Credit Union Times - April 18, 2018

8 FOCUSREPORT/CUSOs For many credit unions, partnering with a CUSO makes perfect sense. A CUSO can help your credit union offer a new service, enter a new market or serve your members’ needs better. Through a CUSO partnership, credit unions can leverage the expertise and resources of an organization focused on a single area of business, often more economically and efficiently than they can do it themselves.

However, some CUSOs are better equipped to support their credit union owners or clients for the long-term. What should you look for in selecting a CUSO that will meet your needs now, and for years to come?

The Service Life Cycle

To help you achieve maximum, sustainable success, your CUSO partner must be able to adapt to your credit union’s changing needs as it progresses through the service life cycle, which typically consists of startup, growth and maturity stages. Some CUSOs are very adept at supporting the startup phase, but once you are up and running, you will no longer need those services. You will, however, likely require some operational support to help fill in the gaps as demand fluctuates, volumes increase or during temporary staffing shortages. Is your CUSO prepared to help you through the growth and maturity phases as well?

When CU Business Group first
got started 15 years ago, we fo-
cused primarily on helping credit
unions start up their
business services pro-
grams through strate-
gic planning, market
analysis and policy
development services,
and by offering com-
mercial loan under-
writing and documen-
tation support.

“We found CU
Business Group and
decided they would
be able to help us
set up a full-service
program and give us
the expertise that we
didn’t have in-house,”
Brenda Worrell,
COO/EVP of Ida-
ho Central Credit
Union ($3.6 billion
in assets, Chub-
buck, Idaho), said.
“They helped us
write our policies
and procedures.

They also helped
with the initial
training of our team on the loan
officer side as well as the deposit
side.”
CU Business Group supported
the startup phase of Idaho Cen-
tral’s business services program
in this way for the first four years.
But the credit union’s commercial
loan portfolio grew fast, and Idaho
Central began hiring experienced
commercial lending staff, benefit-
ting from reduced expenses due
to economies of scale.

“I think if your volumes are
small, it makes sense to continue
with the CUSO be-
cause they have the
expertise and all of
the resources that
you can’t afford to
staff full time,” Wor-
rell said. “But we hit
a level where, from
a cost and a ser-
vice perspective, it
made more sense to
bring the program
in-house.”

Adapting for the Long Haul

In the early days of CU Business Group, For instance, CU Business Group conducts an independent third-party portfolio review for Idaho Central on an annual basis. CU Business Group has also provided Idaho Central with expert technical assistance in areas like the allowance for loan and lease losses, where we can offer a broad industry perspective.

“CU Business Group has been
really good at helping us,” Worrell
said. “They bring different ideas
in to help us make our program
better.”
Mid Oregon Credit Union ($273
million in assets, Bend, Ore.) re-
lied on CU Business Group to help
start its business services program
nearly 15 years ago. Since then,
it has used the CUSO to help di-
versify its loan portfolio through
participations, vet commercial
lending staff hires and even con-
duct due diligence on a bank loan
portfolio it recently purchased.
“This was right before Thanks-
giving, and a team from CU Busi-
ness Group was
onsite within a
week, reviewing
every single one
of the loans, about
$9 million in total,”
Bill Anderson, CEO
of Mid Oregon,
said.

Choosing the Right Partner Not all CUSOs are structured the same way. Some are more narrowly focused on offering a single service and are not set up to help a credit union succeed through their entire product life cycle. Others may not have the size, resources or expertise to serve a large swath of the market.

Here are some questions to ask a prospective CUSO partner during the due diligence phase:

• How long have you been offering this service? It’s important to dig into the CUSO’s relevant background and experience, ensuring alignment with your specific needs. “I really like finding out about the history of the organization,” Anderson said. “Why were they created? What kind of expertise do they have? And how have they been growing through the years?”

• What challenges has your CUSO faced, and how have you dealt with them? During her initial round of questions, Worrell asks about issues the CUSO may have faced in the past, and how it has maintained its service levels in dealing with them. “I also like to ask about the current or future risks they may see in their industry or service areas,” Worrell said. “What are their plans to mitigate these threats?”

•Are your strategic goals
aligned with ours? It is critically
important for the CUSO and cred-
it union to be on the same page in
terms of strategy, goals and phi-
losophy. In the case of a business
lending CUSO, for instance, will
it underwrite loans in line with
your commercial loan policy, or
will it take a “one-size-fits-all” ap-
proach, relying on a centralized
standard policy? “I want to know
how the CUSO makes money, and
what its motivations are,” Ander-
son said. “What are the goals of
the organization?”

• How many clients have you
lost? Why did they leave? This line
of questioning can be very telling.
By asking if the CUSO has lost any
key customers recently, you may
uncover some hidden service is-
sues that have yet to bubble to the
surface. “If you see a loss or decline
in the customer base, I would be
concerned,” Worrell said. “Some
CUSOs are afraid to discuss this,
while others are very up front and
explain who they lost and why.”
It is important to take the time to
conduct comprehensive due dili-
gence on any new CUSO partner,
just as you would with any new
vendor relationship. Reaching out
to current references is vital.

When Is It Time to Say Goodbye?

Of course, not all relationships are designed for the long term. Organizations grow and change, and the time may come when your CUSO can no longer meet the needs of your credit union.

How do you know when it’s time to say, “It’s not you, it’s me?” It’s important to keep close tabs on your CUSO relationship over time, just as it is to conduct full and comprehensive due diligence before the contract is signed. This way, you can ensure your CUSO-credit union partnership will remain a match made in heaven. n