The Value of a Multiple Common Bond Charter
Switching from a community to employer group-based charter can open up a world of opportunity.
Recently, I had a lesson hit me in the head about the value of a credit union charter. A few weeks ago, I went into a suburban Philadelphia auto dealership to look at a new car after some strong encouragement from my wife. After she picked out the car, I always like to play dumb when talking to the finance representative. The rep told me about a new credit union they could offer financing through – Members 1st Federal Credit Union. They said Members 1st was great to work with and had attractive rates for its members. Being that I worked at Members 1st for 10 years before joining the world of CUSOs, I was happy to hear the sales pitch. It also got me thinking about a series of events that led to that conversation, and the community charter versus the multiple common bond charter.
From Common Bond to Community and Back Again
Members 1st is rather unique in that it was historically a multiple common bond charter (also known as Select Employer Groups or SEGs) before receiving a multi-county community charter in central Pennsylvania. After a few years as a community charter, the credit union reverted to a multiple common bond charter. During my tenure at Members 1st, I remember the frustration in having to figure out which side of the train tracks a member lived on in a town that split two counties (literally), or if we could associate a member with one of our counties who lived less than 10 miles from a branch. After leaving Members 1st, I moved less than two hours away, but without that reversion to a multiple common bond credit union, the local dealership would have never been able to offer me financing through my old employer. This led me to ponder whether there is a difference between the growth of SEG-based credit unions versus community charters. In this micro-level example, the answer was yes, but I wanted to dig into the numbers a bit further to answer the question on a larger scale.
Comparing the Growth Rates
I pulled the December 2008 and December 2018 Call Report files and scrubbed the data in the following manner:
- Current NCUA Region 8 credit unions with $10 billion or more in assets were excluded since those credit unions could swing the data dramatically by themselves.
- State-chartered credit unions were excluded due to the variances in field of membership rules between states and federal regulations.
- Federal credit unions with a community charter and multiple common bond field of membership listed in the Call Report were included in the data.
- All federal credit unions in existence in December 2008 that also existed in December 2018 had three areas of growth measured: Membership, assets and loans.
Does this mean a community charter has no value? Absolutely not. A community charter can allow for easier member enrollment and a more streamlined marketing message. Many credit unions have thrived after a primary sponsor group lessened its support or shuttered entirely. However, I believe the value of the community charter diminishes over time as a credit union matures in a marketplace. The multiple common bond allows for credit unions to expand more easily into different markets without the artificial border created by a community charter.
The Key Differences
I asked my former colleague and now Members 1st President/CEO George Nahodil about the differences in charter and how it impacts strategy. He told me, “Being a SEG-based charter has helped us remain focused and committed to our bread and butter, the members and businesses we serve. We are very focused on developing meaningful relationships and once we start with the business, it affords us the privilege to help with the employees of that business on an individual level. Because we are intimately familiar with the company, we are then able to have a personal conversation about how we can best meet the new member needs on an individual level. The goal is not the SEG, it is the relationship with the organization and the folks that organization serves. That is how we grow organically and in a meaningful way.”
An Opportunity to Consider
Do I think flipping charters from a community charter to employer group-based will boost your growth overnight? Probably not, but it does open a world of opportunity that you may not have considered in the past. As Nahodil stated, the goal of a multiple common bond charter should be developing a strong relationship with the businesses and people in the organizations you serve.
I believe the figures above show that the flexibility of SEG-based credit unions may naturally allow for a more nimble and evolving strategy than the community charter as your credit union matures and grows over time. While it may not be the right solution for every credit union, it is worth considering as you set your institution’s course for the future.
Mark Ritter is CEO of Member Business Financial Services. He can be reached at 267-525-7934 or mritter@mbfs.org.