By Ray Birch
LOMBARD, Ill.—Top-performing credit unions clearly understand two things: they can’t cut their way to success, and most aren’t all that concerned about net interest margin.
Those are two of the key characteristics credit unions that have consistently performed well in Raddon’s Crystal Performance Award rankings—which just turned 10 years old—explained Bill Handel, who says a big emphasis among the elite performers of all asset sizes is their focus is simply on driving revenue in a big way.
The VP of research at Raddon told CUToday.info these leaders are paying close attention to building deep relationships, and the revenue comes largely from big account balances rather than number of products per member.
“What stands out about high performers is they are much more focused on revenue generation than on expense management,” said Handel. “Not that they don't pay attention to expense management, they do. But there is just so much more focus on driving revenue. And the way they really drive revenue is through building deep relationships with the members—primarily bigger household balances, things like that.”
Innovation is another characteristic of top performers, explained Handel, who has overseen the awards for their decade-long existence they have been in place. He explained that innovation among these shops is always driven from the top down.
Cultivating an Environment
“I don't mean that senior management drives all the ideas, but senior management cultivates an environment of innovation,” said Handel. “And it's not just innovation through technology, it is savvy innovation in process and around products—just a notion of constantly looking for better ways to do things. It comes from the top level of the organization and moves all the way down throughout the entire organization.”
Performance leaders also rely heavily on metrics to understand the performance of their organizations.
“They really pay attention to the members, and the member data,” Handel said. “They track the data and disseminate that information across the organization so everybody is singing from the same page in the hymnal.”
An Evolution
While Handel pointed to three top characteristics of top performers, he also identified how this group has changed over the years.
“Probably the biggest change we've seen in the group is now there is much more of a projection of their brand across the broad marketplace as opposed to a strong marketing focus in one area of the business,” he said. “Back when we launched in 2009 during the financial crisis, everybody just kind of hunkered down, figuring out how to survive. Now organizations are looking for growth, more membership growth, less reliance on indirect for that growth, really trying to find true members. They are looking at how do I take this strong brand and project it outward.”
Handel said that asset size, according to Raddon Performance Award data, is not always the driving factor in those CUs that are growing well. He emphasized scale certainly can help with growth, stating those shops Raddon has seen grow the most over the years are small-to-medium sized CUs that have now become large organizations.
Bill Handel
‘The Real Growth’
“The real growth has not been in the multi-billion-dollar organizations,” he said. “It’s been the $500-million credit unions that are now approaching a billion dollars in assets,” he said. “They've almost doubled in size. My point is that asset size gives you an advantage in terms of scale, but I don't think it's a requirement for strong growth. I think there are other, more important factors, like understanding your business model, knowing your demographics and who do you serve, identifying your value proposition as an organization and then making that your brand.”
Handel acknowledged size does make it easier for CUs to consistently remain at high performance levels.
“But that doesn't preclude small organizations from getting where they need to be and staying there,” he said.
Five Factors
The Raddon Awards, Handel explained,look closely at five factors:
- How the organization is growing both with new members and within the existing base
- The efficiency of the organization
- How the CU manages the tradeoff between revenue and expense
- How well the credit union manages some of the particulars of the business—how they price on margin and what they do in terms of generating non-interest income
- Depth of the relationship with the membership
“It's a balance of a lot of different factors, but it's about growth, it's about running the organization effectively, and it's about building relationships with members,” explained Handel.
Better at Relationships?
Are credit unions doing a better job of building relationships with members in the last 10 years?
“Yes, they are,” said Handel. “When we look at the statistics, like share of wallet, credit unions actually have improved.”
But there is no true answer to the question, emphasized Handel, who said that while CUs have deepened relationships with members who have walked in the door, they are not doing well with indirect members.
Balances Vs. Relationships
Lastly, Handel said the top performers will always be more concerned with growing balances as opposed to growing products per member.
“High performers, as a group, survive on average to below average net interest margin, compared to the industry as a whole,” Handel said. “Their revenue per household is so much better because their balances are better.”