Expanded FOMs Bring With Them Expanded Challenges
That the evolution toward community charters has moved beyond initial stages and is maturing at many credit unions was more than evident during the National Association of Community Credit Unions' annual conference here.
Gone is the focus on whether to change names and how to go about it and/or complying with new regulations. Instead, at this year's meeting there was much more attention on the challenges that an expanded membership brings, including the extra effort that must go into refining marketing plans and reaching out to the new market.
During the meeting, a three person panel discussed the issues faced by their credit unions as they have moved to the community charter. The panel included Thomas O'Shea, president and CEO of Raritan Bay Federal Credit Union in Sayreville, N.J.; Lori Dauksas, CEO of Members Choice FCU in Bloomington, Ind., and Ed Boughal, CEO of Medford, N.Y.-based Suffolk Federal Credit Union.
Raritan Bay became a community-chartered credit union in 1981, when the CU's former single-sponsor company shut down after a two-year strike. O'Shea joined the credit union in 1988.
The Board Challenge
After asking if any board members were in the audience, O'Shea observed, "With all due respect to board members, our biggest challenge was with our board."
Another early point of contention was the CU's name. Despite its history, using the former sponsor company's name did not work in the community, he said.
"Being a community credit union is very different from having a sponsor company relationship. The credit union has to decide which things not to offer, because it can't be all things to all people."
The mindset of the staff also needed to change, O'Shea continued. Before conversion, the credit union's headquarters was located in the sponsor company's facility, which allowed the credit union employees to get to know their members quite well. When the CU was shifted out into the community, that inherent advantage was lost. The staff had to be taught a sales culture, and some people did not make the cut.
"Our slogan is 'A positive attitude equals continued employment,'" he said.
O'Shea said community CUs need to know who their competition is. He has identified eight institutions as Raritan Bay's key competitors, and the credit union tracks every rate and product they offer.
The credit union also monitors itself. O'Shea said member feedback is solicited regularly, starting with a survey on the first visit and continued with letters over time.
"We also ask why they are closing accounts. If it is because they are moving out of our service area, we let them go, because we want to concentrate on our area."
According to O'Shea, every community CU has a target on its back, and the banking industry is firing away.
"Banks are all over us, saying we are everything a credit union should not be," he declared. "Getting involved in the community is the best way to ward off those attacks."
One strategy pursued by Raritan Bay has been to establish two branches in local high schools. One is in a converted classroom and is open twice a week at lunchtime. The other is in a self-contained kiosk by the cafeteria.
O'Shea said the feedback from the high school branches is "tremendous."
"We teach financial education, help students save money and we employ students part-time. We feel this gets us life-long members," he said. "I have heard of some other credit unions doing this, but no banks."
The credit union turns part of its automated teller machine fees into another method of community involvement. A non-member who uses a Raritan Bay ATM pays a surcharge of $1.25. O'Shea said the CU donates 10 cents from each non-member transaction to local charities.
With the increase in community-chartered CUs, some credit unions are starting to compete head-to-head. O'Shea said it is his hope that credit unions will continue to cooperate with each other.
What's In A Name?
Members Choice FCU was founded as a credit union for RCA employees, explained Lori Dauksas. It converted to a community charter in March 2002, but "didn't do anything with it for a while."
The biggest challenge, she said, is educating new members. "People still associate us with RCA. We are constantly advertising to let people know they can join our credit union, but people still don't know who we are."
In order to increase visibility in the community, the CU got involved in the local Rotary and sponsored athletic teams at the local high school.
Life as a community credit union has its pluses and minuses, according to Dauksas. On the plus side, indirect lending is up because the auto dealers don't have to ask as many questions to determine if the car buyer qualifies for membership in the CU. On the other hand, "We need to get deposits so we can meet our loan demand."
Suffolk FCU's Ed Boughal said his credit union served county employees before converting to a community charter in January 2003. Despite a "significant" number of bank branches in its area-including big names such as Bank of New York, Chase, Washington Mutual, Citibank and Fleet/Bank of America-membership has increased at a higher rate post-conversion.
"We had to take advantage of what NCUA was offering and expand," he said. "From 2002 to 2004, our membership growth was 12%. In the year prior to charter expansion, growth was 5.1%. We expected strong growth, but we were worried it would be new members with low balances."
Instead, the income-to-expense ratio and return-on-assets increased significantly, he said, partly due to a decrease in operating expenses. In addition, Suffolk enjoyed a big increase in its loan portfolio for the same reason cited by Dauksas-auto dealers don't have to ask membership questions.
Boughal said share balances grew 37% between 2002 and 2004 as the stock market declined.
However, he expressed disappointment at the flat rate of share draft penetration.
"This is because banks are giving out free checking. Several years ago, no-fee checking was unheard of at banks."