Many credit unions are comfortable crossing $ 1 billion in assets – but few are in a rush to exceed $ 10 billion.
Last year, 40 credit unions crossed the lower threshold, bringing the total of institutions with at least $ 1 billion in assets to 370 on December 31, according to the National Credit Union Administration. Only 16 credit unions had $ 10 billion in assets at the end of 2020.
While each level brings increased regulatory oversight, executives said the burden of reaching a seven-figure asset size is manageable compared to the benefits that come with greater scale.
“We felt that the benefits of increasing the size of assets and associated resources provide a greater variety of opportunities for our members,” said Matt Kershaw, President and CEO of the Clark County Credit Union. in Las Vegas, which recently hit the $ 1 billion asset mark.
The increase in size has allowed Clark County to select technology that will help it stand out from other lenders, while spreading the cost of any upgrades over a larger membership base.
“We think it’s important to have a level of scale to be competitive, but never forget that we serve a unique member base that has different problems that require unique solutions,” Kershaw said.
The credit union has prepared for increased oversight by creating a better system of controls to help executives manage the business risk associated with increased membership and increased loans. It included an assessment of internal audit procedures and reports, as well as an assessment of technology systems.
The most significant change facing billion dollar credit unions is a mandatory annual review, compared to a three-year cycle for small institutions. A spokesperson for the NCUA noted that some credit unions may qualify for an 18-month review cycle.
Industry data shows that reaching $ 1 billion in assets is a positive development for credit unions as it provides sufficient scale to compete in an “extremely competitive” environment, said Dennis Dollar, credit union consultant and former chairman of the NCUA board of directors.
The average return on assets for credit unions with more than $ 1 billion in assets was 0.78% in the fourth quarter, exceeding the 0.61% mark for those with between $ 500 million and $ 1 billion in assets, according to data compiled by the NCUA.
Loan-to-equity ratios of credit unions with more than $ 1 billion in assets were 75.3% in the fourth quarter, slightly better than the 74.9% of credit unions with between $ 500 million and $ 1 billion dollars in assets.
“I don’t know of any savings and credit union that doesn’t escape the billion dollar mark,” Dollar said.
While the banking industry complains about the competitive advantage of large credit unions, given their tax-exempt status, a limited number of executives appear intent on reaching $ 10 billion in assets.
This is because of the scrutiny these credit unions face from the NCUA and state regulators, Dollar said. Credit unions with $ 10 billion or more in assets also face Consumer Financial Protection Bureau reviews and caps on interchange fees.
The $ 10 billion threshold triggers an annual review, capital planning and a stress test requirement, the NCUA spokesperson said. The NCUA and CFPB reached an agreement in January that creates joint oversight of federally-insured credit unions with at least $ 10 billion in assets.
Crossing the larger threshold “requires strategic planning in advance,” Dollar said. “It takes a lot more preparation and strategic thinking.”
Certainly, there are credit unions that are committed to taking the leap.
Lake Michigan Credit Union in Grand Rapids finished the fourth quarter just below the threshold, and CEO Sandy Jelinski has spent the last few years planning his crossing.
“It all comes down to efficiency and spending control,” Jelinski said. “We strive to provide the best value for our members and that means establishing processes and procedures that ensure our efficiency.”
Credit unions gain a sense of status and are viewed by outsiders as more successful as they grow older, Jelinski said.
“This step helps create a positive image, especially with business owners,” she said. “I think it will help our mortgage business as well.”
Regarding increased regulatory control, Jelinski said all the credit union wants is a good deed.
“We are just hoping for a fair and balanced approach” from regulators, she said.