WEST CHESTER, Penn.-If Joe Prunty were a credit union CEO, he'd prefer to retain 15 profitable account holders rather than sign up 100 new members.
Prunty, president and CEO of CorePROFIT Solutions, contends that too many CUs are caught up in growth for growth's sake, rather than the factors that influence profitable growth. "Credit unions seem to say, 'Let's grow loans, deposits, and put more branches out,' and these are easy things to measure, so they feel good," he said.
That's what leads a CU to boast when it signs 1,000 new members, said Prunty, while 800 of those new account holders are losing the CU money from the day they join. "It's not about issuing 500 new mortgage loans," Prunty added. "It's about issuing 500 new mortgage loans that will make money from the day they land on the books."
CUs need to assess all of the costs that go into selling and servicing products and members. "No guessing, no mystery, no assumptions. Exactly what it costs to do everything they do, whether that be conducting a deposit transaction, providing call center support, making a loan, or keeping branches open on weekends. Everything you are doing under the guise of serving members has to be related to a specific cost."
Key areas to pay attention to, Prunty advised, are products such as free checking, first mortgages, money spent on third parties/vendors, fee structures that are often too low, and staff efficiency.
"Credit unions are having their margins squeezed but they pretend that this is not a margin business and that every member is valuable and every person is contributing," offered Prunty. "The goal is not to lower service, but to get an understanding of how much service costs and then equate better levels of service with folks who are more profitable, and potentially provide a minimal level of service to those who are not."
Not only do services and members require precise profitability calculations, but delivery channels as well. Prunty said his firm tells credit unions they have to "monopolize and optimize the delivery channels they have in place and line up behaviors and people to the channels that cost the least." That could mean incentivizing members to do withdrawals at the ATM instead of the teller line.
Yet, a problem persists within the industry from credit union leaders who manage by "gut or impulse," Prunty concluded. "The economic meltdown of last 24 months has shown credit unions that they have to pay attention. Then you add Reg E and a bunch of other regs coming down the pike and you realize there is so much more of a squeeze on earnings that you can't operate in the dark anymore."