Some credit unions are betting they can succeed where banks havefailed.

Research firm SNL Financial reported banks and thrifts shut2,267 branches in 2012. AlixPartners Consultants said it figuresthose closings pared the nation's bank branch list to some 93,000locations. What's more, the firm said it expects the count tocontinue falling to 90,000 over the next decade, which would put itback to 2000 levels.

But people in small towns like Alburgh, Vt., are much morefocused on the local picture. When People's United Bank closed itsbranch in the small community of about 2,000 people in April 2012,it left the border town with no brick and mortar bank presence.

Then North Country Credit Union, a $230 million institutionheadquartered in South Burlington, moved in.

“We had a branching strategy that did not include going toAlburgh,” said Robert Cowie, vice president of operations. “But wewere part of the solicitation by the community group. Whatresonated mostly with us was that there was not a financialinstitution branch within about 15 miles. Any community looking toremain economically viable or to improve the general financialstatus needed an institution in town.”

“Once we realized nobody else was willing to step up, we did,”Cowie continued. “We approached People's United to buy theirbuilding. They originally said they wouldn't sell it to anotherfinancial institution, but pressure from the community caused themto change their mind. We bought the building but we did not buydeposits, we did not buy loans.”

North Country put a fresh coat of paint on the office and hiredalmost the entire staff that had worked for the bank.

Cowie chuckled as he explained the resulting employee cultureshock.

“They moved from an environment that was attempting to maximizeearnings to one that focused on giving back and was a bit moregenerous than they were used to,” he said.

Additionaly, the bank had only extended credit to A and Bborrowers, while the credit union took more credit risks.

Cowie said the community has very much embraced the creditunion, and the move created good will throughout Vermont.

But does the branch make sense from a hardnosed business sense?Can the credit union branch survive where the bank failed?

“I don't know what the bank's minimum profitability thresholdswere,” Cowie said. “We had a profitability analysis, and our goalwas to break even within the first two years. We have far exceededthat.”

The challenge, he added, is to book enough viable memberbusiness loans. Many applications come from entrepreneurs lackingsufficient reserves or capital to meet North Country standards.Mortgages and other consumer lending activity have fallen intoplace.

Next Page: In Rhode Island

Another example of a credit union succeeding where banks bailedout occurred in Pascoag, R.I. Last year a Bank of America branchclosed there, leaving Rhode Island Credit Union as the town's onlyfinancial institution. RICU, with $246 million in assets, isheadquartered in Providence.

Gina DePalo, vice president of branch administration andmarketing at RICU, noted the credit union has maintained aprofitable full-service branch in Pascoag for more than 33years.

“It's always been a successful location for us,” DePalo said.“Our products and loan offerings are more than competitive. There'salways limited competition in that area. Some other credit unionshave come into the vicinity now, but not in the same town. Fordecades it was us and Bank of America. You couldn't have two moreopposite choices. We wondered how Bank of America was surviving,and we weren't surprised when they closed. We gained, and theylost.”

DePalo added the credit union branch has seen membership growsince Bank of America closed. Most of the Pascoag staff lives inthe community and almost all have worked in that location for morethan 25 years. In fact, DePalo said when she visits the branch,members will whisper to each other, “Who's that?”

“The benefits of operating in a small town certainly outweighany challenges,” she said. “We have generations of members fromgreat grandparents to their great grandchildren.”

Rhode Island Credit Union's Pascoag Branch ManagerJoAnna Zackarian assists a member. Gina DePalo, vice president ofbranch administration and marketing, said the location has alwaysbeen a successful one for the credit union.

Jamie Chase, founding partner of CU Strategic Planning inTacoma, Wash., believes credit unions can indeed succeed inlocations abandoned by banks.

She said she sees two factors at work. First there's the creditunion philosophy which virtually anyone involved can recite—not forprofit, not for charity, but for service. Second, credit unions canoperate on a margin banks would not accept. It's the differencebetween maximizing profit and operating sustainably to provideservice.

“It's a very different proposition than operating a profitmaximizing bank,” Chase said.

The challenge is the resource investment required, shecontinued. That investment can be in staff or technology. Thecredit union must decide what its goal is in that market. The areasunserved by banks are often rural areas with a lower income andpopulation base.

That could be an obstacle for a credit union, Chase said. Oneoption she suggested was to send either a part-time or full-timeemployee to the community at least one day a week. That would cutthe need for capital investment and align staff costs withcommunity needs, she added.

It's often said it's tough for small credit unions to put moneyinto sophisticated technology. But Chase said many credit unionsunder $50 million in assets are making extensive use of technologysuch as on-line loan and membership applications.

“We have credit unions under $100 million in assets that havesix times the ROA,” Chase said.

Chase recalls working with a credit union in a small communityin Hawaii where the nearest bank or credit union was an hour and ahalf away. A walk-up teller window met the need.

Not all areas seeking banking services are small towns.

Jim Wells, president of Wellspring Consulting in Ft. Lauderdale,Fla., said in 2003 he received a call from a community group insouthwest Baltimore. First Union Bank had closed its last branchseven years earlier, leaving the neighborhood with no financialinstitution.

Wells worked with community leaders to reach out to variousbanks and credit unions, discussing programs such as mobilebranches. Nobody was interested. Then an alliance was formedbetween the community group, Social Security Administration,Baltimore Credit Union and a check-cashing firm.

“It was an alliance that had something for everyone,” Wellssaid.