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  • How a Mississippi credit union attracted $8 million in new deposits

    How a Mississippi credit union attracted $8 million in new deposits

    Combining the August 2023 launch of Statewide Federal Credit Union’s new savings account with aggressive marketing efforts proved fruitful for the credit union, pulling in more than $8 million in deposits in less than a year as of May.

    Bart Sadowski/bartsadowski – Fotolia

    As the country emerged from the COVID-19 pandemic in May 2023, banks and credit unions flush with deposits saw the cost of funds increase along with average interest rates. These increases drove competition between institutions to offer the highest rates for consumers.

    When Casey Bacon, chief executive of Statewide Federal Credit Union in Flowood, Mississippi, was facing the same drop-off in new deposits, he leaned on fintech partnerships to boost new member acquisition and, in turn, deposits.

    “We didn’t have the deposit growth like we had throughout [the pandemic]. … As the interest rate environment changed, we had to become more aggressive with both retaining our existing deposits and attracting new deposits,” Bacon said. “Even today, the competition just continues to basically accelerate.”

    It was around this time that the $177 million-asset Statewide began rolling out the first phase of its targeted campaign to grow deposits. The push was centered around marketing the credit union’s inaugural high-yield savings account to households that weren’t members of Statewide and those that were but had deposits elsewhere.

    Bacon began by working with Strum Platform, a Seattle-based financial customer data firm Statewide has partnered with for more than four years. The fintech’s analytics engine allowed credit union executives to use core and online banking information to profile the different lifestyles of members and create concise market segments.

    Those cohorts gave the credit union a deeper insight into its relationships with members and helped determine how best to tailor the marketing of products and services to those who could benefit most from them.

    “The strategy here was both to lean into existing members and [figure out] how do we both retain the deposits before they’re gone, and then how do we ensure that strategy also finds new opportunities to grow more deposits,” said Mark Weber, CEO and chairman of Strum.

    Combining the August 2023 launch of the new savings account with aggressive marketing efforts proved fruitful for the credit union, pulling in more than $8 million in deposits in less than a year as of May.

    The second key component of the campaign involved a partnership with Bankjoy, the Royal Oak, Michigan-based digital banking provider which has been working with Statewide for roughly two years. The company’s online account onboarding product helped reduce the time needed to open an account with Statewide and uses integrations with Plaid to give members the option to add accounts with other financial institutions to the digital banking platform for easy viewing.

    Other institutions have seen similar success leaning on fintech partnerships and new product launches to help boost the inflow of consumer deposits.

    Jenius Bank, the digital division of the Los Angeles-based Sumitomo Mitsui Banking Corp. MANUBANK, introduced a high-yield savings account at the beginning of this year and has reached more than $1 billion in deposits.

    The $20.1 billion-asset Alliant Credit Union in Chicago worked with the New York-based account opening fintech MANTL to help develop and deploy the firm’s MANTL for Credit Unions system in late 2022. After the first six months of 2023, the credit union’s core membership grew by 22% and deposits jumped by $500 million.

    Upgrading to digital account opening has been a common theme for banks and credit unions aiming to boost deposits.

    Data from Cornerstone Advisors’ annual What’s Going on in Banking report found that consumer digital account opening is the top selection for new or replacement tech among banks and credit unions for this year, garnering 27% and 36% of bank and credit union respondents respectively.

    Amanda Swanson, senior director in the delivery channels practice and practice leader of marketing and growth at Cornerstone, said that organizations like Chime, SoFi and JPMorgan Chase set the bar for account opening standards, and those with fragmented processes are falling behind.

    The process “needs to be very seamless,” which from a digital point of view means removing redundant “hoops and boundaries” but should also include more human connectivity throughout the steps to address questions.

    “That human piece is where I think it becomes critical,” Swanson said.

    Statewide plans to focus next on tailoring existing products and educational resources to foster relationships with consumers in different age ranges.

    “The big rates are what gets you in the door, and it’s really common in business. … But the question then becomes how do you keep those people around that maybe have a chance of sticking, even when that rate goes down,” said Dylan Lerner, senior analyst in Javelin Strategy & Research’s digital banking practice.

    Frank Gargano

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  • Digital Federal Credit Union debuts self-service mortgage portal

    Digital Federal Credit Union debuts self-service mortgage portal

    With the addition of the self-service portal, DCU was able to boost lending from roughly $1 billion in mortgage loans when talks began in 2019, to $1.6 billion in 2023.

    petzshadow – stock.adobe.com

    When Jason Sorochinsky began transforming the Marlborough, Massachusetts-based Digital Federal Credit Union’s mortgage origination process in 2019, he knew that always offering the lowest rates wasn’t feasible. But with the help of several fintech partnerships, he was able to bring the process to members using an online portal and boost volume by 60%.

    “Our value proposition really came down to one sentence, which is, we want to be known for speed and service using digital tools and technology,” said Sorochinsky, who is head of mortgage lending for the $12.1 billion-asset DCU.

    Learn more about digital mortgages

    Consumer loan demand has been stifled since the Federal Reserve started raising interest rates in early 2022, and has remained down even as rates have been constant since the middle of last year. Credit unions seeking to boost loan portfolios have increasingly turned to outside help for identifying untapped markets and selling participations to other institutions. 

    DCU officially launched the self-service mortgage portal in 2022 after spending a year piloting the platform to fine tune the processes. The digital lending platform, built by the New Jersey software firm Blue Sage Solutions, capitalizes on the credit union’s “consumer direct” model by allowing potential borrowers to apply for mortgages and home equity loans and refinance existing loans, without the need for a staff member.

    After selecting which of the three products they want to apply for, and inputting property details like zip code, anticipated down payment and estimated purchase price, consumers can see the maximum amount they could bid on a property and choose which rates and terms best fit their needs. This phase also allows members to electronically verify their income, employment and other owned assets to support their eligibility. 

    During the application process, borrowers concerned about market volatility can lock in their rate using OptimalBlue’s rate lock API, for 15 to 90 days. 

    Next, DCU will use Blue Sage’s integration with the mortgage fintech Optimal Blue’s product and pricing engine to order credit reports, validate loan pricing, run the file through Fannie Mae and Freddie Mac and conduct other calculations. A secondary API connection with the information services firm ClosingCorp provides added support by calculating application and appraisal fees as well as generating disclosure agreements for the member to sign.

    Members will receive emails or text messages prompting them to proceed to the next steps in DCU’s mortgage portal and sign the necessary forms after the initial application is submitted. Once the fees are paid, orders are put in for standard items including title insurance, appraisals and flood certificates, then a second round of confirmation documents are sent back to the applicant for signing.

    After signing all the necessary forms, the file is submitted to the underwriting department for further processing — which DCU says can be done in as little as 30 minutes and without the need for a credit union representative. Two-way communication with a DCU mortgage lending officer, processor or closer via a chat function, as well as informational videos, are available to help the member address any issues.

    “It doesn’t matter what the forces are, recession or high rates or low inventory, we’re able to still be successful because we’re focusing on speed and service using digital tools and technology,” Sorochinsky said. With the addition of the self-service portal, DCU was able to boost lending from roughly $1 billion in mortgage loans when talks began in 2019, to $1.6 billion in 2023.

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    During the initial application process, members are prompted to input property details like zip code, anticipated down payment and estimated purchase price to determine the maximum amount they could bid on a property. (Digital Federal Credit Union)

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    Members can view the status of their loan application and view other details such as loan amount, interest rate and estimated monthly payment. (Digital Federal Credit Union)

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    Within the rate lock section, supported by Optimal Blue, consumers can select from a variety of lock terms and price points to suit their needs. (Digital Federal Credit Union)

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    Members struggling to navigate the portal or the application process can chat in real time with a DCU representative. (Digital Federal Credit Union)

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    Applicants can digitally sign necessary disclosures and other documents, while also electronically verifying their income and employment. (Digital Federal Credit Union)

    DCU is among a host of other institutions that have added new technologies in the hopes of furthering membership growth and increasing loan volume.

    The $18.5 billion-asset Alliant Credit Union in Chicago, for example, was able to grow core membership by 22% and boost deposits by more than $500 million in a six-month period with the help of the New York-based account opening fintech MANTL’s deposit origination system. The Providence, Rhode Island-based Beeline Loans launched an artificial intelligence-powered chatbot to assist during the application process. 

    While the forecasted rate cuts from the Fed have yet to be realized, and home values continue to rise, borrowers have remained on the fence towards new purchase or refinancing opportunities. Brief respites from the market have occurred, as mortgage rates decreased slightly towards the end of March.

    Debra Shultz, vice president of mortgage lending at CrossCountry Mortgage, said that activity should pick up over the next two years as the signaled rate decreases will give way to lower mortgage rates — spurring current borrowers to refinance for a more favorable level.

    “Today, borrowers understand that real estate is a great investment [as] it gives them the freedom to create the home of their dreams, take advantage of tax advantages and build wealth over time,” Shultz said. “The opportunity to refinance their loan into a lower rate in the next 1-2 years is a reality.”

    Experts with Cornerstone Advisors and Datos Insights underscored the importance of proper due diligence when vetting both third-party firms and the products they bring to the table, but equally highlighted the value of exploring new technology.

    “This sounds like a no-brainer but despite having system capabilities, many underwriters still manually pull credit and calculate ratios manually,” said Eric Weikart, partner at Cornerstone Advisors. “Sometimes, this is due to system setup issues but many times it’s because they have always done it that way and they aren’t willing to change.”

    Automation is an important characteristic for underwriting programs to be truly effective, but only with “comprehensive risk assessment, regulatory compliance and clear guidelines” also put in place, said Stewart Watterson, strategic advisor for Datos Insights. 

    As consumer expectations for what the banking experience should entail continue their evolutionary arc, institutions will continue adapting the next generations of technology to meet those needs.

    “Compared to 20 or 30 years ago, borrowers have a much higher expectation of speed to approval and closing along with desire to have a tech enabled process supported by knowledgeable, professional loan officers and operations personnel,” said Christy Soukhamneut, chief lending officer for the $4 billion-asset University Federal Credit Union in Austin. “We are actively implementing mortgage technology that is user friendly and intuitive so that our sales teams can focus on the member and referral partner experience.”

    Frank Gargano

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  • Banking on AI: How financial institutions are deploying new tech

    Banking on AI: How financial institutions are deploying new tech

    Lack of understanding remains a key hurdle for adopting traditional and generative artificial intelligence-powered tools, but banks and credit unions are still eager to use the technology, according to a new report from Arizent.

    Despite both consumer and institutional interest in artificial intelligence continuing to grow across the financial services industry, the majority of leaders are still unsure about the technology and its potential uses — leaving a select group of executives to lead their organizations into the fray. 

    Arizent, the publisher of American Banker, surveyed 127 financial institution professionals to find out how traditional and generative AI is unfolding in the industry with respect to applications, risks versus rewards, impact on the workforce and more.

    Respondents represent banks ranging from less than $10 billion of assets to more than $100 billion of assets, as well as credit unions of all asset sizes.

    The results showed that familiarity is the largest hurdle for adoption. Tech-minded changemakers helping prepare their organizations for AI said the top two things they are doing are researching providers and attending industry conferences or events on AI. They are also creating working groups for responsible AI usage and educating stakeholders.

    Among banks and credit unions that have begun using AI, many have adopted tools for navigating contract negotiations, improving loan underwriting procedures, speeding up internal development projects and more.

    But with the White House’s executive order on AI and uncertainty about what bank regulators might say about the technology, financial institutions and tech vendors alike are concerned about compliance risk.

    James McPhillips, partner at Clifford Chance, said regulators abroad are more progressive than their American counterparts when it comes to overseeing the intersection of banking and technology, including the recent passage of the European Union’s Artificial Intelligence Act. This disparity has left financial institutions pondering what similar efforts will look like domestically.

    “As it stands, federal regulators appear to be planning to use existing laws to regulate the use and deployment of AI, but banks have not yet seen how those regulators will actually enforce those regulations in the context of AI,” McPhillips said.

    Below are highlights of the report’s findings that give deep insight into how leaders are getting better informed about the implications of AI and whether or not it can pave the way for future innovation.

    Frank Gargano

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  • California AG warns smaller banks, credit unions on penalty fees

    California AG warns smaller banks, credit unions on penalty fees

    “The consumer typically would not know if the check originator had sufficient funds in their bank account, whether the account was closed, or whether the signature on the check is valid,” wrote California Attorney General Rob Bonta.

    David Paul Morris/Bloomberg

    California Attorney General Rob Bonta is warning smaller banks and credit unions about the consequences of hitting consumers with certain penalty fees, arguing that the charges likely violate both state and federal law.

    Bonta, a Democrat, highlighted two specific kinds of fees in a letter to California-chartered banks and credit unions that have less than $10 billion of assets. The Consumer Financial Protection Bureau lacks supervisory authority for financial institutions whose total assets fall below the $10 billion threshold.

    First, the AG warned the banks and credit unions about charging overdraft fees that aren’t reasonably foreseeable. Such fees sometimes get assessed when an account shows a positive balance at the time the transaction is authorized, but a negative balance at the time of settlement.

    “The complexity of how payments are processed, authorized, and settled by financial institutions make it difficult for the average consumer to make an informed decision on whether to use overdraft protection and incur an overdraft fee for any particular transaction,” Bonta wrote in the letter, which was sent this week.

    Bonta also focused on fees that get charged to customers who deposit checks that are later returned because they can’t be processed against the account of the person who wrote them. Customers often deposit checks without the knowledge that they’re bad.

    “The consumer typically would not know if the check originator had sufficient funds in their bank account, whether the account was closed, or whether the signature on the check is valid,” Bonta wrote.

    The letter was sent to 197 state-chartered banks and credit unions, according to the California attorney general’s office.

    Diana Dykstra, president and CEO of the California Credit Union League, said the group is carefully reviewing the message being sent by Bonta’s office.

    “Credit unions have long been dedicated to serving their members diligently, fostering trust through personalized financial services,” Dykstra said in an email. “We are committed to spotlighting the credit union difference with state legislators in Sacramento on the topic of overdraft protection.”

    A spokesperson for the California Bankers Association did not respond Friday to requests for comment.

    The focus by California officials on penalty fees charged by small banks and credit unions dovetails with the Biden administration’s effort to crack down on similar practices at big banks.

    A proposed CFPB overdraft fee rule, which would establish a maximum charge of $14, would only apply to financial institutions with more than $10 billion of assets.

    Bonta wrote in his letter that charging the two kinds of fees he highlighted likely violates both California’s Unfair Competition Law and the federal Consumer Financial Protection Act. Federal banking regulators have previously taken similar stances on the two fees’ legality under federal law.

    Credit unions long avoided the same degree of scrutiny that big banks have gotten in connection with their overdraft fee practices. But earlier this month, National Credit Union Administration Chairman Todd Harper said that his agency will soon require credit unions with more than $1 billion of assets to report data on the controversial fees, similar to an existing disclosure requirement for larger banks.

    Such disclosures about overdraft fees are already required in California by both state-chartered banks and credit unions, thanks to a state law enacted two years ago.

    Data from 2022 was published in a report last year by the California Department of Financial Protection and Innovation. It showed that California-chartered credit unions were more likely than their counterparts in the banking industry to rely on overdraft fees as a substantial revenue source.

    In 2022, no California-chartered banks got more than 6.1% of their total income from overdraft fees and nonsufficient funds fees, according to the report. By contrast, 25 state-chartered credit unions got more than 6.1% of their total income from overdraft fees and NSF fees.

    NSF fees may be charged when a financial institution denies a transaction because the customer’s account lacks sufficient funds.

    Kevin Wack

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  • Ent Credit Union's new approach to training: virtual reality

    Ent Credit Union's new approach to training: virtual reality

    The Colorado-based institution is overhauling its training procedures by using simulated VR experiences to prepare new member service representatives for their roles without the stress of serving live customers while supervisors watch.

    Motive.io

    When it comes to helping newly onboarded employees develop the skills and knowledge needed for success in their positions, most organizations use traditional methods like expansive handbooks or long lectures. While that may have worked for previous generations of workers, Ent Credit Union in Colorado Springs, Colorado, is trying something new: virtual reality.

    In so doing, it joins a small, but growing, group of financial institutions seeking to help the next generation of front line staffers acclimate to the responsibilities of their roles — without the stressors of “trial by fire” training sessions facing real customers with supervisors watching.

    The $10 billion-asset Ent began working with the Vancouver, British Columbia-based Motive.io and Aequilibrium in October to explore how the credit union could make training programs more interactive by leveraging virtual reality. Both firms specialize in the catch-all concept of extended reality, which in addition to virtual reality also includes augmented reality and mixed reality.

    “Often with new member service representatives, they stress over wondering if they said or did the right thing during a traditional scenario-based learning session with a human [respondent]. … The really cool piece about VR is that they get to play and go down that rabbit trail basically, and figure out where their mistakes were without it being high risk,” said Lori Benton, vice president of learning and cultural enrichment at Ent Credit Union.

    Digital consultants at Aequilibrium helped develop the credit union-specific scenarios in the software on behalf of Ent and provided the institution with VR devices. They worked closely with department heads at Ent to better understand what skills need to be emphasized, explained Adrian Moise, founder and chief executive of Aequilibrium.

    In addition to technical skills, the scenarios his firm created also help sharpen soft skills such as etiquette for interacting with members, Moise said.

    The Aequilibrium team uses Motive’s software development kit to work in the cross-platform game engine Unity. Through the SDK, the three-dimensional environment can be programmed to include moveable objects and other interactive elements like virtual AI-powered avatars that simulate conversations by acknowledging user responses and progress along a prewritten script. The credit union is creating avatars using the text-to-speech avatar tool in Microsoft’s Azure AI platform.

    Aequilibrium designers then move to Motive’s Storyflow tool after the test environment is established to write the step-by-step progression of the scenario, which involves prebuilt modules that represent different prompts like visual cues to advance the story as well as actions to interact with props. Modules also include vocal phrases for the aforementioned avatars to activate when conversing with the employee.

    In Ent’s case, as employees talk to the avatars, the AI will compare their responses against a bank of understood phrases and generate scores based on how close the employee was to the list of acceptable answers. This characteristic, also known as intent recognition, provides the avatar with a greater element of flexibility when compared to focusing on exact matches.

    Peter Wittig, director of customer experience at Motive, said the adjustability of the platform helps reduce the necessary time needed to update the scenarios.

    “Most people make VR like a music box, where the tune is part of the machine and if you ever want to change the tune, you have to send it back to a bunch of software developers,” Wittig said. “The approach we take is [more like] allowing users to create a stage that they can then create scripts to play out on it.”  

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    An example of what a three-dimensional simulation environment and all its assets could look like. (Aequilibrium)

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    Motive.io’s Storyflow platform allows users to build custom scenarios using module blocks as well as custom scripts. (Aequilibrium)

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    Dialogue between employees and the AI-powered avatars are broken down in this example to showcase how each phrase is categorized and understood by the bot. (Aequilibrium)

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    Perspective of the employee interacting with the bot, accompanied by a visual cue for what to say. (Aequilibrium)

    Once the storyboarding is complete and rolled out using the firm’s content management system, employees will receive a code to complete a session using the VR device of their choosing. Results are compiled in the CMS for training staff to review and identify problem areas on an individual and aggregate basis.

    “We’re really trying to walk away from a lot of [traditional training methods] and use modern technology because the people we hire use modern technology in their day to day lives,” Benton said.

    Ent is the latest financial institution to use virtual reality to help new employees get up to speed. Bank of America and the Toronto, Canada-based TD Bank Group deployed virtual onboarding tools over the past year.

    Other forays into the extended reality space range from buying digital real estate in the collection of online environments known as the metaverse to consumer-facing advertisements.

    Banks and credit unions need to use proper due diligence when training AI bots, experts said. They also need to recognize that users will have varying levels of reception to the technology.

    “Sometimes AI can surprise us by doing something in a way that we wouldn’t have thought of. So how do you trust it enough to do the right thing, and distrust it enough to always double check and make sure that what you’re doing is [both] accurate and appropriate,” said Donna Z. Davis, director of the immersive media communication master’s program and Oregon Reality (OR) Lab at the University of Oregon. “At the end of the day, there always has to be a human looking at the whole picture.”

    The campaign is still in the developmental stage at Ent, but is slated to be put to use with member service representatives as the resources near completion.

    “Depending on who facilitates the training, you can get a varied experience. … With the virtual reality tool, it’s a fairly consistent experience,” said Marnie Gerkhardt, director of learning innovation at Ent. “So it can build that consistency with the responses and the behaviors within our teams.”

    Frank Gargano

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  • How a Wyoming credit union is doing more lending despite lower demand

    How a Wyoming credit union is doing more lending despite lower demand

    Jim Handley (left), chief credit officer for Sunlight Federal Credit Union and Shivan Perera (right), senior vice president of participations and debt for Avana Capital. “We’re a community credit union in a small, rural area, and the sheer number of deals and available business opportunities is not the same for me as it is for somebody in a bigger state or bigger market area,” Handley said.

    Sunlight Federal Credit Union is working to grow its portfolio of commercial real estate loans by expanding the scope of available deals and mitigating the risks associated with entering new markets.

    The size of the $200 million-asset credit union based in Cody, Wyoming, works against these efforts.

    “We’re a community credit union in a small, rural area, and the sheer number of deals and available business opportunities is not the same for me as it is for somebody in a bigger state or bigger market area,” said Jim Handley, the credit union’s chief credit officer.

    To address this shortcoming, Sunlight is working with Avana Capital, a lending subsidiary of the Peoria, Arizona-based Aana Companies, to gain insight into the pricing levels of potential deals relevant to the market and help broker both the sale and purchase of CRE loan participations across the U.S.

    Avana’s network of in-house credit analysts review the terms of a loan before it is offered to the member and recommends concessions such as additional guarantors to reduce the likelihood of any delinquency. After being approved by Sunlight’s underwriters, Avana helps sell the remaining portions of the deal to other interested financial institutions. It has worked with Sunlight since 2021.

    Sunlight has more than $18 million in commercial loans secured by real estate to members and just under $34.5 million in purchased participations for similar loans at other institutions, according to Third-quarter call report data from the National Credit Union Administration. The average value of each participation was just under $1 million.

    “A larger bank isn’t gonna necessarily mess with a smaller credit because their minimum size for a deal might be $10 million or something along those lines. … But for a deal, say $5 million in size, that investment size split among numerous smaller institutions is attractive to organizations that don’t have just an endless supply of money to do deals,” Handley said.

    Consumer lending appetites continue to pull back in the face of record interest rate levels and continuing uncertainty regarding future Federal Reserve hikes, forcing lenders to seek out more diverse opportunities while adding measures to vet borrowers.

    But for others that don’t sufficiently monitor the risks associated with areas such as CRE, which include commercial mortgages and construction loans, unrealized losses could prove troublesome.

    Shivan Perera, senior vice president of participations and debt for Avana Capital, said the firm’s continual portfolio servicing, when combined with ample diversification, is a crucial method for lessening the impact of any one market segment’s poor performance.

    “Risk is not always just at the loan level, there’s also portfolio risk as well. … There are a lot of shops out there that are more concerned with production, but we always emphasize credit first and production second,” Perera said. “Credit union consolidation is a growing trend, so we’re very focused on preserving the industry however we can.”

    Delinquencies and charge-offs at credit unions nationwide rose in the second quarter, while community banking leaders expressed concerns that proposed capital reforms could further constrain lending activity for smaller institutions.

    To streamline the process, turning to fintechs that specialize in aggregating data and structuring it into a more digestible format can free up resources for more involved cases.

    By offloading the document gathering process, “the work is much easier since it’s now a credit risk decision, minus all the hours and hours of people’s time to gather and assess” financial statements, said Tim Scholten, founder and president of the community bank and credit union consultancy Visible Progress.

    Small-business owners in the Western U.S. remain positive about growth opportunities for the remainder of 2023, despite worries of a looming recession.

    The best way to weather market shifts involves proper management of the “existing book of business’ credit quality” and diligence when reviewing outstanding agreements should be top of mind for wary leaders, said Joel Pruis, senior director at Cornerstone Advisors.

    Frank Gargano

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  • Navy Federal, NCUA deadlocked over Department of Defense contract

    Navy Federal, NCUA deadlocked over Department of Defense contract

    Under the contract with the Department of Defense, Navy Federal would operate 60 banking facilities and 275 ATMs throughout Europe and the Pacific.

    billtster/Adobe Stock

    Navy Federal Credit Union’s contract with the Department of Defense to provide banking services to military personnel serving abroad faces an obstacle bigger than any bank lobby — the credit union’s own regulator, which insists it cannot provide deposit insurance under the terms of the deal.

    The Department of Defense established the overseas banking program after World War II to provide active-duty military members with retail, financial and cash services. The Vienna, Virginia-based Navy Federal is taking over the contract that had been held for 40 years by the $3.1 trillion-asset Bank of America.

    The agreement was already under fire from the banking industry, and now the National Credit Union Administration says federal law prevents it from insuring any accounts offered through the program.

    Under the terms of this program, the service members become customers of “Community Bank, operated by Navy Federal Credit Union,” and not members of Navy Federal itself — a distinction that would make it neither “permissible [n]or proper” under the Federal Credit Union Act to insure those accounts through the National Credit Union Share Insurance Fund, an NCUA spokesman said. 

    “Deposits made by customers of the Community Bank as part of the Overseas Military Banking Program are separate and apart from those deposited by members of Navy Federal Credit Union,” said the spokesman, Joe Adamoli. “Navy Federal would only be acting as a servicer for the DoD program, and the deposits from that program would not be those of Navy Federal’s members.”

    Navy Federal isn’t satisfied with this explanation. In an email to American Banker, Mary McDuffie, president and CEO of the $165 billion-asset credit union, said that under the law, the NCUA can insure any credit union activity it determines to be proper.

    “But somehow, it has not found it ‘proper’ to provide insurance to a DoD program that supports deployed overseas service members and their commands,” she wrote. “It is rare that we see resistance to our mission-driven efforts that we are experiencing from the NCUA. Without a committed insurance partner in this OMBP endeavor, the NCUA is going to leave service members and their families overseas without the financial support that they deserve.”

    Under the contract, Navy Federal would operate 60 banking facilities and 275 ATMs throughout Europe and the Pacific. 

    Anthony Hernandez, president and CEO of the Defense Credit Union Council, which advocates for the interests of America’s credit unions serving the military and veteran communities, said the Department of Defense was asked to brief the Senate Committee on Armed Services about the issue last week. 

    “From what I understand, DoD acknowledged the problem and discussed a few alternatives,” Hernandez said. “[The council] is always concerned when DoD or anyone else speaks to Congress about any aspect of its banking program. This issue directly impacts each of our member credit unions who serve on military installations without the benefit of a government contract.”

    Even if the issue of deposit insurance is resolved, the deal faces other hurdles, as representatives from the banking industry have highlighted.

    The Association of Military Banks of America has several issues with the contract being awarded to Navy Federal, including that the Department of Defense will no longer be able to credibly enforce its “one bank-one credit union” policy in the United States, said Steven Lepper, the association’s president and CEO.

    That policy has been in force for a couple of decades and precludes banks from competing with other banks, and credit unions from competing with other credit unions, on military installations. When Bank of America held the contract, a credit union could open a branch on the same base without tipping the balance; with Navy Federal taking over for BofA, it would add a second credit union to the bases that already have one.

    The policy is meant to give military personnel, families and military organizations a choice of types of financial institutions, products and services without overpopulating bases with banks and credit unions, Lepper said.

    Credit unions are exempt from the lease costs that banks would pay to operate on these bases, Lepper said. This made it easier for credit unions to come in and compete with Bank of America, but any banks that choose to compete with Navy Federal would not have the same advantage, he said. 

    “The departure of banks from military bases, driven by a disparity in lease costs, will accelerate if multiple credit unions can fill the resulting void,” Lepper said. 

    Lepper said the contract “debacle” has illuminated the dysfunction inherent in the Department of Defense banking program.  

    Both the American Bankers Association and the Independent Community Bankers of America declined to comment on Navy Federal’s involvement in the overseas banking issue. But in a post on LinkedIn, the ICBA’s president and CEO, Rebeca Romero Rainey, said Navy Federal appears to be trying to mask the fact that it is a global financial institution that does not pay taxes or meet the same level of regulatory standards as community banks. 

    “With large credit unions now apparently insecure enough about their industry to want to pretend they’re community banks, Congress should use this opportunity to investigate the nation’s outdated credit union policies — and whether the government should continue subsidizing acquisitions of real, local, taxpaying community banks,” she wrote.

    Lepper said he is concerned that more banks will leave military installations if credit unions feel emboldened by BofA’s departure. He said the credit union lobby has already prevented AMBA from securing legislative relief allowing banks to operate free of lease charges on military bases — a benefit credit unions already enjoy.  

    “We fear that the credit union lobby will shift into overdrive to ensure rising lease costs close the few remaining banks on bases so that credit unions can take their place,” he said.

    Ken McCarthy

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  • Navy Federal encounters rough seas after winning military contract

    Navy Federal encounters rough seas after winning military contract

    Navy Federal Credit Union won a contract from the Department of Defense to operate the Overseas Military Banking Program. Bank of America had held the contract for 40 years before deciding not to renew it.

    Adobe stock

    U.S. military bases across the globe are about to see a major change on the financial services front.  

    The Department of Defense has awarded Navy Federal Credit Union a contract to begin operating the Overseas Military Banking Program later this year. The $3.1 trillion-asset Bank of America in Charlotte, North Carolina, has held the contract for the past 40 years. 

    The program was established after World War II to provide active duty military members with retail, financial and cash services. It provides access to foreign currency, local ATMs, bill pay, savings and checking accounts, and other products. 

    “We’re very proud to have been awarded this contract. Supporting active-duty personnel and their families, wherever they are stationed, is at the core of Navy Federal’s mission,” Mary McDuffie, president and CEO of Navy Federal, said in a press release.  

    Under the contract, the $165 billion-asset Navy Federal — the largest credit union in the world — will operate 60 banking facilities and 275 ATMs throughout Europe and the Pacific. Per federal requirements, the program will be known overseas as “Community Bank, Operated by Navy Federal Credit Union.”   

    But there are concerns about Navy Federal’s ability to obtain sufficient deposit insurance to fulfill the contract.  

    In a letter to the Department of Defense, the Defense Credit Union Council said it is “deeply concerned” about some of the terms and the bid selection process.  

    The group, which advocates for the interests of America’s credit unions serving the military and veteran communities, said it believes there are legal and regulatory compliance issues that could harm military members and their families and erode goodwill with the credit union industry. 

    At issue, the group said, is the ability for a credit union to obtain mandatory deposit insurance for overseas bank customers and military families that are served through this particular program. The group said that Navy Federal has entered uncharted territory and it is not clear that credit unions, through standard processes, can insure deposits outside of the United States under this contract.

    An NCUA spokesman confirmed that the program is not currently insured through the National Credit Union Share Insurance Fund but did not elaborate. The NCUA fund insures credit union deposits in the U.S. 

    “Executing an overseas banking contract without deposit insurance would be unconscionable given recent bank failures such as Silicon Valley Bank and Signature Bank,” wrote the group’s President and CEO Anthony Hernandez.  

    Vienna, Virginia-based Navy Federal acknowledged the concerns but said it expects it will be able to address the insurance issue during a transition period. A spokesperson said the contract was awarded in two phases. The first phase will be a transition period where customer accounts will continue to be backed by BofA.  

    The second phase will begin on April 1 when Navy Federal will take over the program. That should provide “ample time to work alongside the Defense Finance Accounting Service to ensure the safety and soundness of the deposits when Navy Federal assumes responsibility,” the spokesman said. 

    The contract also contains eight additional one-year options.  

    Still, “DCUC remains concerned that DoD awarded a contract without federal deposit insurance for military members and their families who are serving overseas and in harm’s way. Our military deserves the same level of protection no matter where they serve,” Hernandez said. 

    For its part, BofA confirmed it made the decision not to renew its contract with the DoD, though it did not explain why.  

    “… Upon completion of the terms of the current contract, the decision was made to allow another financial institution to bid for the next global contract term,” BofA spokesman Andy Aldridge said. “Can’t get into the strategy of why we choose to enter or exit any particular business.” 

    The $35 billion-asset Pentagon Federal Credit Union in McLean, Virginia, operates branches on two military bases overseas — in Okinawa, Japan, and Guam. PenFed did not bid on the DoD contract, President and CEO James Schenck said. This contract is separate from the program that Navy Federal will be taking over. 

    “Having Navy FCU on overseas bases will give servicemembers several great organizations to choose from … to handle their financial needs while deployed,” he said. 

    Navy Federal serves all branches of the military, including the Navy, Army, Marine Corps, Air Force, Coast Guard and Space Force. Last year, members visited one of the 354 Navy branches worldwide more than 21 million times.

    Jim Dobbs

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  • Best Credit Unions to Work For, ranked 1-35

    Best Credit Unions to Work For, ranked 1-35

    Staffing issues remained a chief concern for organizations of all sizes, as the “great resignation” stretches into its second year. But the honorees on this year’s list of Best Credit Unions to Work For are developing programs that meet the needs of current employees and entice new generations of talent to join.

    Seventy credit unions were honored this year, spanning across the U.S. and ranging in size from as small as 22 employees at PAHO/WHO Federal Credit Union in Washington, D.C., to as large as 3,258 team members at America First Credit Union in Riverdale, Utah.

    Those that made the list were selected through two different surveys with the help of Best Companies Group. The first survey examines employee satisfaction and covers eight areas, including leadership and planning, corporate culture and communication and overall engagement. An institution needed at least a 40% participation rate in the survey, and on average at least 80% of respondents had to answer “agree strongly” or “agree somewhat” across the different topics.

    The second survey evaluates the benefits and policies of each credit union, including deciding factors such as cost-free telehealth visits, volunteer days with local nonprofit organizations and employee appreciation events.

    Read more about this year’s honorees for Best Credit Unions to Work For below, and click here to view the second grouping of honorees ranked 36 to 70.

    (Asset totals and employee headcounts were provided by the credit unions at the time of application.)

    Frank Gargano

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  • A credit union buying First Sound Bank after prior sale was canceled

    A credit union buying First Sound Bank after prior sale was canceled

    Harborstone Credit Union in Washington will add $175 million of assets through its planned deal for First Sound Bank in Seattle.

    First Sound Bank in Seattle has been looking for a buyer all year. It found one in Harborstone Credit Union. 

    Back in November 2021, BM Technologies agreed to pay $23 million for the bank. It was called off in December 2022 after regulatory delays pushed the deal beyond its expected closing window. 

    Under the new terms with Lakewood, Washington-based Harborstone, the the $175 million-asset bank’s shareholders will receive approximately $6.90 to $7.10 in cash for each share of First Sound Bank common stock owned, subject to adjustment based on the equity value at closing, the companies said in a press release Tuesday. 

    Following completion of the transaction, First Sound Bank will liquidate and distribute its remaining assets to its stockholders. The deal would push the $1.9 billion-asset Harborstone past the $2 billion-asset mark.

    The acquisition, which Harborstone expects to close in the first quarter of 2024, would help the credit union grow its presence in the Seattle market, diversify its assets and add talent and expertise, the credit union said.

    “[We] owe this opportunity to the decades of smart and strategic decisions that have created a solid foundation for our expansion,” Harborstone’s President and CEO.Geoff Bullock said in the press release. 

    Marty Steele, president and CEO of First Sound Bank, said the deal provides many benefits for its customers, employees, community and shareholders. 

    “As a community bank, we are deeply focused on providing resources and services for our customers to succeed, and feel the additional services, products and locations Harborstone Credit Union provides will help us continue to meet the needs of our customers in this competitive environment,” Steele said in the press release.

    The combined institution would have approximately $2.1 billion in assets, $1.5 billion in loans, $1.8 billion in shares and deposits, and 16 branches throughout King, Pierce and Thurston counties.

    The deal is the fifth involving a credit union buying a bank announced in 2023. By this time last year, nine credit union-bank deals had been announced. 

    Most recently, Nusenda Credit Union said in early June that it plans to acquire the $338 million-asset Western Heritage Bank in Las Cruces, New Mexico. 

    In total, 16 credit union deals for banks were announced in 2022.

    Steve Swofford, the president and CEO of Alabama Credit Union — which acquired Security Federal Savings Bank in 2021 — said in an interview Wednesday that his company is not actively looking at bank targets today, and he believes some potential sellers feel that their values are too depressed to get a fair price.

    “Bank values are lower due to their holding portfolios of securities that have sizable losses in them,” Swofford said. Alabama Credit Union is based in Tuscaloosa and has $1.8 billion of assets. 

    Traditional credit union mergers and bank acquisitions have also been slow to develop this year.

    McQueen Financial Advisors served as financial advisor for Harborstone and Luse Gorman, PC was its legal counsel. First Sound Bank was advised by D.A. Davidson Companies and Keller Rohrback, L.L.P.

    Harborstone Credit Union earned $4.2 million in the first six months of 2023, a 50% decrease from a year earlier, according to call report data from the National Credit Union Administration.

    Ken McCarthy

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  • Fintechs expand AI auto-lending tool for credit unions

    Fintechs expand AI auto-lending tool for credit unions

    From left: Tony Boutelle, president and chief executive of Origence, Mike de Vere, CEO of Zest, and Brian Hendricks, chief product officer for Origence. “Anyone who’s been in lending knows it never feels good about saying ‘no,’ and in the end, your hope is to [help] as many consumers achieve what they’re trying to achieve in their life. … These tools will help credit unions do it more confidently,” Hendricks said.

    Credit unions captured growing segments of the auto lending market from banks throughout 2022, but have since seen rates rise as average vehicle prices increase and liquidity woes persist — signaling a potential slowdown.

    To help strengthen its portfolio, and reduce the stress on its workforce, Sierra Central Credit Union in Yuba City, California, enlisted the help of a Zest AI model to complement its longstanding partnership with Origence. The technology helped increase acceptance rates without raising delinquencies, while also freeing up underwriters to handle more complicated cases.

    “The holy grail is you want to get more production without increasing staff because staffing is the biggest expense that we have, and I think that Zest plays into that very well,” said Ernie Martin, senior vice president and chief lending officer for the $1.5 billion-asset Sierra Central in Yuba City, California.

    Zest AI and Origence, a credit union service organization that specializes in connecting car dealerships to credit union financing, are adapting this technology for a white-label product called Zest Auto, which any credit union can use. The product, launched this month, combines Zest’s underwriting models with Origence’s customer origination platform.

    The two fintechs originally are adjusting their focus to additionally underscore the quality of decisions rendered by the algorithms, according to Mike de Vere, chief executive of Zest AI in Burbank, California.

    “The issue of today’s economy is that many credit unions are loaned out, so as we go into these uncertain financial times — whether it be a recession or not — the question is: How do we support a credit union and the dealer in making an accurate and smart decision?” de Vere said.

    Zest AI honed the new product’s efficiency by building a test model using consumer credit data from 2006 to run decisions on loans made between 2007 and 2008 during the Great Recession — eventually using the results to ensure fairness throughout all templates when reviewing applicants from underserved communities, de Vere said.

    “We’ve got 250-plus models in production … so we need to take those learnings and make sure that we’re applying [them] to modeling not just our current customers, but also our future customers,” de Vere said.

    Quarterly data from the National Credit Union Administration showed that outstanding auto loans, which include new and used, increased roughly 16.7% from 2021’s total of $404.5 billion to more than $485 billion.

    At Sierra Central Credit Union, new and used vehicle funding accounted for more than 56% of its $922 million lending activity last year. Martin stressed that more dynamic scoring is key for creating complete profiles for underserved consumers and better understanding an applicant’s creditworthiness.

    “The real power in the model is that it’s able to identify those borrowers that are improving their credit. … So although their FICO score dampened down just because of what happened in the past, the Zest score takes into account” recent positive behavior from borrowers, Martin said.

    But as helpful as automation is, analysts stress that proper oversight is crucial for navigating the regulatory scrutiny garnered by the use of such models amid other challenges. 

    “An AI model’s explainability is critical for regulatory compliance” and “regulators want to know why a model operates the way it does and why it makes an approval,” said Craig Focardi, principal analyst for research and advisory firm Celent.

    But regulators especially want to know why a model “either declines or recommends not to approve a loan,” Focardi said.

    Adopting tools for automation can require a certain level of trust from executives, said Daryl Jones, senior director at the Scottsdale, Arizona-based advisory firm Cornerstone Advisors.

    There can be a disconnect when “the behavioral side never gets changed to adopt the technology and allow for the efficiency and scale,” Jones said.

    As rising interest rates constrain underwriting activity from banks and online lenders, credit union executives should be mindful of potential refinancing opportunities and overall consumer behavior in the months ahead, said Brian Hendricks, chief product officer for Origence in Irvine, California.

    “Anyone who’s been in lending knows it never feels good about saying ‘no,’ and in the end, your hope is to [help] as many consumers achieve what they’re trying to achieve in their life. … These tools will help credit unions do it more confidently,” Hendricks said.

    Frank Gargano

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  • Lenders find more uses for alternative credit data

    Lenders find more uses for alternative credit data

    From left: Ambika Sharma, creator of Fintech Cafe, Kareem Saleh, founder and chief executive of FairPlay, Dave Hoare, chief technology officer and co-founder of Codat, Seshu Guddanti, senior vice president and senior director of software engineering for server message block platforms for U.S. Bank and John Gordon, chief operating officer for Ribbit.

    Frank Gargano

    Banks and credit unions are increasingly using alternative consumer credit data, such as bank account information, to strengthen programs for “second-look financing” and lending into underserved markets.

    A recent LexisNexis Risk Solutions survey of roughly 225 senior decision makers for marketing, lending and credit risk in financial institutions across the U.S. found that 65% of respondents use alternative credit data on anywhere from 50% up to almost 100% of all new applicants. As a result, more than half reported revenue increases of 15% and higher.

    U.S. Bancorp in Cincinnati is using alternative data to develop a holistic banking platform for small-business clients that organizes all of the customer’s accounts and compiles income and asset statements for use in one dashboard. In some cases, an applicant’s history as a consumer could fill in gaps in their credit history as a business owner, for example. 

    Seshu Guddanti, senior vice president and senior director of software engineering for server message block platforms for the $585 billion-asset bank, explained how applying a platform mindset to aggregate consumer account and performance data can help the bank offer more products and services.

    He stressed that the data doesn’t limit a customer to being categorized as a small business client, as they “could also be a consumer and could also be a mortgage customer. … So we’re taking a platform view that once this data is aggregated, it could be used by many different teams within the bank to make their own decisions about this data,” Guddanti said during a panel discussion at the Fintech Meetup conference held in Las Vegas earlier this week.

    Alternative data is also helping lenders reach underserved markets. Companies that solely use data from credit agencies can unfairly perpetuate biases toward underserved communities and further the divide between them and lenders, said Kareem Saleh, founder and chief executive of the Los Angeles-based fairness solutions firm FairPlay.

    “It turns out that, especially if you’re building models on credit bureau data, that the data is kind of overfit to the majority population. …[This] means that there are these subpopulations [of consumers] that are not well represented in the data whose riskiness can be overstated,” Saleh said. 

    As an alternative to traditional metrics, companies like Ribbit, a data solutions provider based in Oxford, Ohio, are helping financial services firms develop models for lending by analyzing consumer-provided account data and non-credentialed data to build a more comprehensive credit profile.

    In the case of firms that engage in second-look financing — which are loans offered to consumers whose credit scores generally fall below 680 and are turned away by larger institutions — the established rating methods are oftentimes not enough by themselves to render a confident decision, said John Gordon, chief operating officer for Ribbit.

    “For us, we believe that the [consumer’s bank account] offers the clearest window into that consumer’s financial health as well as ultimately what they can afford, so that you’re creating the best possible relationship” between the financial institution and the consumer, Gordon said.

    Many small-business owners just starting out are facing a similar challenge when applying for lines of credit due to relatively incomplete performance profiles with rating agencies such as Equifax and Experian — leaving entrepreneurs with few options for funding and lenders with the question of how to best determine their credit worthiness.

    Dave Hoare, chief technology officer and co-founder of the London-based application programming interface firm Codat, explained how lenders integrated into a business client’s point of sale system can obtain real-time transaction data to use as an up-to-date resource for assessing the creditworthiness of an applicant.

    “They can see sales literally up to the minute, they can see which products are selling well, they can see how sales have gone up over the months, they can see payment information and they just have this sort of closer-to-the-bone view of how the business is operating, rather than purely depending on [outdated] bureau data,” Hoare said.

    Frank Gargano

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  • Why don’t midsize credit unions want to grow through mergers?

    Why don’t midsize credit unions want to grow through mergers?

    Pinnacle Credit Union in Atlanta is working on a merger that would bring it to $250 million of assets — halfway to where CEO Matt Selke says credit unions hit the “sweet spot.”

    It is no secret that the size of an institution is a huge factor when it comes to achieving significant membership and loan growth, but few credit unions are striking mergers that would give them that scale.    

    Simply put: Bigger credit unions continue to get bigger, while organic growth for small and midsize credit unions remains challenging.

    “They can’t grow,” said Peter Duffy, managing director for Piper Sandler. “They don’t have the capital to grow. They don’t have enough resources or manpower to grow and they’re not attracting young members.”

    Recently released data from the National Credit Union Administration bears that out. 

    For example, credit unions with between $100 million and $500 million of assets saw membership fall 3% over the year ended Dec. 31, 2022. By comparison, credit unions above $1 billion of assets experienced nearly 8% membership growth.

    So although growth is obviously stronger at the higher end of the asset spectrum, the number of credit unions with total assets greater than $500 million rose by only one year-over-year to 709 in the fourth quarter.

    So why aren’t more sub-$500 million-asset credit unions merging to gain size and the fruits that come with it?

    Duffy said inertia is one factor.

    “A fairly large amount of institutions between $200 million and [$1 billion] are saying ‘I guess I’m just here to hang on until I can pass it on to somebody else,’” he said. “And so they don’t take the calls.”

    But they should, Duffy said. 

    That’s because factors including increased competition from fintechs and the growing cost of technology and regulation are making it increasingly difficult for small institutions to compete. 

    “The drivers of consolidation are growing, not shrinking,” he said. “And there are good deals out there.”

    But the average asset size of a merged credit union in the last 10 years has been around $25 million of assets, according to Duffy. And the number of total mergers has dropped in six of the past seven years.

    Pinnacle Credit Union in Atlanta is working through a three-way merger with RVA Financial Federal Credit Union in Richmond, Virginia, and MUNA Federal Credit Union in Meridian, Mississippi, that would get the combined institution about halfway to $500 million of assets.

    Matt Selke, CEO of the $91 million-asset Pinnacle, said $500 million is the “sweet spot” for economies of scale and the general asset size where a credit union can survive an even heavier regulatory burden.  

    “The problem in the industry is we are seeing smaller credit unions get swallowed up by larger credit unions,” Selke said. “The goal of our merger project is to have an actual partnership to retain the best parts of each credit union instead of becoming part of [Pentagon Federal Credit Union] or whatever larger credit union is out there.”

    The NCUA classifies credit unions with at least $500 million of assets as “complex,” but Duffy said the added regulatory requirements that come into play at that level are in no way an inhibitor to credit unions merging to reach that mark.

    “The NCUA’s requirements of complex credit unions are not a hindrance to their ability to run their institution and compete,” Duffy said.

    Tim Scholten, founder and president of the credit union and community bank consultancy Visible Progress, said another factor keeping mergers at bay is the challenge of finding similar fields of membership.  

    For example, Scholten has worked with one credit union that only serves police and fire workers, and it would not be interested in merging with an institution with a different membership base, he said. 

    “To be honest, I expect the larger credit unions to be the ones acquiring for added growth and efficiency rather than a bunch of smaller organizations merging,” he said.  

    Vincent Hui, managing director at Cornerstone Advisors, said there are many discussions between credit unions about mergers but they often don’t progress due to incompatibility of culture, misalignment of strategies, differing risk appetites and the opportunity cost.  

    He said that while credit unions often talk about being member-centric, mergers that make sense frequently don’t move forward because executives want their side to “win,” and so they focus on control. 

    “In other words, they focus more on merger structure than a thoughtful evaluation of the value-creating opportunities of a merger,” Hui said. 

    Still, Hui expects more mergers of equals in coming quarters.

    “There are bold leaders who will be open-minded about mergers,” he said. “The mergers of peers we’ve seen are a tribute to the thoughtful and collaborative boldness of the leadership of both institutions.”

    Ken McCarthy

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  • Credit union branches welcome a surprising demographic: millennials

    Credit union branches welcome a surprising demographic: millennials

    Pennsylvania-based Members 1st Federal Credit Union has 60 branches but plans to add at least five more in the next couple of years.

    The wide-scale adoption of digital and mobile channels has curtailed foot traffic in many credit union branches, but one age group is walking through the doors more than ever: the millennials.

    Among its recent research on branch usage, Fiserv found that millennials are not only using branches more frequently than all other generations today, but they also say they will do so more often post-COVID than they did prior to the pandemic.

    “It really surprised us,” said Bill Handel, chief economist for Fiserv. “This is not a one-time study. We’ve repeated this study again and again and again. And we get the same results.”

    Speaking at the Credit Union National Association’s Governmental Affairs Conference in Washington last week, Handel said the reason is that millennials — now in their late 20s to early 40s — have more sophisticated financial needs and so are often looking for advice.

    “In an uncertain world they want somebody that they’re going to be able to talk to who they can trust. That’s what they’re really looking for. They want to make sure they’re making the right types of decisions,” Handel said. 

    Navy Federal Credit Union in Vienna, Virginia, added 18 new locations over the past two years, largely due to demand across all age groups, said Keith Hoskins, the executive vice president of branch operations for the $156.6 billion-asset credit union.

    More than 21 million members visited a Navy Federal branch over the course of 2022 — an increase of 1.4 million from the previous year, Hoskins said. It now has 355 branches altogether.

    “If you think about some of our younger members that may need help with a budget [or] may need help in terms of how to save to buy that first home for their family, the earlier we can engage with them … the better off we think they will be … coming into our branches and having those deep relational conversations,” Hoskins said. “Our investment in our growing branch network, it’s needed for our members and we believe that great service makes great business.”

    Many credit unions have added to their branch count while banks continue to shutter them, although the pace of closures is slowing. Net bank branch closures in January were 49, down from 76 in December 2022. The 12-month average was 161 net closures per month. 

    Credit union branch growth is so strong, the trend has run counter to the number of credit unions in business. Total credit unions in the U.S. shrunk by 30% in the past 10 years, yet the total industry branch count has increased by 2%, according to Handel.

    “The reason is because of the recognition that we cannot really truly grow effectively in a marketplace without having a branch network,” Handel said. “It’s just very, very difficult to do that.”

    Members 1st Federal Credit Union in Enola, Pennsylvania, is seeing an uptick in its millennial members visiting branches. It has to do with millennials seeking guidance and consultative advice about the best strategies to achieve their goals, said Michael Wilson, chief experience officer for Members 1st. 

    “This is not just on the consumer side, but also on the young entrepreneur side as we help them start and grow their businesses. Financial literacy has become critically important to us for that very reason,” Wilson said in an interview. 

    The $7 billion-asset credit union has 60 branches including five it added last year as part of an expansion into Berks and Lehigh counties. 

    And Members 1st is not done building. Wilson said the credit union could add five more branches in those two counties, and it is evaluating its options of moving into other contiguous markets in the next couple of years. 

    Glenn Grau, senior vice president of sales for the Pittsburgh-based branch design company PWCampbell, said the firm’s clients agree with Fiserv that it is hard to gain market share without a physical presence. 

    However, branch usage has certainly changed, with many transactions moving to mobile, Grau said. But he has seen younger credit union members walking into a branch to get a problem rectified or to get information.

    “They may not come in all the time, but they want to know that you’re there,” Grau said. “They don’t want to call an 800 number or chat online.”

    And while Grau said PWCampbell is not building as many new branches as it was a decade ago, construction goes on. What has dried up instead, are the discussions about the eventual death of brick and mortar, Grau said. “Branches aren’t going away.”

    Ken McCarthy

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  • A credit union teams with HGTV house flippers to revitalize Detroit

    A credit union teams with HGTV house flippers to revitalize Detroit

    Keith Bynum, left, and Evan Thomas, co-hosts of HGTV’s “Bargain Block”, are partnering with Community Financial Credit Union. “Anything that can encourage more investment in these communities, I think, is a worthy thing to think about,” Thomas says.

    Nick Hagen

    Community Financial Credit Union in Plymouth, Michigan, is working with a well-known home renovation duo to help mortgage applicants across metropolitan Detroit buy their first home.

    The $1.5 billion-asset credit union debuted its partnership with NINE Design and Homes this month to help highlight its Path to Homeownership mortgage, which was developed for consumers who live in communities where it is hard to build generational wealth through homeownership.

    “[When] we designed this special-purpose credit program, it was really about identifying these challenges that we’ve seen and being able to talk to people that are paying their rent all the time, but aren’t building that homeownership and they aren’t earning the credit that they should be,” said Tansley Stearns, president and chief executive of CFCU.

    Appraisal gaps — wherein appraisal values come in lower than would be expected — disproportionately affect majority Black and Hispanic communities. A characteristic of these biases is more commonly known as “whitewashing,” wherein a seller will attempt to receive a higher appraisal by removing any personal effects that suggest their race or ethnicity.

    But undervalued homes are a specialty for Keith Bynum and Evan Thomas, hosts of HGTV’s “Bargain Block.” As the founders of NINE Design and Homes, Bynum and Thomas specialize in restoring homes across Detroit, turning them into starter homes and creating opportunities for affordable housing — a problem the pair say is widely unaddressed.

    “The rental rates in Detroit are really, really high and the property values are really, really low, which makes it a really great place for investors that are looking to do rentals, but we’ve seen it repeatedly that there’s just some problems with that system as it is,” Bynum said. “We also have seen the power of homeownership.”

    By purchasing multiple properties on a block for as low as $1,000 per house and using the profits from past sales to fund tightly budgeted and fully furnished renovations, the duo can keep overall costs low and flip projects for a profit. On a larger scale, this process rebuilds entire communities, offering locals a chance to build generational wealth.

    “Anything that can encourage more investment in these communities, I think, is a worthy thing to think about,” Thomas said. 

    Home valuations are only part of the equation. Because many mortgage applicants have been renters, they haven’t been able to build up the credit history that most lenders expect. 

    CFCU’s Path to Homeownership mortgage considers past rent payments, does not require a minimum credit score and has a low or no down payment. This allows CFCU to lower the barriers to entry for consumers in underserved communities and reduce its decision-making time, Stearns said. 

    Another issue is that potential homeowners who have been rejected by banks in the past won’t necessarily want to relive that experience. The partnership with Bynum and Thomas is intended to draw applicants’ attention to the differences in the CFCU program.

    “Consumers that have been through [the mortgage application] process and had it fail don’t necessarily think if we put a billboard up and say that we have a special-purpose mortgage program that is going to work for them,” Stearns said. “Inviting those people that do go through the program to share their story is much better off than us telling it on billboards.”

    Mark Kossel, founder of the boutique firm Midtown Home Mortgage in Detroit, explained how large companies rarely prioritize small originations — those around $50,000 — in favor of much larger loans that garner higher fees, creating a gap that credit unions and localized firms are better suited to fill.

    “If you have a $30,000 to $50,000 loan amount, $2,000 or $3,000 in closing costs isn’t that much workwise, but when you factor that into the high cost thresholds for institutions that are on these loans, some larger institutions are going to ask for higher fees upfront,” said Kossel, who isn’t in CFCU’s partnership. “As the owner of the company, if the client is qualified, it feels good that I could lower the compensation or” make other adjustments, he said.

    Small lenders such as credit unions could emphasize serving the underserved as a way to boost their membership, according to Aminah Moore, senior regulatory affairs counsel for the National Association of Federally-Insured Credit Unions.

    “Credit unions are able to provide minority communities with that access to lines of credit and smaller loans that banks wouldn’t feel are worth their time because they’re not making as much money,” Moore said.

    Frank Gargano

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  • A year in diversity: Credit union leaders fight for change

    A year in diversity: Credit union leaders fight for change

    Financial institutions competing for talent and new markets of consumers have expanded suites of services and adapted hiring practices to reach underrepresented demographics.

    Diversity, equity and inclusion have been top-of-mind for credit union leaders over the course of 2022, driving many to launch campaigns to nurture the next generation of diverse talent through coaching programs, employee resource groups and other initiatives.

    Below are American Banker articles over this past year that showcase how institutions of all sizes are pushing for change.

    Frank Gargano

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  • Credit unions put training over hiring to boost loan results

    Credit unions put training over hiring to boost loan results

    Though they face serious challenges in bringing in business-lending experts, U.S. credit unions continue to fill their portfolios with commercial loans. 

    Historically, one major obstacle for some credit unions trying to grow their commercial book has been a regulatory restriction. Under current law, credit unions are restricted from lending more than 12.25% of total assets to member businesses. 

    The other large challenge has been finding the right personnel, and that may be a bigger issue than ever. Some credit unions are finding that it’s better to promote from within than to hire an experienced lender, even if it means spending more time on training. 

    Members 1st Federal Credit Union in Pennsylvania had $741.3 million in commercial loans on its books at the end of the third quarter, a 20% increase compared to a year earlier.

    “Trying to place a commercial lender over the course of last year has been like pulling teeth,” said B.J. Berrettini, executive director for the search firm AJ Consultants.

    Nevertheless, commercial loans at federally insured credit unions increased $26.4 billion, or 25%, on a year-over-year basis, to $132.2 billion in the third quarter of 2022, according to new data from the National Credit Union Administration. 

    Chief lending officers said their success hinges on talent retention and training.

    Wright-Patt Credit Union in Beavercreek, Ohio, had $521.8 million in commercial loans on its books at the end of the third quarter, a 35% year-over-year increase, according to call report data.

    Eric Bugger, chief lending officer for the $7.6 billion-asset Wright-Patt, said it has been difficult to attract outside talent, especially solid performers. The credit union has found much more value in taking some of its current employees who are high-potential candidates and teaching them about commercial services, he said.

    “We have a few recent success stories like this in our commercial lending area and first mortgage area,” he said. “What we’ve found is that the training cycle is a little longer, but we don’t have to teach them things like culture and how much we value exceptional member service. If we pick the right person, they hit the ground running right after training and they quickly start building the relationships that are so important in commercial lending.”

    That strategy might be the only option for some institutions.

    Cameron Boyd, managing partner of the financial services practice at recruitment firm Smith & Wilkinson, said entrenched and successful commercial bankers who feel fairly compensated are unlikely to change companies for a small bump in pay.  

    “The good ones won’t,” he said. “They’re hitting their goal by June and playing a lot of golf.”

    The lenders willing to move are usually those that didn’t hit their goals and are on performance improvement plans, Boyd said.  

    He added that many companies are looking for lenders with an established book of business — but the candidates’ employers often take steps to prevent clients from following them to a new job. 

    “I’ve had many chief lenders or presidents tell me that when a lender leaves, they go into his or her portfolio and reprice everything so low that those customers won’t walk,” he said. “So the best path for attracting commercial bankers is for community institutions to grow their own.”

    Jeff Ernst, chief lending officer for Members 1st Federal Credit Union in Enola, Pennsylvania, agrees.

    The $6.8 billion-asset institution has spent a lot of time and resources in the past year working hard on retaining talent so that it doesn’t have to enter the “challenging world” of commercial hiring, Ernst said. 

    “So far, we have been either lucky or good, as we have held on to our lenders,” he said. 

    Members 1st did add one new lender in 2022 as part of its expansion into Pennsylvania’s Lehigh Valley. Such a move often seems to make it a bit easier to attract quality candidates, as people are often attracted to a new company in the market allowing them to make a fresh start, he said.

    Members 1st had $741.3 million in commercial loans on its books at the end of the third quarter, a 20% increase compared to a year earlier.

    “We have attracted talent in the past by being a good competitor, and lenders for other banks want to be part of our company,” Ernst said. “We have been lucky to hold onto our folks so far.  We will see how things go as we enter an expected challenging 2023.”

    Bruce Kershner, president of Kershner & Co., an executive search firm focused on financial institutions, said his theory has always been that banks should take a lesson from financial advisors when it comes to poaching lenders. 

    When a broker is recruited away, the new firm will pay him or her as much as one to one-and-a-half times their annual production up front, he said. The broker then has to sign a multiple-year contract or must pay the advance back. 

    “I realize banks won’t or can’t pay that amount, but there has to be something creative they can do,” he said. 

    Berrettini from AJ Consultants said that, regardless of the strategy, the search for commercial lenders is as challenging as ever.

    “I’m paid to look for a needle in a haystack of needles. However, it’s almost as if they’re looking for a needle that doesn’t exist in some cases,” he said.

    Ken McCarthy

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