Credit Union Tangibles And Intangibles

Passion and purpose trump the benefits of being a bank.

Brad Canfield, CEO of KeyPoint Credit Union, started his career in the financial services industry in 1988. Since then, he has served in various capacities, including president of a community bank and chief financial officer at BECU. Canfield returned to cooperative financial services in 2012 when he joined California-based Keypoint ($865.9M, Santa Clara, CA). In this QA, he shares what he has learned about the operations, benefits, and drawbacks of both credit unions and community banks, shatters some long-standing misconceptions, and offers why he doesn’t think banks have it better.

What do you see as the biggest differences between banks and credit unions?

Brad Canfield: I like to divide the differences into tangibles and intangibles. On the banking side, tangible benefits include access to outside capital and no member business lending cap. Also, banks can pay their directors (although some state-chartered credit unions do this, it is generally a difference between banks and credit unions). Boards typically have skin in the game as they tend to be large investors in the institution and their own capital is at risk, so the dialogue at the board level is different. The primary purpose of the bank is to return value to its shareholders. Conversations are focused on the bottom line and driving return for the shareholders versus doing what’s right for the customers. I never could wrap my head around that, as you end up doing things that are not in the best interest of the customers to deliver shareholder value.


data as of 12.31.13

  • HQ: Santa Clara, CA
  • Assets: $865.9M
  • Members: 14,544
  • 12-Mo. Share Growth: 7.47%
  • 12-Mo. Loan Growth: 23.17%
  • ROA: 0.52%

But it was the intangibles that really struck me when I moved to the banking side from a credit union. Banks don’t cooperate with one another. There is zero collaboration, even CFOs of community banks in a small town don’t know one another or share information. Being able to help one another, share information freely, and collaborate was one of the biggest things I missed about working in credit unions. It was bizarre to me that banks, specifically smaller community banks, do not do this.

What do you believe are some other benefits to being a credit union?

BC: Credit unions exist to help people, and consumers believe that. For example, when I told people I worked for a bank, there was a physical I don’t trust you reaction that I could see on their faces. When I told them I worked for a credit union, the reaction was positive. That kind of intangible is something you can’t put a price on. To me, it far outweighs the tangible or technical benefits that banks might have.

From a staffing perspective, our employees have a genuine passion for their jobs because they know they are doing what’s right for the member. In banks, you don’t find that same love of the job so the daily work environment is different.

Do community bankers dislike credit unions as much as we think they do?

BC: Credit unions typically think all bankers hate them, and that’s just not true. We’re really not even on their radar. They might mention in passing that credit unions aren’t taxed, but the average community bank is really not concerned with that. They are more concerned with generating profits, making loans, and getting more customers. This perception that bankers hate credit unions and want to do something bad to the industry or are plotting against us isn’t true. Now, their trade agencies are a different story, but the average banker is focusing on other things relevant to their own business.

What other misconceptions do you think exist between banks and credit unions?

BC: Bank executives sometimes have misconceptions about credit union people. On the banking side, there seemed to be this idea that credit union people were not as smart or talented as those in banks. However, I have found the exact opposite to be true. The credit union executives I’ve dealt with have been more talented, skilled, and intelligent. I think this idea stems from a lack of experience most bankers have not dealt much with credit union executives so they assume the worst.

I think one of the biggest misconceptions is that if a credit union converts to a bank, management gets a big payday. In my experience, that is not typically the case. The bank I worked for was a credit union that converted. Although some stock did transfer over, it was after a waiting period and then was a fraction of management’s salary. Other credit unions have spent millions in legal fees trying to convert for business reasons for example, to create a niche in business lending and have been unsuccessful. So the idea of converting as being a way to get rich is not correct in my experience.

What can credit unions learn from banks? What have you taken away from your for-profit experiences?

BC: There are some things we can learn. For example, in a bank environment you have to react quickly because you are held accountable for the bottom line and to shareholders. This can be positive for example, when it pushes initiatives forward or it can be negative. A bank won’t typically hesitate to enforce layoffs whereas a credit union is less likely to rush into taking an action like that.

I also found that banks focus on niches for business lending. For example, specializing in doctors’ and dentists’ offices or making loans to attorneys. That specificity is advantageous for them as once they are set-up in a certain industry, it transcends across the industry. The local dentists talk to one another and recommend a specific bank that knows how to finance their equipment and take care of their unique business needs. Credit union business lending efforts are usually more general and start in commercial real estate lending versus a niche.

Lastly, banks are forced to comply with the Community Reinvestment Act (CRA). Credit unions do these same activities on a voluntary basis, but banks are quick to grab the publicity and maximize the attention drawn to their charitable activities.

Credit unions are not as good about tooting our own horns regarding the positive work we are doing, voluntarily, in our own communities.

Conversely, were you able to infuse any credit union lessons when you were president of a bank?

BC: Yes, I was able to improve upon some of the service level standards because banks are searching for a way to differentiate themselves. Delivering a higher level of service also leads to overall growth, so the bank welcomed that.

Do you feel like some credit unions are operating in a bank-like mode?

BC: Yes, I think some credit unions are focusing on growth for growth’s sake, which I consider bank-like. I also have seen some focus on a churn-and-burn approach to getting more loans in and out versus serving the member to the best of our ability. Indirect lending may be an example of this approach. Everyone does it, but no one has figured out how to effectively get those individuals to be more than a single-service member.

What do you think credit unions can do better to differentiate themselves from banks?

BC: A lot of young people still don’t know what a credit union is. In order to stay relevant with the next generation, we need to figure out a way to communicate that we are here for the member and have a not for profit, service focus. If you look at the products and delivery channels we offer, they are as good if not better than what the community banks are offering. It’s awareness that we need to improve.

If I go into a Chase or a Bank of America branch lobby, I see a lot of lines and it seems to me that all of the people I see would benefit from a credit union. I wonder why they are with that bank instead of with us, and it all gets back to the awareness. We need to better explain how a credit union is different and effectively communicate that consumers don’t need a branch in their neighborhood to access us.

March 20, 2014

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