Charter Change?

Blue Lakes FCU needs to change its strategy to achieve better wallet share and member engagement. Its CEO thinks a shake-up in its field of membership will do the trick.


Karen Miller knelt to tie her shoelaces and took a deep breath of crisp air. The sun was rising over the lake, and the morning mist that hovered over her favorite jogging trail was starting to dissipate. The president and CEO of Blue Lakes Federal Credit Union in Wallace, MN, took a moment to loosen up her calves before starting on her 18-mile run. She enjoyed being outdoors, and the physical challenge of training for the Twin Cities Marathon gave her mind some much-needed freedom to roam.

The steady rhythm of her tennis shoes on the dirt path was a comforting sound. Miller had a lot to think about this morning. Minnesota had traditionally been a good state for cooperatives, but Blue Lakes’ growth had hit a plateau. Her SEG-based credit union’s charter included public teachers and municipal employees in the state, and with $250 million in assets, it was the fifteenth-largest credit union by asset size in Minnesota. The credit union’s footprint was not insignificant. Blue Lakes had several branches sprinkled throughout the Twin Cities as well as locations in Rochester, Mankato, St. Cloud, and a handful of smaller communities. The credit union even had branches in some government agencies, with which Blue Lakes has had a long relationship.

As in many states, local governments have been tightening their belts and cutting employees; money was such an issue last year in Minnesota that the state government shut down for two weeks. The flat-to-shrinking government employee pool since the onset of the ’08 recession has been mirrored in membership trends at Blue Lakes. Moreover, last year in Minnesota, credit union share growth lagged behind bank deposit growth. In her 14 years at Blue Lakes, Miller has never seen such a tough growth environment for her credit union at its existing SEGs.


Blue Lakes has endured other choppy weather also. It lost a considerable amount of investment in the corporate crisis. In turn, the board took a conservative turn in its strategy while it worked through two years of rebuilding the credit union’s capital ratio. Both Miller and the board continue to support the corporate system, but for the past three years there has been a strain on the balance sheet quarter after quarter.

Moreover, the Blue Lakes FCU member relationship is lower than average for the state. Miller has worked on this problem for the past several years, but it seems she has hit a ceiling when it comes to wallet share for her members. She and the board considered indirect lending but ultimately rejected it as a growth strategy.

Still, Miller has the feeling the nation is emerging from one environment for credit unions and entering another. There is the economy, of course. After the traumas of the past few years, the economy seems to be making a steady, if slow, recovery, and local government workforces cannot be cut further. And there is the mood engendered in the Bank Transfer Day movement. Miller knows other Minnesota credit unions are not going to stand still. Affinity Plus, Wings Financial, and others are going to be dynamic and can put a lot of effort into technology.

If it doesn’t explore some creative thinking, Blue Lakes is going to remain the way it has been for the past 30 years, helpful to members who know about it but not significantly growing. For Miller, this is a recipe for a slow decline. The board, too, senses this is not a time to go back to business as usual. Miller has been considered a pretty innovative CEO of a mid-size credit union. She believes she has the energy, the leadership skills, and enough support from the board to take Blue Lakes through some considerable changes. Above all, she feels Blue Lakes needs a real shot in the arm. She doesn’t want her members to be just satisfied with their credit union, she wants them to feel excited about what it does and want to participate more.

In her own state, Wings Financial ($3.6B, Apple Valley, MN) outside the Twin Cities converted to a TIP charter. Miller wonders if this could be a way forward for Blue Lakes. Her credit union can already enroll any public teacher or state worker in Minnesota, so a TIP charter might not be so much of an advance in its field of membership. Possibly Blue Lakes could pick up some districts in neighboring Wisconsin, South Dakota, and Iowa. It might even pick up teachers in private and religious educational institutions. TIPs have worked well with healthcare workers, airline workers, military, and other professional groups — why not expand on the teacher and state worker affiliations she has?

There is also the strategy of switching to a community charter. Blue Lakes could likely build a large and generous community, but it would lose the formal relationship it has with its teacher and government employee groups — would the trade-off and all the hard marketing needed for a community charter be worth it?

And there is also the alternative of a state charter. With it, Blue Lakes might gain some underserved rural and urban areas as FOMs where it now has few members. State regulation might be somewhat more kindly to the credit union, but it would be the lure of expansion and picking up new members that would be the motivation behind converting to the state charter.

Or Blue Lakes could stick with its federal charter while still applying for underserved area FOMs. Keeping its present charter would allow Blue Lakes to continue the strong affiliation with the teacher and government worker groups that it has cultivated for decades, but Miller fears the expansion request will take a long time to process and NCUA still might not grant it.

Last, Blue Lakes FCU could forego any of these options and expand by signing new SEGs, in effect, becoming a multi-SEG credit union.

If Blue Lakes did undertake any such shifts, how could it make the most of its new direction?

Miller is aware of dangers. Moving into any new market is difficult and sometimes, despite hard work and commitment, disappointing. Perhaps the credit union should hunker down with its present members and redouble efforts to deliver what they seem to want. In any event, conducting business as usual is not the way forward. So what makes the most sense for Blue Lakes FCU?