Friday, October 10, 2008

Filene examines large CU success factors

MADISON, Wis. (10/10/08)--Why do many large credit unions grow rapidly and thrive, while others produce much slower growth in assets, membership, and earnings? Filene Research Institute sought to answer that question by analyzing data from a five-year period, beginning January 2002.

The result is a newly released Filene Research Institute report, "Thriving Large Credit Unions," by Robert F. Hoel, Colorado State University Emeritus Professor of Business and a Filene Research Fellow.

Using a methodology developed for the institute's examination of small and midsize credit unions (1999 and 2007), Hoel isolates "star" and "laggard" credit unions in larger asset sizes, and reports their characteristics across a variety of measurements and indicators.

The study concludes that star credit unions conduct a number of business practices and traits that distinguish them as exceptional performers:

They are highly effective lenders;
Their members use the credit union extensively;
They excel in high-payoff product and service offerings;
Their members receive more total interest income on their savings;
They operate more branches and are more likely to engage in indirect lending;
They generate more fee income than their peers; and
They invest their capital in growth.

Hoel also reports on the qualities of low-performing credit unions, almost always in sharp contrast to star traits.

For example, whereas stars are highly effective lenders, laggards tend to have low loan-share ratios; and while stars invest their capital in growth initiatives, laggards are more conservative with their capital. One of the findings of the research is the consistency of the key success factors for star credit unions across asset size categories and time frames.

"Despite the uniformity of these success factors, it would be folly for credit unions to conclude that all seven effective practices are necessary to become a star," said George Hofheimer, Filene chief research officer. "A given credit union may have a different definition of what constitutes high performance by putting less emphasis on assets, earnings, and/or membership growth, for example."

There is no silver bullet or magic elixir that guarantees business performance, Hofheimer said. Credit union failure or success is dependent on a complex interaction of external and internal factors. The Hoel report does, however, outline factors that lead to credit union success.

Hofheimer recommends using the report as a building block and analysis for credit unions to consider in assessing future strategies and tactics.

Copies of "Thriving Large Credit Unions" are available free to Filene members; $125 to non-members.

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