Maybe SECU CEO Jim Blaine and CU Financial Services CEO Alan Theriault were not surprised to learn that 33% of credit unions over $100 million in assets surveyed by Aite Group were planning a charter conversion to a mutual savings bank but I was floored. I understand times are tight but one-third actually planning a conversion compared to a few dozen completing them in the last decade is a huge jump.

Are credit unions using their inherent philosophy to its fullest potential? How can some credit unions thrive despite narrowing net interest margins and overall lagging membership growth while others feel the need to convert to a for-profit bank?

Don't get me wrong–credit unions have to do what they need to do to best serve their membership with their members' informed consent. Mulling over what a conversion would mean to your institution could very well be considered appropriate research on the management and board's part. But one-third of the largest credit unions actually planning to convert to mutual savings banks was shocking to me.

On one hand, it is like handing a victory to the banks. The American Bankers Association and Independent Community Bankers of America constantly spout off that they welcome the large, non-traditional, “new breed” of credit unions to convert to tax-paying mutual savings banks. Round One: Bankers.

Additionally, some credit unions have experienced membership growth well above average that is not tied to indirect lending, described as a modern day credit union growth hormone by one analyst. Navy Federal Credit Union as well as Digital Credit Union are growing by leaps and bounds. Yes, they are a couple of the largest, but some lessons can be taken from them and applied to smaller credit unions.

Some credit unions are able to boost their net margins by ramping up non-interest income; they recognize that certain services they provide carry a value and fee for them. Others have found non-interest income opportunities in mortgages and the servicing of them or member business loans and services.

What I'm curious about is whether all these credit unions from the survey planning a conversion looked at all the options and taken suggestions from the credit unions that have been successful at these and other things before converting to a mutual savings bank. One of the things noted in the Aite Group survey and regularly cited by industry leaders is credit union's willingness to share; I hope credit unions are taking advantage of it.

Aite Group also noted credit unions' broad use of shared service centers and cooperative ATM networks. Kudos to credit unions that use innovative means to gain economies of scale and overcome convenience issues.

And, what of the smaller credit unions who would likely benefit most from this support from their larger brethren? What will become of them when the larger credit unions are all converting to mutual savings banks? In the extreme, credit unions could very well become exactly what the bankers want: smaller scale, mom-and-pop financial service providers that can't compete. Round Two: Bankers.

Maybe these remaining credit unions could bring their business to the banks and continue to erode credit unions' cooperative philosophy. Round Three: Bankers.

But enough worst-case scenarios. This finding also demonstrates the need for regulatory reform for credit unions. Get politically active in your hometowns or travel to Washington, D.C. and tell lawmakers why particular provisions of the Credit Union Regulatory Improvements Act (H.R. 1537) are so sorely needed. Expanded business services could be just the shot in the arm your credit union needs to bring in both deposits and loans.

The study also highlighted that credit unions believe their superior service to be the most successful driving factor in attracting new members. More than half ranked this as the most successful strategy. However, I would point out, you have to get the member in the door. I'm somewhat ashamed–and somewhat not–that before I started working in the credit union community, I didn't know what a credit union was other than my dad had a Christmas Club account at Pentagon Federal Credit Union. Does your field of membership truly know your credit union exists and what you can do for them?

Also, according to Aite Group, 63% of respondents said they considered the branch the most critical delivery channel to the credit union's success in the next two years. OK, but where are they? Branches are expensive but if credit unions hope to sell themselves on service and increase membership and branching is such a key ingredient, investing in more branches seems like the way to go.

Then again, 84% of the respondents said their credit unions participate in a shared branching network. Just one more way credit unions show their unique cooperative spirit.

Credit unions are also looking to diversify and expand their product offerings through mortgage originations, which most said was the fastest growing portion of their lending portfolios; wire services; and expanded online capabilities, including bilingual options, among other things. All these are very good strategies that can capitalize on the credit union philosophy and their relatively quick adoption of new technologies while courting younger members. Credit unions must continue and cultivate what they do best for the betterment of themselves and the movement.

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