A Field Of Dreams For The Modern Age

When SouthPoint Financial opened several new locations in an expanded field of membership, it took the opportunity to update its branching strategy to reflect the needs of a new era.

 
 

CU QUICK FACTS

SouthPoint Financial Credit Union
Data as of 09.30.17

HQ: Sleepy Eye, WI
ASSETS: $326.1M
MEMBERS: 17,734
BRANCHES: 6
12-MO SHARE GROWTH: 9.1%
12-MO LOAN GROWTH: 15.5%
ROA: 0.41%

By 2015, the trend had become a problem.

The population of south-central Minnesota’s Brown County was in decline and had dropped by more than 12% from its peak in 1970 to 2016. SouthPoint Financial Credit Union ($326.1M, Sleepy Eye, MN), a federally chartered institution that operated three branches in Brown County, anticipated the trend would continue.

“Our population was not keeping pace to ensure longterm sustainability,” says Jay Gostonczik, SouthPoint’s vice president of retail services.

The shrinking population made attracting new members difficult and could hamper the credit union’s ability to serve the members it already had. To survive and grow, the credit union needed to expand.

The credit union converted to a state charter in 2015 and expanded its field of membership from seven counties to 17. It opened a new branch in St. Peter, MN, a town of more than 11,000 people whose population had jumped by more than 20% in the past 15 years. Since then, the credit union has opened two more branches — one in North Mankato and one in Hutchinson — and is working a new branching strategy.

In this Q&A, Gostonczik and Troy Diedrich, SouthPoint’s vice president of marketing and development, talk about converting to a state charter, finding the right communities for expansion, and developing new branching strategies for new markets.

 

 

 

Why did SouthPoint Financial convert to a state charter?

Troy Diedrich: It was part forward thinking and part timing. In Minnesota, the credit union division of our State Department of Commerce is forward-thinking. It wants more Minnesotans to have credit union access. Because of that, we felt it would be responsive to our request to expand our field of membership.

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What did the credit union consider in its quest to expand its field of membership?

TD: The state, as our chartering entity, wanted to understand why we felt this expansion was in the best interest of the organizations and the individuals who would be a part of the new field of membership. Could we serve the new field well and in a way that would not risk our safety and soundness?

We had to understand the new field of membership in its totality. Who are the residents? Who are the businesses? Do we understand their deposit needs? Their lending needs? Is the population in decline? Growing? Are we going to serve this population with new branches? With online tools?

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We used demographic and economic data to present the business case for serving the expanded area; then, the state considered whether there was enough opportunity for multiple credit unions to generate value to those individuals.

How did you identify where SouthPoint wanted to expand?

Jay Gostonczik: We began by investigating different data elements: growth rates, employment statistics, demographic makeup, competitive market share, and more. We wanted a strong housing market. We identified communities with a sizable population and some growth in market opportunity.

We also wanted to leverage the strengths we had. One of our competitive advantages is our aggressive first-time homebuyer program. So, we specifically looked at renting versus owning percentages. It became a process of elimination to find where our best return on investment would come from.

TD: There were some core things we needed to understand: housing starts as well as employment and unemployment percentages. But what it boils down to for any financial institution that’s expanding its FOM is does the area have the right type of member for the organization? We’re talking about segmentation and psychographic data. Does that area have the right mix of people we’re trying to attract and demonstrate value for?

We can have all the economic data showing community growth and vitality, but if there isn’t the right mix of audience in the community it’s not going to be a fit. Our model is based on taking in deposits and making loans with those deposits. So, we must be able to identify individuals who are going to supply us with deposits and who are going to want loans.

SouthPoint's strategy was to open branches in these communities. How did you determine placement?

TD: It was more opportunity than anything. We researched where we felt there were opportunities and then looked for available locations.

For example, we found a small commercial building in 2015 in St. Peter, MN. We leased one suite — approximately 850 square feet, you might call it a microbranch — in the building.

In January 2017, we opened another leased space that was 2,400 square feet in a community called North Mankato. That space was designed for a financial institution — there was a drive-thru attached to the suite. We remodeled, but the bones allowed us to operate without tremendous investment.

In August 2017, we opened another branch in a community called Hutchinson. For many years, another credit union had operated in that space, but it relocated and put the building up for sale. We were fortunate enough to acquire it and remodel it.

It’s not Field of Dreams. If you build a branch, members aren’t just going to come.

Jay Gostonczik, VP of Retail Services, SouthPoint Financial Credit Union

What's the value of these branches? How are they different?

JG: Branch transactions in our organization, like many others, are declining. The changes in technology and consumer expectations are altering how members want to do business with us. Because of that, the definition of member convenience no longer requires brick-and-mortar. However, as we see it, these branches are necessary for us to provide some degree of comfort and trust.

Now, the branch is one of many channels, one that requires us to go out and get business rather than wait for it to walk into the door. It’s not Field of Dreams. If you build a branch, members aren’t just going to come.

We’ve invested heavily in branch development. We’ve transitioned our branch managers to branch presidents, where they are more focused on market growth and business development.

We’re becoming more high-tech and high-touch. Branches are no longer the place where memberships start, they’re an advice center. Members want personal assistance on more complex transactions such as mortgages, investments, trusts, financial planning, and things of that nature.

How has this evolution changed the look of the branch? How has staffing changed?

JG: We don’t have traditional offices. We want interactions to happen in an open area. We went from teller lines to pods to work stations pushed next to the front door. We force interactions with the member advisor.

When we asked branch presidents to focus on business development, we had to replace the service component. We converted lead tellers to service managers who can support and coach. In addition, we migrated all branch staff to the universal role.

What's the credit union's outlook as far as these new markets are concerned?

TD: 2017 was about introducing ourselves to our new marketplaces with these new branches. In 2018 and beyond, we’re focused on building our presence in these new communities and providing value to current as well as potential members.

This interview has been edited and condensed.

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3Q 2017

Strategy & Performance 3Q 2017

Credit unions have made significant gains since the Great Recession started 10 years ago. Third quarter credit union growth trends surged past that of community banks and the overall banking industry. Measures such as loans, shares, capital, and membership have all reached new levels. These gains are all notable and meaningful; however, they are backward-looking. The important question to ask is: Where will credit unions be in the next 10 years? In this issue of Strategy & Performance, learn why now is the time for credit unions to challenge themselves.

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