DOWNEY, Calif.-Every week the NCUA or the state regulator release the names of another two, three or four small credit unions that have held their last board meeting, having been merged into a larger credit union or liquidated altogether.

And yet amidst all that there are many more small credit unions that not only suvive, but thrive.

According to the CEOs of several successful small credit unions in California,the key is to not sit around feeling sorry about the economy, compliance burdens, or any other issue, but to be proactive and attend to the bottom line.

"Small credit unions need to look at their financial condition and not be blinded by being a small credit union," advised Jon Hernandez, who is CEO of three neighboring CUs: $8-million City of Downey FCU, here; $24-million Mattel FCU, El Segundo, and, $58-million CalCom FCU in Torrance.

According to Hernandez, some credit unions become so absorbed in wanting to be the white hat in financial services and lose sight of practicality. He said small credit unions especially must generate additional revenue from whatever sources possible, and that process must begin with an examination of their fee structure.

"Many credit unions don't want to charge their members fees because banks are, but there is a reason banks are charging fees," he said. "We are running a business and we need to get over it."

The sentiment that growth must begin at the top is shared by Eric Bruen, CEO of Desert Valleys FCU in Ridgecrest, Calif., who also serves as chairman of the Shapiro Advisory Committee, an affiliate of the California CU League formed to help small credit unions. What puts one credit union on the list to be liquidated and another on the list of positive bottom lines, said Bruen, paraphrasing the old real estate standard of location, location, location, is "management, management, management."

"The biggest issue for small credit unions is staying ahead of the curve and not being stagnant," he declared, adding the concept applies to everything from products and services to technology. "There are some smaller shops that have had incredible runs with their existing managers, but some of those managers have not kept their institutions at speed or ahead, and the industry has changed and they have not seen the change."

For Hernandez, keeping up includes technology-a necessity that sometimes becomes looked at as a luxury at small CUs.

"They need to stay away from the old ways of doing things and use technology to expand their touch to their members," he said. "My three credit unions are looking into adding mobile banking because it is a way to grow without adding branches. Small credit unions can't make excuses, they have to embrace technology."

55 CUs Join To Pool Resources

Has art, SCCUA.png Hernandez is the founder of the Southern California Credit Union Alliance [info at:], which has grown to 55 member CUs. While it has no formal administration, other than some help from Hernandez's assistant, the SCCUA offers a number of resources to small credit unions. It hosts two staff training events each year, while a steering committee of small CU CEOs holds quarterly meetings. There are also team building events such as a Credit Union Olympics, a golf event, and an annual dinner, which will be held this week at the California and Nevada leagues' annual meeting in San Diego.

"SCCUA is all about collaboration," Hernandez said. "One successful collaboration is health benefit programs. There is a regulation that forbids organizing an association for the initial purpose of getting a better price for health benefits, but we are an existing association so all 55 credit unions are eligible to offer health benefits to their employees."

Melia Keller, CEO of $24-million Mid Cities CU in Compton, said her credit union taps SCCUA regularly to help it reduce costs.

"I have been at Mid Cities for two years, and I can say the economies of scale issue is huge," she said. "We have fewer people but still have to comply with the same things larger credit unions do. The SCCUA helps a lot. We collaborate on IT, training, elections, health care costs and many other things. Because we lack the economies of scale we get together. We meet quarterly and talk about our needs, then different credit unions collaborate on different things."

One example is a group of 24 small credit unions from SCCUA that is collaborating on the purchase of new core systems. Hernandez said by working collectively the CUs will be able to get systems they could not afford otherwise.

"The idea is to continue collaborating on backoffice work in the future, and if we have the same core systems we eventually hope to do collections and call centers together," he explained.

Advice For Small CUs

Hernandez noted that small credit unions in California have another new challenge following the failure of Western Bridge Corporate to make its recapitalization goal. "Direct to the Fed probably won't work for item processing by individual small credit unions, but if we get together it will work."

Hernandez said small credit unions need to look at how minor changes could be made every day to improve their bottom line. Instead of ordering cash once a week, he suggested changing to every two weeks or even three weeks.

"Find different ways to reduce expenses," he counseled. "Small credit unions need to get their operating expense ratios under 4%, because we cannot survive with expense ratios above 4%. I encourage credit unions to look at vendor contracts and negotiate to reduce the price. For small credit unions that have multiple branches, I encourage them to do a branch cost analysis and, if necessary, make a tough decision."

John Meeks, CEO of $15.2-million San Gabriel Valley Postal CU, Covina, said small shops "have to be really efficient."

"When I started we had seven employees and someone retired after 20 years," he said. "Instead of replacing her we just absorbed her work. It is important for small credit unions to have the right employees servicing their members."

Desert Valleys FCU's Bruen said, "There is no cookie-cutter recipe" when it comes to small credit union success.

"A successful credit union understands the value of political involvement, even the smallest credit union," he said. "Grassroots efforts for credit unions cannot stop and start with the credit unions with the most money or the most members. Smaller credit unions have an incredible ability to leverage grass roots involvement."

At The 'Forefront'

During the interchange debate, for example, Bruen said his CU helped increase local awareness. "Our members knew we were at the forefront, to the point when BofA made its debit card announcement, people called us for a reaction. If you can prevent legislation that will seriously impact income, it is effective. If you can build a relationship with your local congressmen that helps keep the credit union in mind somewhere down the line, it is effective."

Small CUs also need to be able to ask for help when they need it, Bruen continued. He noted the Shapiro Group will be celebrating its 20th anniversary next year. It was founded by Leo Shapiro-often described as the "father of the movement in California"-and was one of the last things he did before he passed. The Shapiro Group receives community investment funds and donations from CUs statewide. It provides grants, technical assistance and guidance for CUs in California and Nevada that are in the bottom 50% of asset size. Today that break is at $45 million.

"What we have done over 20 years is issue close to $500,000 in grants for technology, marketing, policies and procedures," Bruen said. "But smaller credit unions feel intimidated to talk in front of larger credit unions. The Shapiro Group provides them an avenue to talk, peer-to-peer, small-to-small."

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