The credit unions purchased the bank through buying shares in CU Bankshares, a CUSO that still owns the bank and has had an important role in the bank's development, according to Reap, as it has both helped the bank straddle its various regulatory regimes and allowed the credit unions to maintain an active role running the institution.

“The whole bank is a recognized CUSO by the NCUA and by the Texas Department of Banking,” Reap explained. “That's how we are recognized by the federal regulator and by the state regulator so that all of our credit unions can keep participating.”

Reap explained that the number of credit unions participating has waxed and waned over the years as some have merged or others have left. Federally chartered credit unions were among the original owners, for example, but were disallowed from being owners in 1978 when NCUA interpreted the CUSO portion of the Credit Union Act to state that federally chartered credit unions could not invest in other financial institutions. The number of credit union bank owners now stands at 36.

Because the credit unions use an equity method of accounting, the bank does not pay cash dividends to its owners and the CUSO has an efficient system set up to handle the transactions when credit unions seek to cash out their holdings in the CUSO, he explained.

It is an approach credit unions have received enthusiastically, as indicated by the $60 million private stock offering the bank made to CUSO members in January 2006. Not only did the offering raise the money the bank wanted, it was technically over-subscribed, Reap said proudly. “I think we can take that as a vote of confidence,” he said.

Although credit unions know the bank best for its card programs through TNB Card Services, Reap said the bank was also a full-service retail bank, albeit with only one branch, as well as a significant consumer lender and a rising firm in the so called “mortgage warehousing” field.

Mortgage warehousing is the practice of buying mortgages on a very short-term basis, say a couple of weeks, while they are prepared for sale on the secondary market, Reap explained. It is a very low-risk, high-margin business that requires a great deal of attention to detail and Reap said the bank has done well in it and plans to expand still further. Starting Cards Early

Since credit unions had purchased the bank to help facilitate their access to the financial system, it was only natural that one of the first major initiatives for the new bank was to found TNB Card Services in 1976 to create an entity credit unions could use to gain access to the Visa and MasterCard associations and to start to issue credit cards and manage their credit card portfolios–a first in the country for credit unions of that time, according to TNB Card Services CEO Scott Wagner.

Cards were very new at that time and credit unions issuing cards was almost unheard of, Wagner explained. But TNB believed that if other institutions were able to issue cards, credit unions should be able to do so as well, an attitude which has persisted since then as the firm has sought to keep bringing a level of professionalism to credit unions managing their own card portfolios, even as it recognized that some CUs would want to sell their portfolios to raise needed capital or to be able to reallocate resources. “For the card portfolios that we process for credit unions as well as the ones we own and issue within agent programs, we believe in a seamless approach,” Wagner explained. “To the outside world we have two parts, processing and agent issuing, but from a back office standpoint we don't make that distinction.” This means that if a member from a credit union that processes with TNB calls the firm's 24/7 call center, and if the CU has requested this level of interaction, the member will be welcomed with the CU's name just as if it had been a member calling with a card that TNB issued in their credit union's name, Wagner said. Not every credit union requests this level of interaction, according to Kenneth “Dusty” Bowers, national sales manager for TNB. Bowers said the organization was structured in such a way that its credit union processing clients could request whatever level of support that they wished, down to the level of merely switching transactions, but that TNB really sought to have active credit union partners.

“The credit unions that come with us are those that want to be involved with their card programs and would like our help in making them better and stronger,” Bowers said. “We really aren't as interested in just processing transactions.” The interest in credit union involvement in the cards stretches to TNB's agent issuing program as well where some might suppose that the size of the portfolio or its potential profitability might be the most important considerations when considering whether to buy a portfolio. But Jay Kurian, senior vice president in TNB's agent issuing program, says that the company puts a good deal of importance on the desire of the selling credit union to keep serving its members with cards. “We know that there are credit unions out there which are looking to sell their portfolios just for the premium,” explained Kurian, “and we are glad there are firms who are able to help them, but they are not us. We want partners who are going to remain interested in serving their members through a strong card program.” One of the differences that TNB brings to both its card portfolio acquisitions and its processing services is the degree of analysis that the firm employs, according to Kurian and Bowers. A processing client can consult with TNB on how to tackle a specific card problem, such as a low activation rate, and TNB can use tools to analyze what is happening with the portfolio and to make recommendations, which TNB can then help the CU fulfill, for how it can improve card activation, the executives said. Getting to the point where it is able to support more than 1.5 million card accounts to the level demanded now has meant making significant changes to its operations as well. Janice Savage, operations manager for TNB explained that the increased levels of services have meant everything from adopting neural networks for fraud prevention to ramping up additional staff for the call center to tightening the time schedule for changing over platforms or getting special offers out the door.

One aspect that has helped TNB make its gains has been the degree of employee experience. Many, if not most, of the card service employees have been with the firm for years and the lower turnover has meant the entire firm accomplishes goals more efficiently. Even a section with notoriously high turnover, like the call center, has a turnover rate that is remarkably lower than the industry average. “We try to make this a fun place to work,” Savage said, “and we emphasize the member service aspects of what we do, that is part of what makes us different.” These differences came to the fore in the wake of Hurricane Katrina, Savage said, when credit unions that were knocked out of commission authorized TNB to handle their members' card requests and, in many cases, it was the TNB call center workers who provided a helping hand to members who were in dire circumstances after the storms. Those calls, Savage said, required TNB to deploy the two chaplains it has on staff to help staff process and address issues that arise from some of the member service calls they take.

Of course all of this would be for naught if credit unions get out of the card issuing business overall, chased out by fears of card fraud expenses or card expenses generally. This is a fear of Rollie Penn's, a senior vice president with TNB who develops new products and services for credit union card programs and who keeps an eye on industry trends.

Penn takes the view that card fraud losses, while expensive, need to be seen in the light of the revenue card programs make for their credit unions as well as being the vehicles for strengthening the member relationship.

“I am not trying to downplay the importance of card fraud losses,” Penn said. “I just want to make sure credit unions hold to the long view too and keep everything in perspective.” –[email protected]