By Ray Birch
INDIANAPOLIS—Small credit unions don’t need to focus on growth to survive–instead, they should strive to be great at what they do, according to one CEO whose credit union has performed well using that philosophy.
Chris Wardrip, CEO of the $33-million Financial Health FCU, believes that small credit unions can thrive by paying close attention to what they do best—providing exceptional member service, focusing on member needs, and finding a niche in which they can excel.
“Over the long haul I might need a little bit of growth, but I don’t think I need to focus on growing 5%-10% a year. I don’t think it is necessary,” said Wardrip, whose credit union’s niche is serving low-income residents in this city. “I am saying growth is not the be all and end all for small credit unions. I think you can determine your success by things other than growth. Things that are more important. I think it is fine for a credit union to stay fairly small and continue to be great.”
Wardrip acknowledges that thinking runs counter to who argue if a credit union isn’t growing it isn’t succeeding, as well as overall industry numbers indicating the credit unions performing best—and best positioned to survive--are the largest CUs.
Don't Buy Into This Thinking
Wardrip contends it’s counterproductive for many small credit unions to buy into the thinking that they can’t survive unless they get bigger.
“When asked whether the credit union is doing well, the first response from too many people is generally about whether or not the CU is growing,” said Wardrip, who will retire at the end of the year after leading FHFCU for 22 years. “Typically, the first thing asked in a strategic planning session for next year is how much are we going to grow?”
Wardrip thinks many small credit unions are “small giants.”
“We are special and different for a variety of reasons, which vary from credit union to credit union,” he said. “For my credit union, our greatness—if we deserve that moniker—comes from the unique products and services we have developed to serve an underserved population and the free tools we have developed to help members get to a better place financially.”
Financial Health has consistently posted an ROA at or above 1% for the last 15 to 20 years, said Wardrip, and in the last few years has hovered near the $30-million asset mark.
“Our return on average assets, compared to credit unions in the state of Indiana and our peer group nationally, has been better than most,” said Wardrip. “We have had a positive bottom line every year except 2010—a year in which we merged with a small failing CU here in Indiana, which brought our bottom line down.”
Positive Bottom Line
Wardrip emphasized that a small credit union is doing well if its bottom line is positive every year and if it is maintaining a good capital cushion. Fittingly, a credit union named Financial Health keeps its capital near the 11% mark. It is 11.5% today.
But he stressed that small CUs hanging onto too much capital are jeopardizing their future. Wardrip believes small CUs should identify the level of capital necessary for them to operate effectively, and then return excess capital directly to members or by investing in new tools to keep the CU thriving.
“I argue that if you have 14% net worth, you should find ways to give some of that capital back to your members,” he said. “You are a member-owned cooperative–what are you hanging onto that money for?”
Wardrip said FHFCU, a low-income designated credit union, invests in programs, services and products that benefit the financial lives of its low-income members.
One such program is free tax preparation each year for members. Wardrip said he has one full-time employee who dedicates his entire time to that program for three months, while other employees also provide assistance.
“We give members this free service and save them a couple hundred dollars a year,” Wardrip said.
Financial Health also offers a credit builder loan, which does cost the CU in a higher loss ratio. However, those loans, emphasized Wardrip, will help many members in the future obtain a mortgage for the first time and avoid paying 19% for a car loan.
The credit union also holds ongoing free financial literacy workshops and has introduced a financial wellness “scorecard.” It has also made investments in online and mobile banking to provide convenience and greater access, and it seeks to reduce or cut fees when possible.
“This year, when our net worth reached the level our board said was high enough, we reduced some of our fees,” said Wardrip. “For example, we dropped our $28 overdraft charge to $25.”
The credit union also will finance up to 125% of the retail value of a car. Wardrip said taking on that additional risk is worth it for the benefits it provides members.
Wardrip explained that many of its members are building up negative equity in their cars due to high-interest loans. He said financing 125% of a vehicle’s value is helping to break the cycle of negative equity.
“This is what the dealers do, they finance 125% of the car, so our members go to the dealer and get a very high interest loan,” said Wardrip. “By doing what the dealers do—financing more than 100% of the car’s value—we get members into a lower-interest-rate credit union loan, and keep them away from those 19% loans.”
Take Care Of Members
Wardrip said small credit unions should be focused on taking care of their members.
“I just believe that small credit unions do a better job of taking care of their members than the larger credit unions—we’re more personal and less like banks,” he said. “There’s just something special about a small credit union that gets lost when it gets big.”
While Wardrip said that some growth is a good thing and may even be needed, he emphasized again that growth often receives too much attention. He is a fan of the book “Small Giants: Companies That Choose To Be Great Instead of Big,” by Bo Burlingham.
“The title speaks for itself,” said Wardrip. “In the book, the author uses examples of companies that have decided to remain on the small side in order to retain what they consider to be the most critical aspects of the business, whether that be superior customer service, a commitment to the employees of the business, serving the community or unique products and services. The book said these companies fear that if they grow too big or too fast, they might lose the very aspects of the business that make them special. As the CEO of a small credit union which focuses, quite successfully, on serving the underserved, the message of the book really resonated with me…I think it’s a perspective that small credit unions should give more thought to. What’s really more important, is it being big or being good at what you do? I argue that sometimes being really good at what you do ought to trump being bigger.”