Most people who visit Baltimore don't pay much attention to the elegant stone doorsteps that grace the entrances of so many city buildings. Constructed from white marble from nearby Cockeysville, this same type of material was used for all 555 feet of the Washington Monument as well as 108 pillars of the US Capitol building.
Instead, visitors focus on the marred formstone, the warped wood, and the peeling paint of these aging structures. They judge the foundational stone for its cracks, not for its resilience.
And there certainly are cracks. But the Baltimore of drugs and crime made infamous through TV is only one side of reality in an impoverished city struggling to get back on its feet. According to 2011 US Census Bureau data, 23% of Baltimore residents live below the poverty line, compared to 15% nationally and 9% statewide. Not surprisingly, Baltimore's median annual household income also trails national and state figures at $38,731 versus $50,502 and $70,004 respectively.
A steadily shrinking population has further added to these difficulties; Baltimore had 35% fewer people in 2010 compared to its post-World War II high in 1950.
MECU of Baltimore, Inc. ($1.2B, Baltimore, MD) understands the city's woes first-hand because of the parallels between the cooperative and the residents it serves. While the city struggled with poverty, education, and drug-related crime, MECU contended with its own challenges, including a small asset size, outdated technology, limited services, and understaffed branches. The city and credit union both sought to grow and become financially solid, but only one of them — MECU — has succeeded so far.
In fact, MECU has managed to thrive in recent years despite serving a community that often requires taking on risky investments. Currently Maryland's fourth largest credit union, MECU has grown from around $400 million 17 years ago, when the now retired former CEO Bert Hash first came aboard, to more than $1.2 billion today, effectively tripling its size in less than two decades. That transformation is living proof that demography, which forms a large part of any credit union's identity, does not determine destiny.
A Mission To Improve Financial Lives
From the beginning, Baltimore's troubles were also MECU's. At the height of the Great Depression in 1936, Baltimore City mayor Howard Jackson and payroll director Elmer Bernhardt established MECU to help the city's municipal employees cope with the economic difficulties of the day. Today, headquartered just blocks away from the city's Inner Harbor and its iconic Camden Yards baseball stadium, MECU serves anyone who lives, works, or attends school in Baltimore City in addition to many local select employee groups.
MECU has 11 full-service branches throughout Baltimore City and County along with thousands of fee-free ATMs thanks to partnerships with the CO-OP ATM network and M&T Bank. Consequently, MECU's footprint extends well into neighboring Baltimore suburbs. But because two-thirds of its more than 110,000 members live in the city, MECU sees itself primarily as Baltimore City's credit union, with a mission that can be summarized in just three words: improving financial lives.
"We believe in supporting the city," Hash says. "If the city is successful, MECU will be successful."
One recent example of this symbiotic relationship was the credit union's acquisition of Advance Bank, the city's second African American-owned bank and a venerable Baltimore institution. As only the fifth credit union purchase of a bank and the first by a state-chartered cooperative, the acquisition broke new ground for the institution while also helping to preserve a slice of Baltimore's history.
A Challenging Membership
No cooperative survives on good deeds alone and Baltimore doesn't suffer from a lack of competition for financial services. Despite MECU's low-income membership and designation as a community development financial institution, the credit union competes against financial behemoths like Bank of America and M&T Bank for market share as well as countless payday lenders and check cashers. All are considered direct competitors because the credit union's membership runs the gamut of Baltimore's socio-economic stratums.
"We have sanitation workers as our members, right up through to the mayor," Hash says. Even the state governor is a member.
As a result, MECU must offer products and services that appeal to a broad spectrum of individuals. These products include everything from first mortgages and used car loans — which as of 1Q 2014 make up 46.42% and 18.62% of the cooperative's loan portfolio (both exceeding state and peer averages) — to riskier unsecured loans, which currently account for 12.70% of the portfolio, according to Callahan & Associates' Peer-to-Peer analytics. Those percentages represent a significant shift from 17 years ago, when unsecured loans dominated nearly 80% of the credit union's portfolio.
Given the economics of a large slice of MECU's membership, unsecured lending will always be an essential piece of the credit union's product offerings and it has proven to be a remarkably stable one in terms of risk. During his 17-year tenure as CEO, Hash has seen little change in the quality of unsecured loans that MECU approves. In 1997, 55% of MECU's loan paper was either A or B class while the remaining 45% was C, D, and E. Today, these percentages are roughly the same. The reality is the credit union must take on risk to serve its membership, Hash says.
In many cases, MECU loans represent a low-income borrower's best, if not only, option. For MECU, accepting risk and investing in its membership are just the costs of doing business and this philosophy manifests itself financially in many different ways. With $101 in operating expenses per member, compared to $89 and $85 per member for state and asset-based peers, MECU cuts no corners in the quality of its business operations.
Higher than average delinquent loans and charge-offs also accompany the credit union's balance sheet. MECU's 1.77% delinquency rate tops those of its state and asset-based peers, which average 0.91% and 0.77%. And at 1.07%, MECU's net charge-offs also exceed the 0.61% and 0.44% averages of those same cooperatives.
To manage these risks, the credit union places a lot of faith in its underwriters, who must be discerning about which loans to approve. MECU also offers borrowers the option of having a co-signer for different types of loans. This flexibility has made a world of difference to MECU members, many of whom struggled to get financing from traditional banks in the past.
"For many people, MECU was it," Hash says, repeating an adage once heard from a member. "‘We didn't grow up on welfare,' the member said, ‘we grew up on MECU care.'"
A Loyal Following
The gratitude of its members is one reason why MECU's average member relationship (the average value of an individual's share accounts and outstanding loan balances combined) dwarfs that of its state and asset-based peers — at $16,066 versus a puny $5,915 and $8,227 respectively.
Once members join the credit union, MECU wants to eventually transition them beyond an unsecured loan to a car loan, mortgage, or even tuition payments.
"We try to graduate them to other products and services, helping them manage their finances throughout that process," Hash says.
Besides offering financial services, MECU invests heavily to improve education and financial literacy in Baltimore, an important task for a city that has struggled in the past with school dropout rates. To help educate Baltimore schoolchildren, MECU adopted nine city elementary schools where employees volunteer time, labor, or materials in various ways. For instance, MECU sponsors field trips for the students and runs a large book drive where employees typically collect between 5,000 and 6,000 books to donate to the schools.
On alternate months, the credit union also educates members about their personal finances by running workshops on topics like repairing credit and buying homes.
But the institution's outreach doesn't end there. Through partnerships with the city government as well as fundraising campaigns and events, the credit union further invests time, money, and sweat equity into its hometown. According to MECU, between 2003 and 2013, credit union employees contributed approximately $667,300 toward community redevelopment while also volunteering more than 33,500 volunteer hours to local projects.
"We're not M&T or Bank of America, where their focus is New York," says chief lending officer Gary Martin. As a Baltimore-based financial institution, we are invested in the city where our members live, work, and do business, he adds.
MECU isn't just offering the city financial services; it's offering a future. By traveling down the long road from a modest credit union to a billion-dollar institution, MECU has not only given Baltimore hope that it can revive its fortunes but has also provided a solid foundation for the city to build on in the future.