I am writing to comment on Mike Welch’s Aug. 31 column concerning whether or not fewer credit unions are a bad thing; or maybe not. Clearly, consolidation within our ranks has been an evolving factor and will undoubtedly continue. We are all facing increased cost pressures, declining margins and an over-abundance of marketplace competition. We are also dealing with savvier members who rate-shop on the internet and expect us to provide branches and ATMs on virtually every corner. So, what is a small asset-size credit union to do? Die a slow lingering death, enter into the traditional take-over style merger, or “morph” their business model into a business combination with other credit unions that have similar core membership bases? We feel the handwriting is on the wall and strongly favor “morphing” the business model rather than doing nothing. Call it innovative, call it gutsy, new and improved, plain ole common sense, or whatever you choose. these are truly extraordinary times and they require extraordinary measures. The chart here reveals that, by in large, asset-size does matter. However, I disagree with Portland Teachers CU CEO Cliff Dias position of “. a billion dollars is when credit unions really get the economies of scale benefit.” True, credit unions with higher assets have an advantage because they are able to operate at a lower overhead expense level than their smaller asset-size counterparts. But certainly, credit unions over $200 million incrementally enjoy similar economies of scale which also result in a higher ROA’s. However, a credit union of this asset size could conceivably be the result of a business combination amongst eight $25 million credit unions with similar core membership bases. The significant factor is the amount of sustainable annualized net income generated by $200 million or larger asset credit unions. With respect to how economies of scale impact the member, clearly this is where the “rubber meets the road”. The credit unions with less than $100 million in assets are definitely struggling today, finding it increasingly difficult to generate adequate net earnings to remain viable. As increased costs continue to erode our net earnings which are already under pressure, smaller asset-sized credit unions must search out more innovative ways to acquire increased lifting power and wind beneath our wings or unfortunately face extinction. Let’s assume we’re talking about a reasonably well-capitalized $200 million asset size credit union. Because of this well-capitalized position, the board now has more choices about how they decide to allocate income to best benefit the membership. Producing net earnings primarily to build capital can finally begin to take a back seat to providing more membership benefits. Can I get a hallelujah? These new choices can manifest themselves in a variety of different ways. The board may decide to increase staffing levels in order to improve service delivery to members, implement business and/or indirect lending opportunities that previously would have been unsustainable, authorize building a new branch office location, pay better rates on savings, beat the competitors loan rates in the area, offer more FREE services to members, etc. The possibilities go on and on, but unmistakably the members are the beneficiaries. Business combinations between credit unions of similar size and similar core memberships can be quite different from traditional take-over style mergers offered by credit unions actively soliciting merger opportunities. First of all, from day one, these types of relationships can be viewed as a partnership – not an acquisition. No one comes to the table with a mindset to simply absorb the other’s balance sheet. Key leadership from all credit unions can be encouraged to continue their involvement at the board, committee and management levels. This is a vitally important element that helps ensure the mutual goals of meeting member service demands equitably is accomplished. As partners, we can recognize that our members are already receiving appreciable benefits from our respective staff and the product mixes currently offered, so therefore if it’s not broke. let’s not spend a lot of time trying to fix it. Instead, combined efforts can be focused on growing revenues, creating economies of scale and eliminating back office expenses that are duplicated within the organizations. By in large, members do business with us because they’ve come to know and trust us over the years. Therefore, the small asset-size credit union’s name and identity is of the utmost importance to the credit unions involved and the memberships. We need to preserve each credit union’s legacy and build upon these strong bonds by keeping each credit union’s unique name out front at all times. In our business model, Affinity Group Credit Union’s identity is kept passive in the background at all times, but it provides us with a vehicle to preserve individual identities and much more. Traditional merger candidates will undoubtedly want their name out front and at best refer to us as a branch. of course that assumes that they will keep our office location open long term. One of the greatest strengths we currently have is our members’ natural affinity with each other. Credit unions that become part of the Affinity Group Credit Union model have in their core membership people who serve their communities. These members are police officers, firefighters, teachers, administrators, etc. We shouldn’t forsake or take this special member uniqueness for granted; we should display it as if it were a badge of honor and build our own unique brand & identity around it. It will require a cadre of people – strong leadership, an experienced credit union management team and a capable staff to catapult a small asset-size business combination over the $200 million-plus asset level. Smaller asset-size credit unions have nurtured and established strong relationships with their members and earned their trust. As an integral part of any business combination, it will be the credit union staff that ensures we steadfastly embrace our credit union philosophy of service to our members. Our success at this will clearly benefit our members. While I know the consolidation is bound to continue, I am concerned with the homogenization of our business. Soon we’ll all look like ducks, sound like ducks. and therefore assumed to all be ducks. Without some common thread running though the membership base, we become just one more financial institution in the community knocking on doors seeking to drum up busines. Thomas M. Miller President / CEO Municipal & Health Services CU, a part of Affinity Group CU Pontiac, Mich.

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