Few financial institutions are expanding as aggressively as Navy Federal Credit Union, and community bankers are watching closely.
Navy Federal opened 34 branches last year. It plans to open another 30 this year and dozens more over the next several years.
The $33 billion-asset Vienna, Va., credit union, the world's largest, said it needs to add branches to serve its membership — mostly active-duty or retired members of the Navy and the Marine Corps and their families. Many of the new branches are in its home state, though it is building in other areas, such as Jacksonville, Fla., Southern California, and Atlanta.
"Our theme has been to improve service by adding convenient locations," said Lee Gound, its executive vice president of branch operations. "The focus has been where we have large concentrations of members."
But community bankers say they are skeptical. With Navy Federal spending millions to build state-of-the art branches, some bankers wonder if it can recover the cost of its expansion serving only its traditional customer base.
Bankers have long suggested that Navy Federal adheres to its mission only loosely; some jokingly call it "Navel Federal," saying the only requirement for joining is that a person have a navel.
"I would expect their [marketing] efforts to step up, given the level of investment that they're making," said Mark Hanna, the president and chief executive of the $66 million-asset Virginia Company Bank in Newport News. The branches Navy Federal has opened in his area are "high-end facilities in high-end markets," so he believes that "they're probably trying to serve the more affluent end of the market."
Navy Federal is expanding at a time when many bankers are scaling back branch-building plans. With margins contracting, many cost-conscious banks are exploring other options for gathering deposits, such as remote capture services.
After opening six branches on Dec. 17, Navy Federal now has 148, including 20 outside the United States. Mr. Gound said the goal of its expansion is to lower the number of members per branch. Some of Navy Federal's branches serve 30,000 to 35,000 members, he said.
"Our objective is to have enough branches in the area to serve about 10,000 members, because that's what we feel comfortable with," Mr. Gound said. "That's where we have kind of a tipping point in being able to serve members without them having to wait an undue amount of time."
But Navy Federal, with roughly 3 million members, is not just adding branches in markets where it already has them, such as the Washington suburbs, the Norfolk area, and Southern California. In the past year it also has opened branches in cities where it previously had none, such as Richmond, Atlanta, San Antonio, and Tampa.
In the past the most branches Navy Federal ever built in one year was seven, Mr. Gound said.
Seventeen of the branches it opened last year are in Virginia, where it now has 38, and community bankers there are questioning whether Navy Federal intends to drop its common bond charter and seek a community one.
Edward J. Woodard Jr., the chairman, president, and chief executive officer of the $800 million-asset Commonwealth Bankshares Inc. of Norfolk, said he believes Navy Federal already accepts far more people as members than its charter permits.
"They'll find a way" to make you a member, he said. "Maybe you have a third cousin" who is related to someone in the Navy. "That's not the original intent of the charter. It's not the original intent of the tax-exempt status."
Mr Gound said that Navy Federal is strict about who can become a member, and that it is not open to members of other military branches or the general public. But because of the international nature of the Navy and the Marines, the credit union can put branches in far-flung places.
John McKechnie, the director of public and congressional affairs for the National Credit Union Administration, said that its examination includes a membership review to ensure that a credit union is abiding by its charter. "If there is any kind of discrepancy or any evidence that they're not complying, we have several administrative remedies at our disposal," such as forcing the credit union to divest itself of that membership, he said.
Alan Howard, the chief financial officer of Consolidated Bank and Trust Co. of Richmond, a $95 million-asset unit of Abigail Adams National Bancorp Inc., said that it is difficult to compete with Navy Federal and other large credit unions. "We try to appeal to the servicemen, but there's no way we can compete with the amount of locations" that Navy Federal has, Mr. Howard said.
One way Consolidated Bank and Trust competes with credit unions is by finding niches where they are not strong, such as lending to churches, he said. "We're very good at understanding that particular niche."
