AUSTIN, Texas—How does a credit union show solid net income, 1.52% ROA and continue to grow well in a market in which the population is shrinking?
It diversifies its revenue stream.
Phillip Buell, CEO of the $853-million Superior Credit Union in Lima, Ohio, spoke to the CUTomorrow Conference here about the importance of revenue diversification for credit unions of all sizes in any markets.
But he first described what Superior is facing in the communities the CU serves in the Lima area.
“A lot of the kids here move out of town and go to college, often to Ohio State in Columbus,” he said. “Some of them are members of the credit union and they relocate to the Columbus area. But what also happens is the parents move out of town to be closer to their kids. So the population is shrinking.”
The falloff in auto industry production in the Lima area, as well as the decline in general manufacturing—including the now community chartered CU’s original sponsor—have led to the population issue in Lima as well.
Strong Performance
Despite the challenges, Superior CU has posted some of the best performance numbers in the country for the past ten years. Over the last decade the 10-year average for the CU has been: 1.68% ROA, 10.42% loan growth and capital at 14.3%. Superior was also ranked this year second in the country among “top performing” credit unions, behind only Idaho Central Credit Union, by S&P Global Market Intelligence.
With the focus on diversifying revenue, Buell emphasized that a number of small streams eventually become a river. Superior’s total interest income for 2017 was $21.9 million and non-interest income came in at $14.8 million.
Buell emphasized that income diversification not only sets the credit union up well for the future, but insulates the organization against negative effects from interest rate cycles.
“Since we have a consistent flow of non-interest income, when margin compression hit over the last ten years, we have always made great income because we had strong fee income,” he told the meeting.
Not a Predatory Move
But Buell quickly emphasized that the fees Superior charges are not predatory and, in fact, save members money. He explained that the fees the CU receives are from services delivered from the numerous business lines the credit union has—such as its brokerage service and title company.
“These are fees members are paying somewhere else and likely are higher than what they are paying the credit union,” Buell told the CUTomorrow meeting.
Overall, the credit union has some of the lowest fees in the market—such as $20 for an overdraft—and keeps them low for a good reason.
“You get less of what you fee, so you keep your fees low if you want more loans or checking accounts,” Buell said.
No Magic Bullets
Getting back to his emphasis on diversification, Buell said he does not believe in “magic bullets.”
Superior services about $750 million in mortgages for Fannie Mae.
“Fannie pays us, so we are generating fee income. We actually service over $1.1 billion in loans if we count our loan portfolio of consumer, MBL, and mortgages, as well,” he said.
The credit union also has title insurance and property/casualty businesses that generate fee income. Moreover, Superior recently purchased a real estate brokerage company.
Buell believes the property/casualty business will become a much larger part of its revenue stream over the next five years.
“We think this will become a nice long-term fee-income driver for us,” said Buell.
Expense Control Needed
Buell emphasized that an income diversification strategy must be backed by very good expense control.
“The challenge is on the backside, controlling the expenses on all of the businesses,” he acknowledged.
Superior has also been expanding through mergers—expecting to merge in a total of six CUs in a two-year period, having most recently merged in Classic FCU. Through merger Superior has now entered the Cincinnati and Toledo markets in this state—two markets that are growing Buell noted.