Large Community Charter Approvals: OK. Now What? Credit Unions Work on Penetration

WALKERSVILLE, Md.-NCUA has caught a lot of flack lately from certain sectors for approving very large community charters, which the banks have attacked in the courts as illegal. But what are these credit unions that have converted to vast community charters doing with them? “We had originally been chartered as a telephone credit union and in the most recent 10 years had branched out into multiple SEGs,” TopLine Federal Credit Union (Maple Grove, Minn.) CEO Harry Carter said. Three hundred select employee groups is more like it. Carter said it has been no secret that the telecommunications industry has been in trouble of late and the credit union’s membership began to contract with the industry. “The biggest challenge is-and I’m sure always will be-getting the word out,” he lamented. Carter explained that the credit union, which adopted the largest community charter of 2002 with more than 1.1 million potential members, has increased its marketing efforts via targeted newspaper advertising and direct mail. The credit union has been working on getting the word out about the advantages of doing business at TopLine rather than a bank. Assets have grown slowly but steadily at TopLine from $211 million at the time of the conversion in June of last year to $221 million as of June 2003. Growth, however, was not the credit union’s objective with the conversion, Carter said. But, TopLine has achieved rapid growth in one area: lending. Mainly, Carter said that the nearly 17% loan growth last quarter (according to NCUA Call Report data) was due to the credit union’s success in indirect lending since the conversion. He commented that car dealerships seem to be more likely to deal with them as a community charter, because more of their customers can now qualify for a loan from the credit union. Expanding indirect lending was “not a goal of our conversion, but it certainly has been a benefit.” In addition, the TopLine’s rate of new memberships per month has almost exactly doubled since the conversion. Following CME Federal Credit Union’s approval for a community charter to serve Franklin County, Ohio’s 1.07 million residents in September, the credit union opened a new branch the very next month and relocated another one to better serve the new field of membership, CME CEO Jim Riederer said. It has also added six ATMs and expanded hours at its branches and added Saturday hours at all the branches. He added that CME plans to open a new branch every year for the next couple of years. In addition to facilities, CME has also added a Consumer Credit Counseling Service counselor that it shares with another credit union, CME Vice President of Operations Suzanne McCann said. This counselor offers one-on-one counseling at no charge to the member, Riederer emphasized, on budgeting, credit management, checking account management, or whatever a member’s financial problem might be. The counselor also provides weekly classes on identity theft, purchasing a first home, or other issues. McCann said the credit union has also begun offering fixed rate mortgages, which it had not done before the conversion in September 2002, and is boosting lending. CME had a 12% goal for fixed rate mortgage growth for 2003 and just midway through the year, Riederer said, they are just below 8%. He added that membership growth has taken off with an 18% increase less than a year out from the community conversion. However, McCann added that CME has been managing its growth to ensure the credit union has the employees to handle the influx of new members. Getting the Word Out CME is also embarking on a media campaign to raise consumer awareness of credit unions. Television advertisements are scheduled to begin running this month, she said. This is a particular difficulty in Ohio, where only 25% of the population is a member of even one credit union, McCann explained. The credit union is marketing specifically to the suburban areas that it previously did not serve. Initially, CME had requested a seven county area around Columbus to serve, which NCUA declined under its FOM rules. However, Riederer said he believes the Franklin County FOM they were approved for should encompass those outlying areas since many of those people work in Franklin County. ORNL Federal Credit Union in Oak Ridge, Tenn. is not having the same trouble with educating consumers about credit unions, according to ORNL Senior Vice President Bob Glenn. About 50 credit unions exist in the two county-area-probably outnumbering banks, he said. He joked that the number of credit union billboards he passes on his way to work is almost “humorous.” For ORNL, Glenn said the biggest challenge is controlling growth and ensuring that it is quality growth. He explained that, before the community conversion that added nearly 1.05 million people to their FOM, the credit union knew its members. Since the conversion, the credit union has tightened its lending standards Glenn said, but will loosen those if it can without impairing credit union growth as the credit union becomes more familiar with its new FOM. He said the credit union’s charge offs have risen slightly to 0.53%, which is still very low, and delinquencies are at 0.18% as of the end of June. However, Glenn described ORNL’s loan growth as “atypical.” The credit union has expanded both its indirect lending and mortgage lending efforts by talking with area auto dealers and realtors. The credit union has also sold $40 million of its mortgages on the secondary market and its business lending has grown more than 7%. Prior to the conversion, ORNL’s FOM encompassed about 800 SEGs. All but three were within the new FOM. Glenn said that the credit union went to those groups, which totaled only about 120 people, and notified them of the charter conversion application and urged them that if they wanted to sign up they better do it fast. Since the conversion was approved in December of last year, membership jumped 14% so far in 2003 to 87,300. Member growth for the entire year of 2002 was only 7%, Glenn said. The first half of 2003 saw 5,614 new ORNL members, whereas the same period last year only added 1,821 new members. To serve these new members, ORNL is increasing its 12 branches to 15 over the next two quarters. Marketing has also shifted focus from its previous narrow membership to mass media such as radio and television. ORNL is also “encouraging managers to become active in the communities where they work” to spread the word. [email protected]