CU QUICK FACTS
Data as of 09.30.18
HQ: Westbrook, ME
12-MO SHARE GROWTH: 9.8%
12-MO LOAN GROWTH: 6.2%
The Infinity Federal Credit Union ($349.2M, Westbrook, ME) of today is widely different, both culturally and financially, from the organization Liz Hayes inherited when she assumed the role of CEO in October 2014. That’s by design and for survival.
Twenty years ago, Infinity had more than 20,000 members. Ten years ago, membership had dropped to 14,000. When Hayes joined the Pine Tree State credit union, she knew the cooperative had to embrace new ways to encourage growth, starting with its strategic direction.
The credit union hadn’t had a chief lending officer since 2009, and members of the senior team worked together to approve low-risk loans, mostly first mortgages to A-paper borrowers. Instead of benefiting from the new memberships and fee income loans produce, Infinity prioritized other ways to generate earnings.
We ran an investment model, says Mike O’Brien, the credit union’s CFO of 19 years.
O’Brien estimates he made as many as 1,000 trades per month in mortgage-backed securities of all sizes and risk levels. Investments as a percentage of assets peaked at 42.7% nearly $115 million in midyear 2011. And although the credit union consistently earned yields higher than state- and asset-based peers, the model wasn’t serving members very well.
We were safe and our capital ratio got to 11.5%, but we were losing members hand over fist, O’Brien says.
Infinity’s aversion to risk was slowly killing the cooperative, and the board knew it was time for a change.
Nobody wanted to stay where we were, says Sam Novick, the current board chair for Infinity. The time was ripe.
Ready For Risk
After an 11-month search for its new CEO, Infinity tapped Hayes.
We needed someone who was willing to take more risks, Novick says. Someone who was keen to work with staff and create a strategic plan.
Hayes joined Infinity from Affinity Plus Federal Credit Union ($2.2B, Saint Paul, MN). As a person from away, Maine slang for a non-native, Hayes prioritized listening and within two months had met with every employee to understand their view of the credit union.
I know what I know, Hayes says. But I don’t always know if that’s the best way. So, I’m all ears.
The new CEO quickly identified a few changes to make. First, she set a strategic direction: Serve more members than any credit union in the state. She also set a goal to build a new branch every 18-24 months, thereby investing more in the organization.
Culture is personal to the organization. You have to make it authentic.
Infinity’s current chief risk officer, Sandy Cloutier, was the credit union’s interim CEO before Hayes arrived. As the acting chief executive, Cloutier joined the Maine Credit Union League. Hayes piggybacked on that impulse, hoping to expose the credit union to more industry knowledge and insight. She partnered with several data-focused companies and established a data warehouse.
These were the first steps in a major culture change. Infinity had a top-down culture at the time, and Hayes knew employees needed to feel empowered if the credit union were to succeed in the long term. So, she pitched her vision for Infinity to several well-respected senior employees to earn their trust. She had no designs to build a new culture unilaterally because she knew for a new culture to take hold, everyone must build it.
Culture is personal to the organization, Hayes says. You have to make it authentic.
After going through a rebrand, Infinity FCU’s swear jar kept employees from referring to the credit union as IFCU.
BEST PRACTICE: GET THE BRAND RIGHT
When Infinity rebranded in 2015, it specified new brand guidelines that included saying and spelling Infinity rather than abbreviating IFCU. It also asked employees to donate 25 cents to a swear jar earmarked for charity when they used the initials.
To make Infinity’s culture authentic, senior managers took several months to consider and introduce a vision statement We do banking differently to keep you a step ahead in life. Then, they and other managers brainstormed a set of core values.
Aiming to answer why they were excited to come to work at Infinity every day, the teams wrote words and phrases on sticky notes. Sentiments like We love our job and it shows, We are compassionate, and We care appeared. Notably, the word financial did not.
That’s not how our employees think, Hayes says. It’s about the member’s life.
Today, Infinity displays its core values on posters in branches and offices. And whereas Infinity’s staff work-shopped the credit union’s new vision and core value statements, Hayes did institute a philosophy all her own. Called MOE, which stands for member-organization-employee, it’s a decision-making tool that empowers employees to make tough decisions and do the right thing.
Sometimes a yes’ on a loan decision isn’t always in the member’s best interest, says Caitlin Fields, an assistant branch manager at Infinity. If they run it through MOE, they can justify it and we’re going to have their back.
MOE is a topic of constant conversation within the credit union, and it’s become second nature to run decisions through the filter. Supervisors use MOE to coach front-line staff through complex member decisions, but they never make the call for others.
We empower them by asking what decision they think we should make, says Portland branch manager Rachna Bhatia. We help them get to the decision and provide a sense of support.
BEST PRACTICE: GIVE STAFF THE RIGHT TOOLS
Infinity considers business needs for departments as well as opportunities and gaps in performance. It has a formal, curriculum-based training structure that gives employees access to constant training when and where they need it.
Support is so important at Infinity that each of its branches has a consultation station where branch employees can discuss tough decisions.
Because you don’t always have the answers, it’s nice to discuss with others, Fields says. A few heads are better than one when it comes to helping our members.
Infinity opened its first Portland branch in the summer of 2017.
A Change In The Balance Sheet
MOE has proven an effective tool to support member service. It also provides key decision-makers a lens through which to view loan decisions Infinity wouldn’t have made only a few years ago.
We want to be a traditional credit union, says CFO O’Brien. We’re now making loans. We don’t want to be an investment portfolio.
Buoyed by investments as it was, Infinity cannot simply turn on the lending jets it needs to free up liquidity. To do that, O’Brien will oversee a gradual run-off of the credit union’s investment portfolio, 78% of which matures in five to 10 years, according to data from Callahan Associates.
While Infinity waits for those investments to mature, it is borrowing against the value of its investment portfolio in a transaction called a reverse repurchase agreement, or repo. When compared to raising short-term rates on a CD, for example, a repo is a cheaper way for Infinity to build liquidity. And although not necessarily inexpensive, O’Brien also sees value in opening more checking accounts.
There’s not a lot of money in Maine, the CFO says. The population has been the same for 40 years. Because we’re all fighting over the same pool of members, the key is to get checking.
So, in late 2016, Infinity rolled out High 5 Checking that pays an APY north of 5% for members who carry balances up to $5,000 and make more than 25 debit card transactions per month. But that’s not all. Members that add a $500 direct deposit can get paid two days ahead of their scheduled payday. And Infinity reimburses up to $10 in foreign ATM transaction fees.
You would think their favorite benefit is the rate, but it’s not, says Kathy Guillory, director of marketing. It’s all the other things.
Infinity has nearly 3,000 active High 5 accounts, or nearly one account for every five members. But for it to be a sustainable form of liquidity, O’Brien says the credit union needs to reach the 24,000-member plateau at the same product penetration rate.
On the loan side, Infinity has made big changes as well. Rather than sticking to a black-and-white, policy-based decisioning philosophy, Infinity makes room for shades of gray.
We don’t base our decisions solely on credit score or debt-to-income, says Peter St. Onge, Infinity’s lender development officer. We take a deeper dive into a member’s story before making calculated decisions based on the risk presented.
The result of this shift is twofold. First, Infinity now approves riskier loans. The credit union brought in a representative from the University of Lending to assure the staff was well-trained on how to work with C, D, and E paper borrowers.
It can be a little bit of a shock to make this transition, especially when you’ve been so conservative for so many years, says chief risk officer Cloutier.
Second, Infinity recognized that truly serving more members than any other credit union in the state required a different product mix. So, it has started making more consumer loans and selling its first mortgages.
BEST PRACTICE: FUEL THE ENGINE
Member engagement is essential for credit union success. As such, Infinity is not keen on building a roster of one-off members. We don’t want members who only come to us for an indirect loan, or only a mortgage, or only a checking account, says CEO Liz Hayes. Member participation is the fuel that makes us go.
In the past four years, Infinity has nearly doubled its auto loans without the assistance of indirect lending and increased credit card lending five-fold. First mortgage loan growth, on the other hand, has declined every quarter since the second quarter of 2017 as the credit union now writes loans according to secondary market standards and sells them.
It’s a new strategy that will return measured growth. Consumer loans won’t grow the cooperative’s assets quickly, but they will expand Infinity’s margins and add members. And Infinity will keep its capital ratio stable until it can safely grow faster. The near-term goal is to get to 24,000 members, O’Brien says, although it will be several years before Infinity reaches it. But he, like the rest of Infinity’s senior team, knows the credit union will get there.
We’ve had to safely unwind a balance sheet that was more than 40% investments, O’Brien says. But I have faith in Liz. She’s going to win this game.
This article appeared originally in Credit Union Strategy Performance. Read More Today.