Switching to a community charter means more opportunities, more members- and more costs.
"Community credit unions have to have more branches, and ATMs, we have to be integrated into our community. We have to have more staff. We tend to have bigger marketing departments. And all that means higher expense-to-income ratios," said D.G. Markwell, director of marketing at MAX FCU here, and a founding member of the National Association of Community Credit Unions (NACCU).
And that's not the half of it. Community credit unions can't rely on the same type of affinity marketing strategies their employee-based brethren can, and instead must appeal to the masses, and that means high-priced television, newspaper and radio advertising.
"Costs go up, obviously," noted Eldon Arnold, CEO of Citizens Equity FCU. "We have a fairly complex infrastructure, with 90 ATMs in central Illinois and 20 branch offices. Now that we are getting ready to add five new counties, we'll see costs rise as we develop infrastructure in those new counties, but hopefully you grow the business to offset that. Growth provides scale that helps cut that expense."
In California, Point Mugu FCU CEO Ron McDaniel agreed. "Costs do go up, but your revenue also goes up," he related. "Branches weren't as much of an issue for us prior to the community charter, but when we converted, with our board it's been how fast can we add them, and that costs money. The first three years (into a new community charter) you'll see more expenses than revenue, but that does start to change."
While several of the community credit unionists told The Credit Union Journal that the cost of marketing to the masses is higher than the cost of marketing to a sole sponsor group, McDaniel said the experience at Point Mugu has been different.
"It's much easier to market to a community affinity than on a SEG basis," he maintained. "The difference is in the tools you use, and what type of marketing you're doing. The tools are different, but in our view, they are easier to work with. Yes, our marketing budget is substantially higher, but from 1997 to 1999 we doubled our ROA and our loan-to-share ratio has increased, too."
And then there's fraud.
"Because you're dealing with the general public, you have to have good fraud policies," said Ray Burnett, CEO of Mid Minnesota FCU and chairman of the National Association of Community Credit Unions. "You don't know the person coming in the door as you do with an affinity credit union. You do have the same exposure as banks, and that's a huge learning curve for staff and boards."
"Community credit unions deal in a much broader base of competition and membership, so they tend to run more risks," suggested Mike Muckian, who serves as director of administration for NACCU. "If you're an IBM credit union, for example, most of your members are in a good job position with a solid company, so they're good bets. Community credit unions are open to anyone, from the richest to the poorest, so it's a whole different risk-profile scenario."
