By Bo McDonald
“The fact of being an underdog changes people in ways that we often fail to appreciate. It opens doors and creates opportunities and enlightens and permits thing that might otherwise have seemed unthinkable.” – Malcolm Gladwell
We all love a good underdog story. When those that are not favored because they’re seemingly puny come out on top has been the story line of many a popular movie. How much more, then, can we love the underdog of the underdogs story?
As a whole, the credit union industry is an underdog. Our total assets don’t even add up to one of the largest banks. We don’t have the marketing budgets of the big guys and incredibly limited access to the capital markets. Heck, we’ve got these field of membership things hanging like an albatross around our neck! Right?
Wrong. Dead wrong.
So, if credit unions are the underdogs in the financial institutions market, what does that make the thousands of smaller credit unions? Chihuahuas? Yorkies? Toy Poodles?
The thing about smaller breeds is they will bark and growl with more heart than the breeds 20X their size. Why is that?
Because they must to survive.
Ripe and Rotting to Green and Growing
One thing I preach (ad nauseum some might say) is to “ask a freaking question.” That’s not quite what was happening at Morton Weeks FCU, which ended up seeking to merge into Maple FCU, another Louisiana credit union just $63 million in assets today. The former manager and the board did not keep up with needed education to prepare them for the future and sustain the credit union. They missed out on educational opportunities from business partners that could help them serve members better and the resources available from their state league.
“If they had been using these resources, they might have survived,” Maple FCU CEO Pamela Stelly lamented to me.
The credit union could have served its members, but the board approved all loans for the credit union and policy only allowed for high credit-score and perceived low-risk borrowers based on where they worked or what their relations were with the credit union. Zero risk. The former credit union did well because of its sizeable investment portfolio and strong earnings on them, but when rates went down, the credit union lost the bulk of its income and could not survive.
Three Years of Losses
Despite the credit union’s apparent aversion to risk, the credit union suffered three years’ worth of losses. That is the risk of obsolescence from fear. A larger credit union attempted to woo the board with a merger, which they initially thought would be prestigious. The interim manager suggested that all that credit union wanted was Morton Weeks’ liquidity and members and asked the leadership to consider Maple.
The credit union ultimately merged with Maple FCU, which turned out beneficial because banks had deserted the location where the previous credit union’s one location stood. In fact, Maple is investing in the community by expanding the branch operations to include extended hours, an on-site, fee-free ATM, shared branching, network access to 14 more ATMs in the area, plus all the modern digital banking features.
Guess What!
And guess what! That branch grew from less than 300 active members to 1,000 with very little effort. It’s producing more loans in one month than it had in the last couple of years. Many members had forgotten they even had accounts there.
Morton Weeks proved to be a potentially unnecessary credit union merger, all because leadership allowed it to rot on the vine. Just look at all that pent-up membership and loan demand! Your credit union is either green and growing or ripe and rotting. It’s in leaders’ power to make the change!
Mistakes are Not Failures
Bridgeton Onized FCU’s story is much different than Morton Weeks. The CEO “then” and now is Tamara Ciccioli. “It happened on my watch,” she freely admits. The credit union got loaded up in indirect lending and jumbo RV loans without truly understanding the risk. “We learned what we didn’t know.”
Then NCUA came in when Bridgeton Onized’s capital plummeted to nearly 4% at year--end 2017. Tamara shared with me that the examiner really stuck her neck out to save this credit union, and she was incredibly grateful, but the work fell on her shoulders to fix the mess.
Bridgeton Onized cut employees from 25 down to 12 and sold its headquarters. In the middle of it, her CFO got the opportunity to be a CEO at another credit union; she took the opportunity at Tamara’s encouragement, but helped finish of the sale of the headquarters and still works on a consulting basis with Tamara.
‘You Don’t Have to Worry Anymore’
By making the choice to change what the credit union had been doing and making big decisions with significant consequences, the credit union was able to turn itself around. The $50.4 million credit union ended 2022 with a whopping 58% loan growth, 15.84% membership growth (versus negative membership growth among its peer asset class), net worth of 7.73% and an ROA of 0.68% (compared to peers’ 0.39%).
I asked Tamara when she realized Bridgeton Onized would survive, and she explained that Randy Thompson of TCT Risk Solutions visited ahead of the credit union’s strategic planning session and told her, ‘You don’t have to worry any more. You are succeeding.’
Power to the Underdogs
Nearly 3,000 credit unions remain that have less than $100 million in assets – more than half of all credit unions. In the first quarter of 2023, 32 credit union mergers were approved. All but three were credit unions of less than $100 million in assets. Allowing this trend to continue is a massive strategic risk to the credit union movement.
Maple FCU and Bridgeton Onized FCU are two of my favorite success stories. They make me proud to work with credit unions. Both are able to achieve success by really looking at who they’re serving (before and after the merger for Maple) and why. Once they found their strategy, they dug in and did the hard work. In Maple’s case, it was telling the board of another credit union the cold, hard truth, and then figuring out what their new members from the Morton Weeks merger actually wanted from their credit union. For Bridgeton Onized it was completely restructuring from the ground up.
Bridgeton Onized was the underdog of underdogs. It could have gone the way of Morton Weeks – what’s one more credit union merger?
What a Credit Union Merger Is
I’ll tell you what one credit union merger is: It’s everything for those members – there were no other banking options.
The reason Pamela kept the one employee of Morton Weeks on staff was because, without the obstacles that kept her hamstrung, she knew how to serve those members better than anyone. Find your niche and your ideal members and serve them the way they want to be served. Do what you have to do to make that happen. It may not be on a grand, national scale like those big dogs, but it doesn’t have to be. It just needs to connect with your members and your community.
Very likely, they’re feeling like underdogs, too.
Bo McDonald is CEO of Your Marketing Co.