By Ray Birch
TRUMBULL, Conn.—One credit union believes the network credit union model is an answer for small CUs struggling to make ends meet.
Indeed, the credit union said, the model can even move credit unions now operating in the red back into the black.
That’s what happened when $20.5-million America’s First Network CU recently merged in $10.5-million East Hartford CU. John Keet, former CEO of America’s First, told CUToday.info that within the first month of joining the network, East Hartford CU turned around its balance sheet.
“It depends on the size of the credit union how much can be saved,” Keet old CUToday.info just before he retired from America’s First in the fourth quarter of this year. “Using East Harford as an example, it appears they will save at least $35,000 annually across the board, including core system savings. And in the first month they went, on a monthly basis, from a negative income statement to a positive income statement.”
Nick Moalli has since succeeded Keet as CEO.
How It Works
The network credit union model involves merging in several credit unions under one large “network” credit union, all sharing a common back office and systems. The move allows smaller credit unions to gain the advantages of greater scale—such as spreading the compliance burden and lowering operating costs—while still maintaining their local presence and brand. Network credit unions keep their current name but operate as a division of the network CU. A few of these models have been established in the U.S., most recently in Pennsylvania.
In 2016, NCUA issued a legal opinion letter stating it is permissible for merging multiple group federal credit unions to operate as a network of credit unions. NCUA Board Member Rick Metsger has also emphasized the importance of the network model.
East Hartford, and virtually all of the future credit unions that come into America’s First, will run on the same FLEX core system. That is one of the keys to success, according to Keet. He said the network CU—of which East Hartford was the first to join—intends to bring in credit unions that are on the FLEX core system. He added, however, the credit union might someday consider bringing in shops operating on other systems.
Keet said discussions about the network model began in 2015 among a group of CUs using the FLEX system.
“We were all at the same meeting and several of us who knew each other well started talking about how we could combine back office operations,” recalled Keet. “We said that sounded a lot like what bank holding companies had been doing for a long time and that maybe we could modify that to preserve the individual identity of each credit union but all run on the same core system and gain tremendous efficiencies immediately. One back office, no learning curve, everyone from the front-line to back-end knows the system.”
America’s First Network CU was formed in 2016 when Keet’s Personal Care America FCU changed to a state charter, adopted the new name and formally took on the structure and bylaws of a network credit union.
More CUs Expected To Merge In
Keet said America’s First hopes to merge in about five more credit unions and to eventually reach seven CUs and $150 million in assets by 2020.
Each credit union that is merged in becomes a division of America’s First and keeps its name. For example, East Hartford becomes “East Hartford CU, A Division of America’s First Network CU.”
The CEO of America’s First is the president of the network, and each leader from a merged credit union becomes president of the new division. Each division has a seat on the board of the network CU. Each division maintains and advisory board, generally comprised of the members of the credit union’s previous board.
Merging in credit unions on the same core system gets the merger moving immediately forward, said Keet.
“You don’t have the conversion costs. You don’t have the training expenses,” he said. “You have instantaneous knowledge of the system for everyone. You don’t have staff or management resisting a new system because they liked their old system. And you don’t have members negatively affected by problems from a core system conversion. You, too, pay only one core license fee among all of the network credit unions.”
Keet emphasized that credit unions that join the network gain all the benefits of any new technology solutions already in the network. For example, East Hartford saw an immediate improvement in its mobile banking offering, Keet said.
In addition to core system savings, all the costs for a regulatory examination are now spread over the assets of all divisions, there is one trade association fee (and those dues are also reduced), and marketing and advertising costs go down.
“Redundant costs simply go away overnight with this model,” said Keet. “And there are a lot of them.”
Keet emphasized the network model is more than just about savings; it brings together the advantages each credit union offers—the products and services—so that all of the CUs in the network benefit—which could mean a new credit card program for a credit union that has yet to offer plastic, he said.
CU Choice
Credit unions that join the network can choose to stay with their old offerings, share in what other network CUs provide, or a choose combination of both, said Keet.
“I believe in the network wholeheartedly,” said Keet. “Governance is a key component of a successful network model. First and foremost, everyone must feel they are properly represented within the network.”
Keet hopes that as America’s First Network Credit Union grows that sharing staff will eventually be one of those advantages.
“East Hartford being located in East Hartford (Connecticut) is a little too far away from us to send a teller up there to cover for a vacation,” said Keet. “But if we merge in a couple credit unions geographically located between us, you could have a group of employees you can pull from and plug and play, so to speak.”
id Keet. “But if we merge in a couple credit unions geographically located between us, you could have a group of employees you can pull from and plug and play, so to speak.”