Field of Membership Expansion in 2020: Behind the Numbers

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2020 is no doubt a year most would prefer to soon forget, yet amid so much darkness bright spots could be found within the credit union industry as many institutions found ways to strategically expand their fields of membership. In fact, the past year saw more conversions and expansions than 2019 in every category aside from Select Employee Groups (SEGs) additions. Given employment has had its ups and downs, that’s not terribly surprising.

Here’s a more in-depth look at the data provided by the National Credit Union Administration (NCUA):

Fewer SEG Additions, More Potential Members

The adding of SEGs—groups that share any common bond of association or occupation—is a popular tool for credit unions looking to grow their Field of Membership (FOM), and this was once more the most used tactic in 2020, being put to use by 295 institutions. The number, however, comes in significantly lower than the previous year’s total of 379, not to mention the overall average from 2015–2019 of 418.

In aggregate, these credit unions added a total of 7,540 SEGs in 2020 and the average number of potential new members generated by each group was more than 30,000. However, note these numbers are skewed heavily by the addition of a few disproportionately large groups by a minority of the credit unions, and the median—a far more accurate measure in this case—is 102 potential members for each SEG added. The majority of credit unions, more than 75%, added 10 or fewer SEGs, and the median number of groups added per institution was only three.

Despite the total number of credit unions adding SEGs declining in 2020, which may be due to overall industry consolidation and well as extra work due to COVID, other related statistics are mostly in line with previous years. For example, fewer groups were added (7,262 altogether), while the median of potential new members per SEG was marginally higher, coming in at 109.75. The percentage of credit unions adding 10 groups or fewer in 2019 was 77%—essentially the same as 2020—and the median groups added per credit union was two.

Further, none of these numbers stray far from the benchmarks established between 2015–2019. So while the total individual select groups added in 2020 may be down somewhat compared to the five-year average of 8,874 per annum, there’s not much variance where it really counts, i.e. median potential new members—average of 104.5—and median number of groups added per credit union, which sits at just 2.6 across the half-decade. Lastly, the average percentage of credit unions that added ten groups or fewer across that time span is 76.7%, another indication of how consistent these trends have held over time.

One very notable instance in which the numbers do not align with the recent past, however, is in the total number of potential new members added, which in 2020 came in at more than 60,000 per institution. This compared to close to 7,000 a year ago and the five-year mark of 9,872. Again, the median paints a much different picture, with the 500 per credit union in 2020 basically in line with both the previous year’s 470 and 2015–2019 number of 448.

What’s the reason for this discrepancy? As noted earlier, a small number of credit unions were able to add extremely large swaths of potential new members, with two specifically—Beehive FCU and Notre Dame FCU—even reaching well into the millions. Such numbers represent a far from common occurrence and, interestingly, followed two very different paths. Beehive were able to reach more than six and a half million potential new members through the addition of one SEG alone (Members and Employees of The Church of Jesus Christ of Latter-day Saints), while Notre Dame added more than five million spread across 167 groups for an average of slightly more than 30,000 per SEG. A closer look at the Notre Dame’s additions reveals a truly wide range of SEGs, with two groups topping the one million mark and several others made up of just a single potential new member.

Community Charters Still Offer Big Numbers

The Community Charter is essentially defined by location and covers individuals who live, work, worship or attend school in a given community, whether a neighborhood or rural district. As such, they are bound by geography, yet still represent a real opportunity for adding new members.

In 2020, a total of 40 credit unions updated and expanded an existing Community Charter, while another seven converted to the Community Charter. In total, these led to an average of 678,000 potential new members per institution and a median of right around 350,000 each. The numbers were higher for charter expansions, which added just fewer than 750,000 potential members, compared to conversions, which came in at slightly fewer than 300,000.

The data square with recent years, as 2019 saw a total of 35 combined conversions and expansions leading to an average of over 725,000 potential new members per institution with a median of 529,000. The year 2018 stands out for its considerable uptick in activity, with 71 conversions or expansions, however the average of close to 695,000 potential new members per credit union and median of slightly less than 450,000 are similar to this past year.

Overall in 2020, 10 credit unions (all expansions) were able to add more than one million potential new members, with three separate institutions surpassing the two-million mark: Austin Telco FCU (2.21 million), University First FCU (2.27 million) and TEG FCU (2.32 million).

Underserved Area Expansion Shows Solid Gains

The addition of underserved areas—any local community, neighborhood or rural district that meets the NCUA’s definition of an “investment area”—provides credit unions the unique opportunity to expand FOMs untethered by location and without affecting the nature of a charter. It is an approach that, despite still trailing community expansions in number, continues to offer more and more value to the industry.

In 2020, 19 credit unions were approved to add a total of 22 underserved areas. These additions led to an average of more than 400,000 potential new members per area and a median of more than 260,000. Both numbers represent a significant increase from 2019 where 22 credit unions added 23 areas between them for an average of just under 200,000 per and a median of circa 115,000. They further show a healthy deviation from the 2015–2019 five-year average of nearly 227,000 potential new members per addition and median of around 159,000.

The two main drivers of this uptick in 2020 were two credit unions adding single underserved areas that surpassed the one million mark for potential new members, a feat not witnessed since 2017. Franklin Mint FCU, located just outside Philadelphia, was able to reach 1.31 million potential new members through the addition of 350 census tracts in nearby “investment areas.” In similar fashion, Air Force FCU, based in San Antonio, gained around 1.06 million potential new members by adding 243 underserved census tracts in surrounding Bexar County.

It’s noteworthy both these credit unions were able to reach more members in underserved areas with less red tape to get in their way to accomplish that goal.

TIP Charters: Rare but Effective

The overall scarcity of Trade, Industry or Profession (TIP) Charters should come as no surprise given its highly specific and somewhat rigid definition, which requires that such a “common bond relationship must be one that demonstrates a narrow commonality of interests.” In the right scenario, this strategy can be highly effective given its freedom from geographical restrictions.

Five TIPs were established in 2020, which represented a solid jump after just two were approved in 2019 and is double the 2015–2019 average of 2.4 per year. As these expansions are not tied to location, it is more difficult to predict the potential new members and the data from the NCUA is often incomplete.

The available data from this past year, however, do serve to illustrate the wide range found within TIP Charters in terms of adding new members. For example, Academic FCU of Briarcliff, New York, was able to gain more than 345,000 potential new members in the vicinity who “are exclusive to the campus, and self-employed persons who are exclusive to the campus who work regularly in the educational industry.”

Conversely, the Police Federal Credit Union of Omaha made the much smaller addition of 1,636 potential members by including “employees of federal, state, county and municipal agencies or departments engaged in the police protection industry who work in the states of Nebraska, Iowa, or South Dakota.”

Statistics on TIP charters vary heavily depending on the industry in question, but the TIP charter offers a great opportunity for a credit union to plug into a much larger potential member base while not sacrificing its original mission or being restrained by geography.

Takeaway:

As these numbers demonstrate, there is no one-size-fits-all solution to a credit union’s needs when it comes to expanding FOM. What the figures do highlight, however, is the importance of selecting the right approach to align with an institution’s identity and broader strategic aims. It is clear with a well-tailored, strategic approach, reaching potential new members is good for the communities that credit unions serve and credit unions seeking organic growth.