DALLAS — Probably the biggest single bank-like thing about TownNorth Bank is its name, which stands out against the bank'sheadquarters building so clearly that many Dallas residentsconsider the building a landmark, but which belies the distinctlycredit union attitude that pervades the institution and colors itscustomer services, attitudes toward consumers and highly recognizedbusiness practices. “I admit the headquarters location has been anasset,” chuckled John Reap, who has been CEO of the $870 millioncredit union-owned bank almost since its inception. “We are lessthan a mile from the commercial heart of Dallas and one of thecity's major intersections and the sign on the building makes sureeveryone knows where we are.”

Sadly, its location may be one of the only things many Dallasresidents know about the singular financial institution in theirmidst. Historically the bank has been notoriously media shy,unwilling to publicize even its successes, which Reap admits havebeen many, ranging all the way back to when the Texas Credit UnionLeague helped coordinate an effort by Texas banks to buy acommercial bank to make sure that credit unions protected theirplace in the overall financial system.

“People forget that a lot of what credit unions take for grantednow was not always in place,” Reap explained. “And at the timethere was a lot of concern among some credit unions over whetherthey could be cut off from access to the Federal Reserve System orfrom electronic funds transfers. Buying a bank charter was seen asa way to make sure credit unions kept a place at the table.”

The year was 1974 when credit unions in Texas began looking fora bank to buy and their eyes soon fell on Town North Bank, astart-up institution founded in 1972 by noted Dallas bank pioneerRon Steinhart. The bank, while young, had a good foundation, wasavailable for sale, and was located only a couple of miles from theoffice of the Texas Credit Union League at the time (The league nowoccupies offices in the same building) and, in the Spring of 1975,roughly 100 credit unions pooled their resources and purchasedit.

The credit unions purchased the bank through buying shares in CUBankshares, a CUSO that still owns the bank and has had animportant role in the bank's development, according to Reap, as ithas both helped the bank straddle its various regulatory regimesand allowed the credit unions to maintain an active role runningthe institution.

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

Reap explained that the number of credit unions participatinghas waxed and waned over the years as some have merged or othershave left. Federally chartered credit unions were among theoriginal owners, for example, but were disallowed from being ownersin 1978 when NCUA interpreted the CUSO portion of the Credit UnionAct to state that federally chartered credit unions could notinvest in other financial institutions. The number of credit unionbank 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 hasan efficient system set up to handle the transactions when creditunions seek to cash out their holdings in the CUSO, heexplained.

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

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

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

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

Cards were very new at that time and credit unions issuing cardswas almost unheard of, Wagner explained. But TNB believed that ifother institutions were able to issue cards, credit unions shouldbe able to do so as well, an attitude which has persisted sincethen as the firm has sought to keep bringing a level ofprofessionalism to credit unions managing their own cardportfolios, even as it recognized that some CUs would want to selltheir portfolios to raise needed capital or to be able toreallocate resources. “For the card portfolios that we process forcredit unions as well as the ones we own and issue within agentprograms, we believe in a seamless approach,” Wagner explained. “Tothe 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 withTNB calls the firm's 24/7 call center, and if the CU has requestedthis level of interaction, the member will be welcomed with theCU's name just as if it had been a member calling with a card thatTNB issued in their credit union's name, Wagner said. Not everycredit union requests this level of interaction, according toKenneth “Dusty” Bowers, national sales manager for TNB. Bowers saidthe organization was structured in such a way that its credit unionprocessing clients could request whatever level of support thatthey wished, down to the level of merely switching transactions,but that TNB really sought to have active credit unionpartners.

“The credit unions that come with us are those that want to beinvolved with their card programs and would like our help in makingthem better and stronger,” Bowers said. “We really aren't asinterested in just processing transactions.” The interest in creditunion involvement in the cards stretches to TNB's agent issuingprogram as well where some might suppose that the size of theportfolio or its potential profitability might be the mostimportant considerations when considering whether to buy aportfolio. But Jay Kurian, senior vice president in TNB's agentissuing program, says that the company puts a good deal ofimportance on the desire of the selling credit union to keepserving its members with cards. “We know that there are creditunions out there which are looking to sell their portfolios justfor the premium,” explained Kurian, “and we are glad there arefirms who are able to help them, but they are not us. We wantpartners who are going to remain interested in serving theirmembers through a strong card program.” One of the differences thatTNB brings to both its card portfolio acquisitions and itsprocessing services is the degree of analysis that the firmemploys, according to Kurian and Bowers. A processing client canconsult with TNB on how to tackle a specific card problem, such asa low activation rate, and TNB can use tools to analyze what ishappening with the portfolio and to make recommendations, which TNBcan then help the CU fulfill, for how it can improve cardactivation, the executives said. Getting to the point where it isable to support more than 1.5 million card accounts to the leveldemanded now has meant making significant changes to its operationsas well. Janice Savage, operations manager for TNB explained thatthe increased levels of services have meant everything fromadopting neural networks for fraud prevention to ramping upadditional staff for the call center to tightening the timeschedule for changing over platforms or getting special offers outthe door.

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

Of course all of this would be for naught if credit unions getout of the card issuing business overall, chased out by fears ofcard fraud expenses or card expenses generally. This is a fear ofRollie Penn's, a senior vice president with TNB who develops newproducts and services for credit union card programs and who keepsan 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 fortheir credit unions as well as being the vehicles for strengtheningthe member relationship.

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