The Value Of A SEG

How a new corporate sponsor helped a struggling Florida credit union rebrand and regain financial health.

 
 

The City of Orlando in central Florida, nicknamed “The Theme Park Capital Of The World,” attracts an estimated 55 million tourists every year, making it the most visited city in the United States.  With mild temperatures year-round, Florida’s visitors flock to Walt Disney World, Universal Orlando Resort, SeaWorld, and Wet ’n’ Wild Water Park.

Approximately 20.6% of Orlando’s workforce is employed by the leisure and hospitality industry, 15.6% by professional and business services, and 12.1% by education and health services, according to the Florida Department of Economic Activity. But the financial services industry, which employs approximately 6% of the workforce there, is strong as well.

darden-fcu-quick-factsOrlando is also home to the Fortune 500 Company Darden Restaurants. In addition to running a slew of nationwide chain restaurants like Red Lobster, Olive Garden, and LongHorn Steakhouse, this organization was also a major player in the rebrand and reorganization of a small, struggling Orlando credit union called Multi-Media Federal Credit Union.

In the late 2000’s, Darden Restaurants knew it wanted to offer affordable credit union services to its workers to help it stand out from other employers, but it didn’t want to spend years building a credit union from the ground up. At the same time, Multi-Media was struggling financially and knew a new SEG connection could provide a windfall of growth opportunity. In 2009, the two agreed to unite forces.

By December 2010, this partnership had culminated in the creation of Darden Employees Federal Credit Union ($28.8M, Orlando, FL), one of the nation’s fastest growing financial cooperatives. Today, this credit union serves all 200,000 Darden Restaurant employees nationwide, including those in the restaurant-heavy Orlando area.

Credit unions in recent years have steered away from solely serving employee groups in favor of expanding their membership market via community charter. The wider reach has helped many credit unions achieve financial growth; however, the value of SEGs, or select employee groups, has not waned. In fact, credit unions like Darden Employees are rediscovering how significantly SEGs can help drive solid growth in many areas of the balance sheet.

“I can’t imagine how many Fortune 500 companies don’t have credit unions,” says credit union CEO Jim Kasch. “If you have large employers in your market, reach out. Many smaller credit unions might be intimidated, but the opportunity is waiting.”

Opportunity In A New SEG

The transition from Multi-Media to Darden Employees demanded significant resources and planning, both of which Darden Restaurants helped provide.

The credit union’s current board of directors consists of 11 individuals, down from a peak of 15 at the time of conversion, including four legacy board members and seven representatives from Darden Restaurants. Together, this group guided the institution through a period of significant business model transition.

As a sponsor, Darden Restaurants supplies the cash infusions necessary for the credit union to sustain liquidity and brings the added stability of a nation-wide membership.

FAST FACT

Serving Darden employees has had a significant impact on the credit union's demographics. Multi-Media's avergage member age was in the mid-40s, but the avergage Darden Employees members is in the mid-30s.

Since adding Darden Restaurants as a SEG, Darden Employees FCU has become a leader in five performance categories. As of midyear it ranked: first for five-year member growth, 12-month share growth, and 12-month member growth; third for 12-month loan growth; and fourth for 12-month growth in average member relationship, according to Callahan & Associates’ 2013 Credit Union Directory. In 3Q 2012, it reported annual loan growth of 71.4%, annual share growth of 57.1%, and a ROA of 2.1%.

In all, the key to Darden Employees success is more than just an influx of new members. It is its willingness to adapt traditional processes to evolving needs and new member scenarios, even building from the ground up when necessary.

“In knowing who your members are, you want to make sure you think about the products and services you're going to offer,” says Tonya Voltolina, chief financial officer. “You need to not be afraid of change and let go of the way you were doing things before.”

A Mutual Benefit

Companies that offer credit union services to their employees, as Darden Restaurants now does, can promote the financial advantages of lower fees, higher checking account interest rates, or streamlined loan approvals. For Darden Restaurants, the connection has helped it stand out from other employers not heavily involved with credit unions and both attract and retain new talent.

“Darden really embraces the credit union as a benefit it can provide to its employees,” says Brooke Rodriguez, assistant vice president, who joined the newly formed credit union two years ago. “It distributes flyers and information on the credit union and has even incorporated our introduction video into its employee orientation.”

In turn, Darden Employees is banking on Darden Restaurant’s ongoing financial support as well as access to its pool of young servers and restaurant managers who will need a spectrum of financial products throughout their lives.

A Legacy Commitment

Despite the nearly unlimited potential this new SEG provides, Darden Employees is careful to maintain and grow its legacy member relationships that remain from Multi-Media FCU.

Meeting established expectations and standards, even in the face of significant changes, is one way to pacify an existing membership. For example, the credit union carefully converted its core systems to ensure no data disconnects or loss of service disproportionately affected existing members.

I can't imagine how many Fortune 500 companies don't have credit unions. If you have large employers in your market, reach out. 

“It was challenging,” says Justin Curcio, chief operating officer, who led technology transitions to accommodate the new SEG group. “We embraced the idea that we are building a new credit union and are exploring ways we can incorporate change with our legacy membership as well.”

Often, these legacy members preferred the credit union enhance products and services that were traditionally available, rather than strip them away. Staff that had come over from Multi-Media were critical in shining a light on what exactly these existing members expected and how those expectations might fit into the direction the credit union was moving.

“We worked on re-engaging our previous SEG relationships with events like financial seminars at the Orlando Sentinel as well as participation in its big holiday convenience fair,” Rodriguez says. Without this hands-on outreach, new arrivals at established employee groups might not make the connection that the credit union — regardless of its name—is also there to serve their needs.

Although Darden Employees did expect some fall off of its legacy membership, outreach throughout the transition helped stabilize the number of new members coming in.

An Eye On Tomorrow

Darden Employees is approximately one year out from no longer relying on its core sponsor for cash infusions to sustain its growth. As the credit union makes rapid progress toward this goal, the value of a having a large, pre-existing Darden membership pool in all 50 states is a boon for future expansion.

“A strategy for us might be to find a merger partner, someone with an older membership base and more deposits, who can’t give loans away and doesn’t necessarily want to lose their identity,” Kasch says. “We’d tell them ‘keep your name, your team, and your members — in fact, bring more members and deposits because we can loan it out.’”

 

 

 

Jan. 14, 2013


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