Navy Federal keeps adding members, and rivals struggle to keep up

Total membership at U.S. credit unions is increasing at a respectable clip, yet most credit unions have fewer members now than they did last year. The explanation for this discrepancy: The largest credit union in the world, the $144 billion-asset Navy Federal Credit Union in Vienna, Virginia, is tipping the scales.

According to the National Credit Union Administration, total membership for federally insured credit unions at the end of the first quarter was 125.7 million, an increase of 3.6% from the first quarter of 2020. At Navy Federal, meanwhile, total membership increased by nearly 12% in that same span, to 10.3 million.

To put that in perspective, those roughly 1 million new members at Navy Federal accounted for more than one-fourth of the industry’s year-over-year membership growth. Moreover, that one-year growth total is greater than the total membership at all but six other U.S. credit unions.

Of course, Navy Federal pulled away from the credit union pack long ago, but the gap continues to widen and that’s putting pressure on smaller credit unions to pair up with other credit unions — or even community banks — to gain scale and remain competitive, credit union executives and industry analysts say.

“Scale is everything for small credit unions,” said Matt Selke, the CEO at the $86 million-asset Pinnacle Credit Union in Atlanta. “And mergers are coming.”

Much of Navy Federal’s success in growing its membership can be attributed to its sheer size, which it can use to outspend its competitors on marketing and product development.

Jim Adkins, managing partner at consultant Artisan Advisors, said Navy Federal has developed an effective and consistent nationwide marketing campaign, which has had a tremendous effect on its name recognition and membership growth.

Navy Federal spent almost $35 million in advertising in the first quarter, according to NCUA call report data. The next closest in ad spending was the $27 billion-asset Pentagon Federal Credit Union, which spent about $14 million.

Unlike most other credit unions, Navy Federal also has access to a steady stream of new customers in the form of military recruits.

For example, new recruits for the U.S. Marines at Parris Island, South Carolina — where the credit union has a branch — are steered toward opening Navy Federal accounts and have their paychecks direct-deposited there during basic training.

Smaller institutions are not so fortunate to have such relationships and have been losing members. Fifty-five percent of credit unions have lost members over the past year, and the majority of those with falling membership had less than $50 million of assets, the NCUA said.

Pinnacle Credit Union in Atlanta saw its membership dip to 7,290 in the first quarter of 2021 compared to 7,506 a year earlier.

Selke said the challenges for his credit union are the same as they are for many small institutions: limited field of membership, “ridiculous competition” and lack of scale.

Selke — a U.S. Army veteran — considers Navy Federal “amazing” and even has an account there.

“Should it surprise anyone that the largest credit union in the country has that type of membership growth? Absolutely not,” he said.

Some credit unions are buying banks to bulk up. One of those is $10.8 billion-asset VyStar Credit Union in Jacksonville, Florida, which in April announced an agreement to buy the $1.6 billion-asset Heritage Southeast Bank in Jonesboro, Georgia. It would be the largest-ever acquisition of a bank by a credit union.

“If we don’t continue to grow, if we don’t continue to gain scale … we are not going to have the resources necessary to provide the financial services that our members demand, and we are not going to be able to remain relevant,” said CEO Brian Wolfburg at the time of announcement.

One reason many smaller credit unions are struggling to grow is that indirect auto lending — a prime vehicle for recruiting new members — has been volatile since the early days of the pandemic, said Sam Brownell, founder of the consultancy CU Collaborate. First consumers were reluctant to spend money and then supply chain issues crimped new car sales, he said.

Additionally, the COVID-19 pandemic highlighted the importance of technology, and many smaller credit unions lack the digital banking capabilities of larger rivals or upstart fintechs, Brownell said.

Still, some other large and midsize credit unions have managed to add members.

The nation’s second-largest credit union, $50 billion-asset State Employees’ Credit Union in Raleigh, North Carolina, saw membership increase by 3.2% year over year, to 2.57 million.

And Truliant Federal Credit Union in Winston-Salem, North Carolina, had nearly 20,000 more members — 276,000 — at the end of the first quarter than it did a year earlier. The $3.5 billion-asset institution saw a big spike in memberships coming through the digital channel, said Todd Hall, its president and CEO.

Last year, the credit union partnered with the Bryan School of Business and Economics at the University of North Carolina at Greensboro to have the school scrutinize its online membership process, identify pain points and find ways to improve it.

“Some adjustments we made last year continue to benefit us, like streamlining the application process to make it simpler to become a member online. We’ll continue to work for more speed and simplicity,” Hall said.

The financial services industry weathered the pandemic in better form than it did the housing crisis, in part because banks and credit unions made adjustments when they were thrust into a new business environment, Hall said.

“As more members utilized services they hadn’t previously during COVID, they realized our technology was on par — or exceeded their expectations — of what they’re seeing from others in the marketplace,” Hall said.

Still, many smaller credit unions are fighting tooth and nail for every new member they can get.

Lake Charles, Louisiana-based CSE Federal Credit Union had 32,505 members at the end of the first quarter, which was little better compared to 32,284 members a year earlier.

The $495 million-asset credit union had been adding new members at a rate of 1% to 2% a year but President and CEO Matthew Koch said the pandemic and the two major hurricanes that hit its area last year have had an impact on growth.

“We closed our lobbies for a couple of months during COVID, then we slowly reopened our lobbies in May with limited access in the buildings. I think members in our area may be doing more online, but they still enjoy coming into a branch building to conduct their financial transactions,” Koch said.

Pinnacle’s Selke added that while credit unions obviously need to add members for long-term survival, a decline in membership doesn’t necessarily mean a credit union is struggling.

“We have less members today than we did five years ago, but we have also increased by $18 million more in assets,” he said. “It’s not all about the number of members, it’s about having active members.”

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