Last spring, Vermont-based NorthCountry Federal Credit Union ($435.4, Burlington, VT) opened a branch in Alburgh, a tiny town approximately 50 miles from its headquarters. The branch doesn’t feature dialogue pods, cash recyclers, or remote teller stations. The credit union doesn’t have a celebrity endorsement, and it didn’t blog about the activities surrounding the opening of the branch. Still, the Alburgh branch garnered plenty of local media attention — as well as NPR coverage — when it came to town. That’s because the branch was filling the void left by the departure of the community’s only financial institution, People's United Bank.
The credit union first learned of the plight of the lakeside community, whose seasonal population ebbs and flows from roughly 2,000 to 6,000, when Alburgh’s Find a Bank committee approached NorthCountry about opening a branch there. After much consideration and research, the credit union concluded it could make a go of the small location being vacated by People’s United, and the Alburgh branch celebrated its grand opening in May 2012.
“When you are going into a smaller community where your opportunities are smaller, you have to make sure you can do it cost effectively,” says Bob Morgan, CEO of NorthCountry. “The trick is to make sure the cost of entry is not too high. We bought the branch at a fair-but-favorable price and we have three employees, so overhead and operating costs are low.”
Slightly more than 700 members have joined over the past 18 months. So far, the branch has approximately $6.4 million in assets and holds approximately $2 million in loans.
“It has been easier to grow deposits at the outset because the bank branch that was here before did very little lending ,” Morgan says. “It has been a challenge for us to get the residents of the community to think of the credit union for their lending needs. We’ve needed to work one member at a time to change the mindset.”
Despite that hurdle, the branch is meeting performance expectations. According to Morgan, the branch will break even after $6 million in assets and return a small profit thereafter, and it’s currently on track to hit close to $17 million in assets by its seventh year. That growth trajectory is congruent with some of the other successful branches the credit union has opened recently. In this way, Alburgh’s isolation is both a blessing and a curse: The credit union has a captive market, but that market is limited.
“If you don't live here, you probably won’t do business here because it’s not convenient,” Morgan says.
And what about competitors moving in? Morgan doesn’t see that happening anytime soon because the newcomer would have to build a site from scratch, a proposition that would make entering the market cost-prohibitive.
Alburgh might be a one-branch-town, but Morgan considers the Alburgh branch successful by all accounts, yet it is not growing too quickly and is not presenting undue risk. The credit union, which serves the 10 northernmost counties in Vermont, uses a risk management program and fraud detection tools to open new accounts. And on the credit side, the credit union’s delinquency rate as of first quarter 2013 was 0.99% with a charge-off rate off 0.59%, which is slightly higher than its asset-based and state peers, according to Search & Analyze data on CreditUnions.com
“We haven’t changed anything with respect to new branches [in underserved markets],” Morgan says. “We don’t have any hard credit score cutoffs when it comes to lending products; we lend to all paper grades to make things work. We use the same polices in regard to extending credit and opening new accounts. Our growth has been good growth.”
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In addition to traditional consumer deposit and credit accounts, the branch offers products for community members with a blemished financial history as well as commercial products for local business owners that need a nearby branch. NorthCountry’s New Directions Visa branded credit card is geared toward members that have charge-offs or other red flags yet still need access to revolving credit. It also offers a payday loan alternative whereby it works with employers to fund payday advances at a low cost to the employer. The credit union launched business lending in 2003 and over the past 10 years has slowly grown the portfolio to $42 million. In Alburgh, it is predominantly single proprietor businesses that have opened accounts with the credit union.
According to Morgan, it is offers like these — the ones that go beyond basic financial services — that reflect the credit union’s commitment to help members.
“We want to provide access to members and improve the financial condition of the communities we serve in a meaningful way,” he says.
It’s a mission typical of a credit union, but Morgan warns that serving an underserved market is something any financial institution — even banks — can do.
“We’re fooling ourselves if we think credit unions are the only institutions that can serve underserved markets,” Morgan says. “However, [NorthCountry’s] mission is to make a meaningful impact on the lives of our members and the communities we serve. The goal of for-profit institutions is to return value to the shareholder. Those are two different metrics. It is easy to explain how we are going to make a meaningful impact on a community if it is about to loose its sole financial institution. It's tougher to explain how the investment was returned ROA-wise.”
Any financial institution might have been able to do it, but it was NorthCountry that answered the call. It was open to unexpected opportunity and willing to enter an underserved market.
“We didn't have ‘open a branch in Alburgh’ on any strategic or branch plan,” Morgan says. “But an opportunity came and with the support of our board we asked how we could make a difference for a community that was going to be isolated from financial services.”