Special Report: Growth Credit Union Management

GROWING WITH

MEMBERS IN MIND

Three credit union CEOs share their journeys.

Special Report: Growth

Credit Union Management

FEBRUARY 2020

PLUS

4 THE IMPACT OF POWERFUL

PARTNERSHIPS ON CREDIT

UNION GROWTH

By PSCU

2 CREDIT UNION MANAGEMENT FEBRUARY 2020

THREE CREDIT

UNION CEOs

SHARE THEIR

JOURNEYS.

BY STEPHANIE

SCHWENN SEBRING

SPECIAL REPORT: GROWTH

e recently asked three CUES member

CEOs if they are excited to grow their

credit unions—even to lead their orga-

nizations to double in size. And they are. But what

most inspires the growth efforts of these three lead-

ers isn’t economy of scale or a larger market share.

It’s the opportunity to serve more members well.

LIVING A SERVICE CHARTER

When CUES member Jason Kostura became CEO

of $131 million CACL Federal Credit Union (caclfcu.

org), Pottsville, Pennsylvania, in 2012, he knew the

CU had growth potential—and that it could make a

bigger difference in its community.

“We’ve had a low-income designation ... but didn’t

use it,” notes Kostura. In 2012-2013, “we changed

our philosophy from a typical conservative model

(competing for A/A+ loan paper) to embracing the

communities we serve, including the underserved.”

Also undertaking an outside-the-box ad strategy—

establishing relationships with area businesses and

auto dealers—and focusing on such less typical loan

products as older-model used car loans, the CU has

seen exceptional growth.

The strategy was to double in asset size every

five years while maintaining an 85% to 90% loan-

to-share ratio and a net worth above 10%. From

December 2013 to September 2019, Kostura notes,

assets doubled to $131 million from $62 million.

Loans to deposits and return on assets increased

accordingly, resulting in higher-than-market depos-

its. All this occurred with no mergers, new branches

or charter changes—but required a lot of training.

“We spend five times more on education and

training than credit unions our size,” Kostura notes.

“It was essential that everyone understood risk and

how to properly read it. The key wasn’t that we took

on a lot of risk and did ‘X’ to mitigate it. The key was

we educated our staff/board to understand what is

real risk and what to avoid.”

Kostura offers this advice on growth: Focus on

loans, income and improving efficiencies as well as

assets. For example, CACL FCU strives for a loan-to-

deposit ratio of 90% while increasing its loan yield.

“Some credit unions focus on deposit growth and

have no idea what to do with the deposits once they

come in. There must be a plan for smart growth

and how to loan out those funds,” he says. “If your

loan-to-deposit ratio falls below 60%, stop growing

assets. Establish clear steps but incorporate member

needs and include your vision statement.”

Compliance is crucial, he adds. “The NCUA frowns

on anything outside the ‘normal.’ Be ready to have

discussions if you’re growing faster than your peers.

Overwhelm auditors with data and tactics to show

you’re not doing anything incorrectly or rashly.

“As leaders, look within yourselves as well,” he con-

tinues. “Ask if what you’re doing is profitable, and

how and when you will know if the plan isn’t work-

ing. If things go south, what is the next step? Do you

and your board understand that what you are doing

may be potentially risky, and does everyone assume

that risk? Detail these discussions in board minutes.”

MERGERS FOR MEMBERS

The maxim of $850 million Marine Credit Union

(marinecu.com)—“where you’re more than a credit

score”—resonates with members and has helped

foster a culture of growth and member service at the

community-based CU in La Crosse, Wisconsin.

CEO Shawn Hanson credits years of expansion

to the CU’s aggressive mergers and acquisitions

strategy, which is central to its business model. From

2013 to 2019, the number of checking accounts

increased from 28,828 to 53,341; member equity

(net worth) increased from $45.9 million to more

than $93 million; and shares increased from $351.9

million to more than $630 million.

“Our M&A strategy is part of our disciplined focus

on attacking the constraints in front of us each day,”

says the CUES member. “Constraints include access

to new markets, finding and retaining top talent,

and having the financial resources which allow us

to execute on future plans.”

In 2019, the CU set the goal to double every four

years the number of people it helps improve their fi-

nancial wellness. Success will be measured by mem-

bers’ improved credit scores and savings balances.

Hanson stresses that growth for the sake of growth

is not the credit union’s goal, nor should it ever be.

Growing With

Members in Mind

MORE ON GROWTH

Growth coverage on

CUmanagement.com

(cumanagement.com/

growth)

The Five Levers of

Success for Your Credit

Union’s Growth Strategy

(cumanagement.com/

0817velevers)

Strategic Growth Institute™,

returning in 2021

(cues.org/sgi)

CUmanagement.com CREDIT UNION MANAGEMENT 3

Growing Your

Payments Programs?

We asked Norm Patrick, vice president of Advisors Plus Consulting

(advisorsplus.com) at CUES Supplier member PSCU (pscu.com),

St. Petersburg, Florida, for his best answers to key questions

about payments growth planning at credit unions.

1. What are your top tips for developing growth goals

for payment offerings? Growth goals should be clearly

outlined—including acceptable parameters, like credit

scores—along with developing and actively managing a set

of annual strategies that support those goals.

2. What are the key elements of a credit union pay-

ments growth plan? A growth plan specific to payments

will often have a strong connection with a credit union’s

strategic plan. It is a best practice to develop annual growth

strategies for payments that are actively managed and cali-

brated over the duration of the strategic plan.

3. Are there such things as too much growth or

growing too fast? Yes. Growth needs to be calculated,

managed and overseen carefully. When not effectively

managed, growth can be risky. For example, operational

risk may present itself if a credit union is not prepared with

scale or staffing to accommodate significant increases in

payments volume. Additionally, payments growth on the

lower end of the credit spectrum may come relatively easily

but also may increase credit risk.

4. What’s the top area in which credit unions should

try to grow? Checking/share draft accounts drive signif-

icant non-interest income through debit card interchange

and other revenue streams. Credit cards continue to pro-

vide a great return on assets for credit unions in a highly

competitive market. As part of a credit union growth plan,

strategies should be placed on the optimization of pay-

ments products, including product offering, positioning,

pricing and the member experience.

Stephanie Schwenn Sebring established and managed the marketing

departments for three CUs and served in mentorship roles before

launching her business. As owner of Fab Prose & Professional Writing,

she assists CUs, industry suppliers and any company wanting great

content and a clear brand voice. Follow her on Twitter @fabprose.

“At Marine, ... we’ve realigned our top KPIs (key performance

indicators) to ... explain how these positive member outcomes create

positive financial results. ... This system will result in an even greater

impact in our communities going forward.”

This cultural shift has had an overarching impact on the strategic

plan, now 100% focused on the CU’s mission “to advance the lives

of its members from a place of financial need to a life of ownership

and giving back in their communities.”

“We can’t possibly help members grow and advance on their own

journeys if we’re not willing to do the same,” observes Hanson.

Growth is required to invest in products and technology to reach

more people and stay relevant for their evolving needs. The CU is

equally committed to career development for team members.

The highest growth levels in the last four years have been in con-

sumer loans and mortgages, especially for underserved members.

“We’ve granted well over a billion dollars in loans (in 2016-2019)

to underserved individuals,” notes Hanson. “We work hard to open

accounts for people others may hesitate to serve. Our M&A strategy

has helped us to reach more of the underserved population; in 2019

alone, we helped about 40,000 people improve their credit scores.”

BEING MEMBERS’ HERO

$670 million Sun East Federal Credit Union (suneast.org), Aston,

Pennsylvania, laid careful preparations to grow for members’ sake.

“Growth drives innovation—and vice versa—but it’s serving our

members, being their hero and helping them to reach their hopes

and dreams that is the overarching goal,” stresses CEO Michael

Kaczenski, CCE, a 32-year employee of the CU and a CUES member.

Five years ago, Kaczenski reflects, “we asked what we could do to

compete better.” The outcome was a five-year growth plan to reach

$1 billion in assets by the end of 2023.

It took three years of preparation (2015-2017) to ensure financial

prudence, continued member care and the proper infrastructure

were in place before the growth phase began. The CU also intent-

ionally pulled back on growth, and return on assets was suppressed

to less than 50 basis points.

In the first year, the CU set a 10% growth goal for loans and

deposits. By implementing new pricing models, lending systems

and processes, marketing strategies, sales expectations and a culture

of being “heroic,” the CU surpassed its initial targets by more than

50%, achieving 16% growth in both loans and deposits.

At the end of 2018, the CU took a step back to re-evaluate. “Our

systems (people and resources) handled the growth; however, some

systems were stressed, particularly IT,” Kaczenski says. “We re-

alized additional technical talent was needed along with improved

systems, specifically hardware and networking capacity.” On the

service side, staff wanted more cross-training.

The outcomes of 2018 affirmed that the CU could grow, but “we

needed to do a better job at planning for growth, spotting obstacles

and fine-tuning our processes,” says Kaczenski. “We added a second

board planning session. ... For better growth management, we

adjusted our goals down for 2019 to 9.5% for loans and deposits.”

Continuing its journey, the CU has set a goal of 11% annual

growth for the next five years. “When we establish these goals, we

look at what we can do and the options available—as well as what

we’ve accomplished,” says Kaczenski. “We know we can grow at

double-digit rates, and we build our business plan around it.

“What levers do we need to pull? Maybe it’s business lending or

mortgages. … On the deposit side, perhaps it is pulling a CD lever

to bring in money to loan out for a nice spread. We have over 50

different ‘levers’ to hit growth and ROA goals,” he says. “As an

executive team, we continuously review these levers.”

Despite the planning and projections, in the end, Kaczenski says

it doesn’t matter if the CU doubles in size. “We’ll achieve growth if

we do it right by our members. It’s not ego or a number we’re striving

for. When we reach our goals, it will be because we’ve helped our

members—that we’ve been their heroes.”

FOR BOARD, C-SUITE, OPERATIONS, MARKETING

Across the credit union industry, executives are grappling

with how to continue gaining new members and retain and

expand current member relationships. Put simply, how do we

continue to grow?

From growth strategies focused on optimizing legacy debit

and credit card programs to marketing initiatives and more,

nding the right formula to achieving credit union growth can

be tricky – but it does not have to be. Credit unions of all sizes

should consider partnering with a third-party organization with

a track record of successfully helping credit unions grow rather

than going it alone.

PSCU’s industry-leading team of experts at Advisors Plus

is dedicated to and solely focused on creating marketing

growth campaigns and portfolio, loyalty, contact center and

operations optimizations that help credit unions meet their

business challenges and grow. Advisors Plus employs a holistic

approach in which a dedicated Advisors Plus consultant

engages with a credit union at the start of their partnership

to understand the credit union’s goals and objectives. The

consultant then analyzes all available data in order to not only

provide recommendations, but also help execute the resulting

campaigns from start to nish. Back-end analysis is provided so

credit unions can clearly see the return-on-investment of each

campaign. In order to meet a credit union’s specic goals,

Advisors Plus offers a number of subscription plans, ranging

from assistance with the essentials to full marketing consulting

and execution support. By following this approach and

addressing each credit union’s unique needs and challenges,

Advisors Plus credit unions experienced a 160% higher growth

rate (6.07%) year-over-year on average in active accounts

over other credit unions across the industry not working with

Advisors Plus (2.33%). And that’s just the beginning.

Partnering with a third-party organization can also help credit

unions achieve balance and dollar volume growth. During the

same time frame, credit unions that partnered with Advisors

Plus saw balance growth of 6.86%, 20 times higher than credit

unions not working with Advisors Plus (0.34%). The credit

union industry, excluding Navy Federal, grew 4.8% during the

same time period. Advisors Plus achieves this through a

stair-step approach in which Advisors Plus experts help credit

unions by providing recommendations on how to acquire

accounts, activate those accounts and follow up with a

balance-transfer opportunity, as well as a credit line increase.

Dollar volume growth speaks to a credit union’s ability to

achieve top of digital wallet and physical wallet status. Year-

over-year, Advisors Plus credit unions experienced 50% higher

growth in this category (10.17%) compared to non-partners

(6.79%). According to The Nilson Report, all U.S. issuers –

including big banks, nancial institutions and credit unions

– saw a 9.4% dollar volume growth during the same time

period. As PSCU reported in its 2019 Eye on Payments study,

convenience and ease of use are the driving factors behind a

consumer’s choice in payment method. Advisors Plus can help

credit unions ensure their programs, offerings and services are

well-marketed, clearly communicated and easy for consumers

to use in order to achieve and keep top-of-wallet status.

Additionally, offering a robust rewards program that is superior

to other nancial institutions can also lead to higher spend

among members.

Contrary to what credit union executives might believe,

there is a solution for every credit union challenge, whether

it is nding new members, retaining current members or

expanding existing accounts. Partnering with a third-party

organization like PSCU’s Advisors Plus is one solution that can

bring unmatched value and growth to your credit union.

To learn more, visit AdvisorsPlus.com.

The Impact of Powerful Partnerships

on Credit Union Growth

By Glynn Frechette, SVP, Advisors Plus at PSCU