Associates.
Lydia Cole, industry analyst for Callahan, told Credit Union Journal the numbers suggest the key is participation in multi-owned CUSOs, which tend to produce better results than wholly owned CUSOs.
Three of the key growth rates Callahan's research has identified:
• Member growth: 10-year average annual member growth for CUs with an investment in a multi-owned CUSO is 3.3%; without, 1.8%.
• Lending: average 10-year loan growth is 9.3% with; 6.9% without.
• Accounts-per-member: 2.8 with; 2.3 without.
"We took all credit unions that have an investment in a multi-owned CUSO - they must have a loan to the CUSO or an investment in it," Cole explained. "We examined 2,300 credit unions, with an average asset size of just under $300 million."
For comparison purposes, Callahan created a control group of 253 CUs without an investment in a multi-owned CUSO. The results, Cole said, were significant.
"Long-term member growth rates are significantly higher for those with an investment," she observed. "The reason is multi-owned CUSOs help share expenses and increase convenience, especially those that participated in shared branching. Indirect lending helps bring in members."
CUSOs on the whole have been first-to-market with new products and services, including student loans, Cole noted. She said the ease of the implementation of such new products and services through CUSOs oftentimes brings people to credit unions that might not have done so otherwise.
On the lending side, a sizable number of business lending CUSOs have been created in the last five years. Cole said delivering a suite of additional business-related products is one factor that gives credit unions in CUSOs higher accounts per member - and 2.8 accounts per member versus 2.3 is notable.
"Half an account across all these credit unions is significant. Similar to member growth, the ability to offer products and services to complement what the credit union already offers can be a significant advantage."
Being able to share expenses through CUSOs, "allows credit unions to better manage their balance sheets and offer better rates," Cole said. "Credit unions have expanded business lending over the last five to seven years, mostly with the help of CUSOs."
One reason: many of the larger banks decentralized their business lending operations over that same timeframe and now do the same amount of work with fewer people. Cole said this has allowed CUSOs to hire former bankers with business lending experience to help them establish their programs.
"Looking at the data, business lending growth is slowing, but it still is the fastest-growing part of the loan portfolio for all credit unions," she said.
Typically, two to three multi-owned CUSOs are created each year, Cole reported. She acknowledged there has been some consolidation in the industry and the number of wholly owned CUSOs is declining, but said that is not surprising due to the declining number of CUs.
Leading With Lending
"Credit unions that in the past might have formed their own wholly owned CUSO are instead seeing the benefits and joining existing multi-owned CUSOs - it depends on the products and services offered."
As for the state of cooperation in the movement, Cole believes credit unions continue to mostly hold to that principal.
"Investing in CUSOs may have started with working with a credit union in the next town over, but being able to provide expertise and share experience is valuable. Lending CUSOs on the whole help credit unions offer additional products and services and provide loans. In the current investment environment it is important for credit unions to book loans, and CUSOs help do that."