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Are 80% of Credit Unions in Trouble?

Originally published in CUInsight.com

This was going to be an article about holiday cheer and Christmas music. The first paragraph would be asking you when you first heard that holiday song this year. And then there would be a section on how holidays seem to be starting up earlier in 2020.

Which is totally fine, because if there was ever a year we needed some extra cheer…well, yeah.

Instead, a coworker (ok, my dad) shared a recent Credit Union Times article about the performance of the industry, separated by segments. He noticed they are now calling all institutions smaller than $1B in asset size “small”.

$1B Is Small?

Kids Shoe
Small for an adult shoe or huge for a kid’s shoe?

Are you from a $750M asset size credit union? Do you feel small? Because now you are. Join 4,875 others that fall under that classification. Not to mention you make up 92.3% of all credit unions.

Doesn’t that seem, odd, to you? It did to us as well. So I started digging into the numbers. Spreadsheets, here we come! Don’t worry, you’ll only get the highlights. I’m not subjecting you to more columns and rows than you already have at work!

Feel free to check my data using the publicly-available 5300 call reports. I’d love to be wrong in this. You’ll see why soon.

It’s Good to Be King

Lion
It was either Mufasa or Mel Brooks.

First, let’s take a look at the top of the top…our $4B+ credit unions. There are 70 of them as of December 2020. Here’s their big stats:

  • $705B in total assets (industry as a whole has $1.81T, or $1810B for consistent decimal points)
  • 42.7 million members out of a total 125.1 million (34% in 1% of CUs)
  • 18.2% average asset growth (17.6% median growth)
  • 5.7% average member growth (5% median growth)

In addition to those positive numbers, none posted any losses. Overall, big credit unions are doing great! It is a testament to the hard work of thousands of credit union employees. Congratulations on helping serve millions of Americans through a not-for-profit financial cooperative.

So I’d assume if the top is doing so well, everyone else must be, too! “A rising tide raises all ships” is a phrase heard often in our industry. And I love seeing the cooperation between institutions.

I mean, there are hard-working and dedicated people at credit unions of every size, whether “small” or actually just a few thousand members strong! Good things for all, right?

“Small” Credit Unions Doing Well

Sapling Growing Out of Dirt
Growth is great!

You can check out some of their data in the aforementioned article. In general, the numbers look positive. But remember, that’s counting all credit unions under $1T asset size in one pot. A bit crowded, don’t you think?

Plus, it’s important to have some social distancing.

I wanted to dig deeper, and not into that group, but one which you’re more familiar.

And, it was time to put that one statistics class I took to good use. Besides, it wouldn’t be the first time I highlighted how you can make stats say almost anything.

A Different Picture <$250M

Fingers Holding Tiny Dollar Bill
Are you getting the full dollar, ahem, story?

I remember not long ago when “small” credit unions were considered those with an asset size below $250M. Even today, you make up 4230 of 5,244 institutions. That’s 86.8% of the total!

In speaking with some of you, I’ve learned that you serve members whom the larger ones cannot. You fulfill a need for financial services in our country that no one else does. Thus, you’re important!

Here are some of your numbers:

  • $210.6B assets (11.6% of total CUs)
  • 19.6 million members total (15.7% of total)
  • 11.2% average asset growth (10.9% median)
  • 8.75% average member growth

Despite making up a small portion financially, and even numerically, you’re doing well. Asset growth is strong, whether we use average or median. In case you’re wondering, I used median to eliminate the effects of “extreme outliers”.

Essentially, using both gives us confidence that the numbers we see are representative of the group.

“But, Joe, you forgot to include the median for average member growth!”

Great catch. I was saving it for right now! Because something really interesting happened when I ran this value. In fact, I even did it a few times to make sure I hadn’t messed up.

For credit unions with a $250M or less asset size, median member growth is currently -0.92%. Yes, negative! Small credit unions are, in general, losing members.

“But the average was up so much!”

True. I looked at the data and some credit unions post 40% or higher member growth (and some with similar swings downward). Since they only have a few thousand members, it takes less to create large swings. Hence why I checked the median as well.

Deeper Still and More Concerns

Scuba Diver and Rocks
Let’s bring some light to that darker dive.

That made me want to see if the member loss was more prominent on one side of the group or another. Sadly, it was. I looked at the 2811 credit unions with <$50M asset size, composing 53.6% of the total. Their average member growth is 13%. Hooray! But…

Their median member growth is -1.3%. Nearly .4% lower than the larger segment. 

So why are the numbers so divergent?  PPP loans could have had something to do with the success of large credit unions, but not likely the member growth numbers.

Sure, they proportionally did more PPP lending, providing part of that boost. Truly smaller credit unions didn’t have an opportunity to provide as much of this assistance.

I recall hearing about how difficult the processes were. If you were filing them manually, you were getting fewer done, and that’s even with the enormous amount of time and energy you put into it!

At the end of the day, large credit unions benefited and smaller ones, as a whole, did not.

Though that alone shouldn’t explain the disparity.

With Your Data, You Can Act

Group of People at Table with Notes and Laptop
Make your plans with the best information.

I’m not here to ponder the reasons. You have a whole bunch of really smart people ready to dive into analysis. Sometimes I’m one of them, but not today. As I said above, this was just to share the data.

I believe it’s essential to have good information before you make any plan or take action. It’s why our company runs an unbiased and honest Learning Library, filled with insights and guidance for a range of products and services.

So seeing an article that puts a $900M credit union in the same group as one which has 4,000 members forced me to take action. You know you have different challenges and strategies for growth (or survival). Addressing you together isn’t helpful.

So, are 80% of Credit Unions in Trouble?

Caution Cone on Keyboard

That’s not a question I can answer. And yes, I may have triggered Betteridge’s law of headlines, though I really don’t know if it’s definitely a “no”.

There are definitely concerns which you may not always get to see. If viewed widely, this article likely won’t make me many friends in high credit union industry positions. It points out some concerns about a large portion of credit unions that many would not like promoted.

But data doesn’t exist to make you happy, sad, satisfied, or frustrated. It exists to be processed, so you can act on it. And you know what? I hope I’m wrong in my analysis. That I made some silly mistake.

Take a look at your own data. Does it line up with what I shared? Regardless, learn from it and take appropriate actions.

Because everyone deserves the best information so they can make decisions which benefit their credit unions, communities, and the members they serve. Isn’t that what the credit union movement is all about?

And in case you haven’t heard it a thousand times already…”I don’t want a lot for Christmas…”

Holiday Candle and Pinecones

Happy holidays to all!

Billions of Dollars for Data? You bet!

You may not have seen, but Microsoft just wrote a check few can imagine. In pursuit of a comprehensive business platform, they are acquiring LinkedIn for a staggering $26.2 billion. In cash.

It would be the largest acquisition in company history, far exceeding the $8.5 billion they paid for Skype. So what can a social media platform for job hunters, executives, general employees, and recruiters possibly have to offer for a software and services firm like Microsoft? I mean, they have Office. What else could they want?

Big Data. Hold on, let me rephrase that. #BigData. Because knowing the trends behind it helps to better understand the rationale. Remember that article CU Insight shared of mine about your members’ data? It’s truly big business, and whatever you aren’t doing, someone else is. Besides, it’s really about better serving your members, and using the information you already have is the best way forward.

I cannot stress enough the importance of embracing data to further your personalized offerings. And once again, you don’t have to be working with millions of people or data points. Just a few carefully-selected points helps you draw incredible conclusions. Sure, it will raise important conversations about member privacy. That’s a good thing. But you have to be doing it.

I’m here to help. Feel free to contact me here (the old-fashioned way) or on Twitter @JoeCUGeek. I promise your credit union can take substantive steps for less than $26B. Trust me, I’m a geek.

Image credit: http://www.aicpa.org/Advocacy/CPAAdvocate/PublishingImages/Data%20Tunnel.jpg

A Challenging Balance: Safety & Security

The debate between privacy, safety, and security has been ongoing for longer than I can guess. I wouldn’t be surprised if cave dwellers used secret passwords to enter adjoining caves or offer assistance in hunts. What were those codes worth to other tribes?

While we may have evolved in language skills and developed mind-boggling technology, the basic premise is unchanged. There is a perception that your privacy in some way compromises the security of the masses. If law enforcement cannot read your mail, then how will they stop the next terrorist attack? Obviously, the discussion merits far more than a short CUBit on this humble blogger’s site. I won’t argue that point. There is a place to strike balances between the privacy rights of individuals with the security responsibilities of your government. But this balance should never tip excessively in favor of the latter. I’d argue it must always lean towards the individual. Even if that person has committed heinous crimes?

There’s the rub. To collect evidence against this one person would put the security of a billion others (most of which not citizens of this country, and therefore not beholden to its laws) at risk. Is the balance needle moved?

This precise situation came to a head yesterday. Remember that time a person shot a bunch of innocent people in San Bernardino? Yeah, no love for them and deepest sympathies to the victims and their families. Well, the shooter owned an iPhone 5C and the FBI wants to collect information from it. Unfortunately for their investigation, the suspect used a passcode. As you may know from your own devices, you can only get it wrong 10 times and the device will erase itself. This feature is so good that the FBI cannot bypass it. So, they did what you’d expect…ask for a key. Since iOS 8 (we’re on iOS 9.2, or 9.3 on beta), Apple stopped keeping encryption keys. This means only the person with the passcode can access the phone’s data, not Apple. The FBI went to court against Apple on the matter. Early this week, a Federal judge ruled that Apple must provide a way for the FBI to access the phone.

They refused.

“So Apple sides with terrorists?” you may say. No, they side with their customers. You see, to modify one device would mean opening all of them up to this same intrusion. “But it can prevent another shooting or even a terrorist attack!” This is circular reasoning, as it presumes the result at the outset. I could just as easily say that it causes a terrorist attack since malicious actors used this “backdoor” to access a government official’s phone. In that case, the argument would be that we should encrypt and secure our devices better. Not to mention all the cases where a suspect’s information could now be accessed by authorities with impunity. All that encryption and security would then mean nothing. It would be akin to having a state of the art deadbolt on your door, but not adding hinges.

Is there a solution? Yes, but it’s not great, and it’s a bug. Companies regularly offer “bug bounties”, or cash rewards, to hackers finding security issues in their software. If the FBI wants this information so bad, offer an enormous bug bounty, say, $5 million, to crack the iPhone’s encryption. However, stipulate that payment only occurs if the flaw is not publicly disclosed and is submitted to the FBI and Apple simultaneously. That way, the FBI gets what they want (access to the suspect’s phone), Apple doesn’t compromise their values or the software (and gains an opportunity to fix a flaw, making it more secure for all), and none of us lose security for the sake of one investigation. Perfect? No. It’s possible no one will figure out how to bypass the passcode lock. Then what?

What’s your take? Can you think of a better way to satisfy all parties? Is there a way to truly balance privacy and security? The comments are open.

PS – This affects your credit union and members, too. Just swap “key to phone” with “key to member data”.

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