Anatomy Of OUR Credit Union

How back-to-basics lending, a brick-and-mortar presence, and a forward-thinking approach to business underpin growth for a suburban Detroit credit union.

 
Erik Payne

By Erik Payne

 

Detroit’s fortunes rise and fall with the auto industry, and so do its suburbs. Although the latter long grew as the Motor City itself shrank, they too have suffered the slings and arrows of recession.

Take Oakland County. Just north of Detroit, it’s where urban blends in to suburban, dotted with picturesque lakes and communities that grew to become some of the nation’s most affluent. In fact, by the early 2000s, Oakland County laid claim to more than 1.2 million residents, far more than Detroit itself, and ranked as one of the wealthier per household in the United States.

But when the Great Recession hit, incomes fell. The auto industry teetered on the edge of collapse, and Oakland County plummeted to No. 200 in average household income by 2013, according to U.S. census data. That’s also the year the city of Detroit filed Chapter 9 bankruptcy, the largest such municipal filing in U.S. history.

DID YOU KNOW

Oakland County ranks at No. 200 for average household income but No. 12 for per capita income among counties with more than 1 million residents.

Community financial institutions took it on the chin, too. At OUR Credit Union ($236.4M, Royal Oak, MI), a community-chartered institution serving residents of Oakland and Macomb counties, delinquencies spiked, loan growth fell into the negatives, and the loan-to-share ratio dipped as low as 46%.

CU QUICK FACTS

our credit union
Data as of 09.30.16

HQ: Royal Oak, MI
ASSETS: $236.4M
MEMBERS: 21,674
BRANCHES: 4
12-MO SHARE GROWTH: 8.1%
12-MO LOAN GROWTH: 16.5%
ROA: 0.39%

Today, skies are sunnier. As of third quarter 2016, the credit union’s 16.5% loan growth bested both asset- and state-based peer performance of 7.0% and 11.0%, respectively. That’s after a downturn during which year-over-year loan growth hit a low of -7.5% in the fourth quarter of 2012.

Meanwhile, OUR’s total delinquency — which was 2.7% at third quarter 2010 — is now 0.82%. That’s lower than the national average for credit unions with $100 million to $250 million in assets but higher than the Michigan average.

Three principal strategies have helped OUR Credit Union return to sound financial footing: a back-to-basics approach to banking, continued support for its brick-and-mortar, and a forward-thinking approach to the future of the industry and institution.

OUR Members Own The Credit Union. And They Know It.

The staff at OUR Credit Union tends to see the same members in-branch week in and week out, which has helped the credit union build strong relationships over the years. And members are comfortable speaking up when the in-branch experience doesn't meet expectations.

"They tell me when the water isn't cold enough in the drinking fountain or if the coffee doesn't taste right," says marketing director Jeff Glasser. "They're not afraid to tell us if they don't like something. They know we'll respond. They own us, and they know it."

Back To The Basics

OUR Credit Union’s LTS was 58.4% at the end of the third quarter this year, off its recession low but still significantly lower than the 73.9% average for all Great Lake State credit unions. The credit union was posting LTS ratios in the low- to mid-70s in 2008 and 2009, but the economy forced OUR to draw back.

“We wanted to make sure we were protecting our member’s money, so we became more conservative with our lending,” says CEO Tina Dix.

Conservative enough that the credit union’s indirect lending portfolio withered from nearly $30 million in 2009 to less than $2 million by late 2013. OUR is now aiming for an LTS back in the mid-70s and has grown its indirect pot to more than $4 million in the past three years.

“We are slowly building our indirect auto portfolio again,” Dix says. “And we’re looking to build full-service relationships with these people.”

These people are part of a diverse membership, says Tom Baran, OUR’s chief lending officer.

There are so many factors that go into a credit decline that sometimes a credit score doesn't tell the whole story.

Tom Baran CLO, OUR Credit Union

“They’re middle class — blue collar and some white collar,” he says. “They’ve got mostly better-than-average credit from a profile and score perspective.”

In fact, credit tier composition at OUR Credit Union has remained relatively consistent over the years. Approximately 63% of OUR members fall into A+ or A credit tiers, 15% in B, 9% in C, and 13% in D and E. Baran says he’d like to see the credit union fund more loans to those in the C and D tier.

He adds, “There are so many factors that go into a credit decline that sometimes a credit score doesn’t tell the whole story.”

The Benefits Of Incentives

When it comes to front-line staff incentives at OUR Credit Union, snags are a good thing.

All of OUR’s hourly employees make a flat rate, but it also offers incentives to member-facing branch staff such as financial service representatives and tellers.

FSRs can earn what chief lending officer Tom Baran calls “snags,” essentially cross-sale dollars originated in addition to the primary transaction.

Tellers earn “pursues,” or referrals. If a teller suggests a product or service and the member signs up, OUR rewards the teller with recognition and a bonus.

“We’re looking for opportunities to discuss a member’s financial picture and if there is anything we can do to help them,” Baran says.

That’s why OUR Credit Union looks beyond the credit score.

When the credit union receives a new loan application — whether in-branch or online — staff members don’t turn down an application without gathering relevant information that doesn’t make it on the application. For example, what are a member’s long-term plans or needs, did a life event hurt the credit score, and was it the result of the recession?

OUR’s underwriters also consider factors such as how long the applicant has lived in one location and worked in a single job or industry.

“We thoroughly interview applicants so there’s more information when we get to the underwriting stage,” Baran says. “The credit score is what we base the loan rate on, but there’s so much more we use.”

Denied loans, meanwhile, move up the chain of command. Baran and COO Stacy Wilson provide a further review, and in their absence, CEO Dix reviews as well.

Admittedly, this review process takes more time, but OUR executives feel it’s time well spent. Baran cites the credit union’s data collection and review process for helping OUR increase loan balances in recent years. As of third quarter 2016, the total portfolio was $124.9 million, up from $88.9 million in first quarter 2013.

Admittedly, not all that growth is organic.

In addition to furtive steps back into indirect auto lending, OUR Credit Union started buying participation loans from other Detroit-area credit unions approximately 15 months ago. As of November 2016, it held approximately $15 million in participations on its books.

I'm not sure the average consumer is going to trust a financial institution they can't see.

Tina Dix CEO, OUR Credit Union

“We’re taking money we could invest and we’re turning it into loans for other credit union members,” Baran says. “We’re enhancing our balance sheet and diversifying our loan portfolio.”

Yields on participations are often higher than on investments, and the credit union saves significantly on originating and servicing expense. OUR mitigates risk by working with local credit unions it knows well, whether through the Michigan Credit Union League or general networking. And before OUR enters a participation agreement, Baran studies the credit union’s policies and procedures, looks at historical delinquency rates, inspects loan file samples, and verifies call report performance.

“There’s a bit we have to do to get into our comfort zone,” the credit union’s chief lender says. “But once we get there, the rest is accounting transactions.”

There Will Be Branches. And They Will Be Smaller.

In October 2016, OUR Credit Union’s 21,000 members conducted 41,000 in-branch transactions across the institution’s four branches. That kind of volume means branches will continue to have an important role in the strategy of this Michigan cooperative. For one, having a visual, physical presence helps develop community trust.

OUR's Normandy Road branch is one of four brick-and-mortar locations that fulfilled more than 41,000 transactions in October 2016 alone

“I’m not sure the average consumer is going to trust a financial institution they can’t see with their savings, checking, loans, or other accounts,” says CEO Dix. “If someone is referred to OUR Credit Union and they’ve never seen us, they’re not going to join us.”

But training staff and maintaining a fully equipped, 3,000-square-foot facility is not a cheap undertaking, nor is it a guarantee of success.

“You don’t just build it and they will come,” says OUR chief operating officer Stacy Wilson.

So, what’s a credit union to do?

For OUR, it thinks the answer lies in a microbranch concept that is easier to deploy and accommodates smaller locales like strip malls. At up to 1,500 square feet, an OUR microbranch will be roughly half the size of a flagship branch and contain a pod or shared counter space on either side of a cash recycler. Either way, there is no teller line.

We can never be everything to every person, but we can be relevant. I don't want to be a credit union, I want to be the credit union for our members in the community. I want it to be our credit union.

Tom Baran CLO, OUR Credit Union

“It’s more convenient for us to be side-by-side with a member,” Wilson says. “These new concepts give us more flexibility to demonstrate new technology and do anything members want to do in the branch.”

OUR hopes to finalize its microbranch concept in 2017. For now, though, the focus is on the current branch experience and on shared branching.

Click the tabs below to view graphs.

LOAN-TO-SHARE RATIO

FOR MICHIGAN CREDIT UNIONS | DATA AS OF 09.30.16

OUR's third quarter loan-to-share ratio of 58.4% signals lending opportunity for the $236 million cooperative, as the credit union would like to see this ratio move into the 70's.

Source: Callahan & Associates

LOAN GROWTH

FOR MICHIGAN CREDIT UNIONS | DATA AS OF 09.30.16

After years of negative growth, OUR's third quarter loan growth of 16.5% represents its best third quarter performance post recession.

Source: Callahan & Associates

TOTAL DELINQUENCY AND NET CHARGE-OFFS

FOR OUR CREDIT UNION | DATA AS OF 09.30.16

After spikes in 2010 and 2011, OUR's delinquency and net charge-offs have improved considerably.

Source: Callahan & Associates

LOAN ACCOUNTS PER MEMBER

FOR MICHIGAN CREDIT UNIONS | DATA AS OF 09.30.16

The credit union's work to deepen relationships seems to be working. As of third quarter 2016, OUR's 0.67 loan accounts per member was better than peer credit unions and represents a 10-basis point growth year-over-year.

Source: Callahan & Associates

LAND AND BUILDINGS

FOR MICHIGAN CREDIT UNIONS | DATA AS OF 09.30.16

OUR's $5,533,806 in Land and Buildings represents a 53.1% year-over-year growth rate and continues an upward trend for the institution. Future microbranch locations will add to these totals.

Source: Callahan & Associates

EFFICIENCY RATIO

FOR MICHIGAN CREDIT UNIONS | DATA AS OF 09.30.16

Although still higher than peer average, OUR's efficiency ratio - or how much the credit union spends to create $1 of revenue - of 91.5% remains an improvement on the 109.4% it posted six years ago.

Source: Callahan & Associates

We Belong Together

OUR Credit Union

In the mid-oughts, Royal Oakland Community Credit Union — a Michigan credit union serving suburban Royal Oak and surrounding Oakland County — went in search of a name that conveyed a broad array of members were eligible to apply.

“We needed a name that was more generic,” says Tina Dix, CEO of what is now OUR Credit Union. “Something people could relate to without specifying a city or county.”

The credit union hired a third-party consulting firm and was ready to go live with a new name when, in the 11th hour, the credit union realized the name would constitute a copyright infringement.

The credit union needed to pivot, and fast.

Dix noted how much she liked the oak tree styled “R” in the current name. Why not just be “R” Credit Union and keep the style?

“The conversation kept going,” Dix says. “Pretty soon it was not ‘R,’ but ‘OUR.’”

The name is now a conversation starter and helpful for work in new communities.

“People ask what it stands for,” Dix says. “They think it’s an acronym. I think it’s a signal that we belong together.”

It's Good To Share

As might be expected in an affluent northern suburb, Oakland County has its share of snowbirds. So, OUR offers shared branching in sunny locales across such winter hideouts as Florida, south Texas, and Arizona. The credit union also generates a fair amount of income offering branching services to non-members in its own four brick-and-mortar locations.

In fact, of the 41,000 in-branch transactions OUR processed in October, 11,000 were by shared branching members, Wilson says, at an average of $1.50 per transaction.

The remaining 30,000 transactions translate to roughly 1.4 per month per member, Wilson says. More evidence of heavy branch use: 83% of online applicants for a new membership still walk into a branch to complete the account opening.

“Our members like to do business with us because they love interacting with our staff,” the COO says. “I think, like anywhere, you visit your favorite stores because you like the people who work there.”

Likability isn’t the only quality OUR looks for in a front-line staffer, but it’s important. Perhaps more important is the capacity for learning and understanding. OUR trains new hires on the institution’s products and services and the difference between credit unions and banks as well as how to process a transaction.

“We immerse them in the culture so they know what we are truly here for,” Wilson says. “We’re not just here to cash a check or make a deposit. We’re here as an industry.”

Our Future Credit Union

As much as OUR operates old-school, including anchoring to a brick-and-mortar presence, it still thinks about the future. That includes thinking a lot about the credit union’s role and relevance in its members’ lives and how to keep that strong. The credit union hopes to double its assets to $450 million in the next five years, but that won’t happen on its own.

“I would like to think our members will continue to come to us for everything because that’s the way it used to be,” says marketing director Jeff Glaser. “But I’m honest enough with myself to realize they won’t. We’re not necessarily who they think of first.”

So, OUR must evolve to remain top-of-mind for members. Part of that evolution involves embracing new technology online, in existing branches, and in the microbranches to come.

Also coming: the universal employees who will eventually staff those micro locations. OUR’s universal employees will be able to handle multiple tasks and issues, thereby promoting branch efficiency and member service.

In COO Wilson’s mind, universal employees would have a retail background and the ability to multitask, think outside the box, and anticipate member needs. She envisions a future where 60% of branch staff are universal employees and 40% traditional tellers. It’s a hybrid approach based on OUR’s current staffing capabilities.

OUR is also close to finalizing the ability for members to text with pressing questions. The message pops up on a call center employee’s workstation, and the credit union employee and member have a conversation that works like email for the employee and texting for the member.

“If you had a question about your account, you could send a text rather than picking up the phone and waiting to talk to somebody,” CEO Dix says. “It’s the preferred method of communication for most people these days.”

Beyond technology, the credit union is making investments in staff to boost the loan portfolio.

For example, the credit union outsourced its credit card portfolio in 2005. Soon after, OUR realized the partnership wasn’t what it had anticipated from a service and rate perspective. When the contract ended in 2013, the credit union brought the portfolio back in-house and hired an overseer.

“We really needed that card supervisor, especially with all the regulatory changes, the fraud, and the advances in technology,” says CLO Baran.

So far so good. As of third quarter 2016, OUR’s year-over- year credit card loan growth of 41.3% far outpaced the 6.0% average posted by Michigan credit unions.

As the credit union started ramping up its indirect loan production, it also realized the need for an employee to develop relationships with local dealerships, businesses, and community leaders. In 2017, the employee’s outreach will expand to include real estate agents to help the credit union bring in mortgage loans.

“We want to continually meet members’ needs,” Dix says. “We can never be everything to every person, but we can be relevant. I don’t want to be a credit union, I want to be the credit union for our members in the community. I want it to be our credit union.”

 
 

Dec. 1, 2016


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