Firefighters and cops tend to be direct people without a lot of time to spare, and, at least in Boston, they’ve found a financial home that speaks their language.
The brand motto and philosophy at Boston Firefighters Credit Union ($251.3M, Dorchester, MA) is “Simple & Honest Banking.” The fact the state-chartered credit union keeps true to that credo has helped BFCU build a loyal, growing membership.
“We try to simplify financial transactions any way we can,” says Bernie Winne, BFCU’s president and CEO for the past dozen years. “These folks have enough going on in their professional lives. They don’t need to be thinking about financial services more than necessary.”
That philosophy empowers the credit union to adjust its approach to everyday transactions, when called for, as well as during tough times.
For example, BFCU doesn’t expect its members to understand the fine points of loan-to-value lending, but when the recession hollowed out the home values of many of its members, the credit union responded with a five-year ARM intended to keep the member afloat until the market improved enough to refinance at a fixed rate. Such a refi product gave BFCU members access to low rates when other lenders wouldn’t.
That’s just one example.
Every day, members have access to a transactional website that’s plain-spoken, clean, and elegant. For example, when a user clicks on Electronic Access, they get four choices: online banking, mobile and text banking, locations (for ATM availability), and a 24-hour hotline. Plus, the website lists every employee by name so members can reach who they want, when they want.
There’s not a lot of showy interactivity, complex design or bells and whistles.
“They have enough of those in their lives,” Winne says of his membership.
Instead, BFCU does things like use actual members for marketing materials to catch the attention of those it serves.
“We believe using our own members who are happy with the products and services they get from their credit union helps us stay true to who we are,” says Catherine Guerard, a nine-year employee who serves as BFCU’s vice president of member service and business development.
CEO Winne adds, “Our firefighters know their equipment so well they can spot immediately when it’s fake. And they let us know. You’ve got to keep it real.”
Keeping it real has helped BFCU post impressive numbers when it comes to metrics like average share balance and member relationships which were $25,364 and $46,375, respectively, at year’s end.
The credit union’s credit card and first mortgage penetration were also among the highest in the industry, further evidence of its deep engagement with Beantown’s finest.
Two years ago, BFCU added the police to its FOM. And given the natural rivalry that exists between those two departments in most cities, integrating the two groups was not necessarily an easy task.
Winne cites the influence of a new mayor who has helped to change the mindset among public safety employees and the unifying effect of the Boston Marathon bombing emergency response in paving the way for a unanimous vote by the firefighters to let the cops join.
The credit union was up to the task of accommodating the quick growth that followed, and the overall engagement results shows the assimilation has gone well.
“These are not rich people, but our members are well paid,” Winne says. “They handle their finances well, and they do an awful lot with BFCU.”
A SEG-Based Community
BFCU was established in a Boston firehouse in 1948. Its FOM is still narrow: members and families of the Boston fire and police departments and affiliates, Professional Fire Fighters of Massachusetts, the state police, and the Suffolk County Sheriff’s Department.
But according to Winne, remaining a SEG-based credit union during a national wave of community charter conversions has been a differentiator, not a detriment.
“It has given us an inherent advantage over other financial institutions,” the CEO says. “I know some had to convert because of sponsor closings and relocations, but I think others did it because they were following along.”
Instead, BFCU has deepened its relationship with members by staying close to them and responsive to their needs.
For example, when the firefighters’ union and the department settled on a contract that provided retroactive pay that would take months to show up in paychecks, BFCU created a retro loan that gave members immediate access to money in return for a one-time pay back when the retro pay was deposited.
Lending like this builds relationships and reputation, which makes it easier to grow membership. But just like a plain-spoken website, a credit union doesn’t need bells and whistles to attract new members.
If credit unions took a step back and looked at their SEGs, especially the strong and healthy ones, they would see opportunity there, Winne says.
For some of its own recruitment efforts, BFCU sponsors events at the various departments’ locations and sends manager to speak to each new class of the Boston Fire Department, which tends to yield 50 or more new members.
Keep It Simple, Efficient, And Member-Friendly
BFCU’s staff is small and focused. Member-facing staff members handle as much of the product and service lineup as possible, and the lineup itself is geared to make that work.
“We design all of our products to be as simple as possible,” Winne says. “We did our own credit card disclosure to make it as short and understandable as we could. It doesn’t take a lot to understand what we’re doing and how we’re doing it.”
Keeping it simple also helps BFCU make sure there are no surprises in its fee structure. Cathy Boucher, the credit union’s executive vice president, notes the credit union’s fees are generally related to either a service, such as a wire transfer or a stop payment, or to an overdraft.
BFCU’s tiered overdraft protection ranges from no fee at all if the shortage is less than $25 up to $25 for overdrafts of $100 or more. The credit union charges the fee only up to twice in one day and processes transactions in the order they arrive, not by size to maximize overdraft income. If two come in at once, it processes the smaller item first.
“We try to be as benevolent as possible,” Boucher says.
Such an approach can impinge on income potential, but that’s OK. The credit union also pays above-average rates on savings products and charges below-average rates for loans. For revenue, it instead relies on interchange income from its high card penetration and interest income from the unusually large mortgage business it does for a credit union its size.
In fourth quarter 2016, BFCU generated 13.96% of its income from NII sources, compared with 28.35% for all U.S. credit unions, according to data from Callahan & Associates. Its loan income per full-time equivalent employee (FTE), meanwhile, was $263,702, double the average for all U.S. credit unions.
ROA at year-end was a healthy 0.88%, and the credit union is well-capitalized at approximately 11%. An efficiency ratio of 74.64% compares favorably to the national average of 81.06%, and the credit union posted net income of $67,819 per FTE in fourth quarter 2016. That’s twice the national average for all credit unions and more than three times the $20,948 average posted by credit unions in the $250 million to $500 million asset group.
“We’re able to charge lower loan rates and higher savings rates because we maintain low operating expenses,” explains vice president of finance Katie Armstrong. “The efficiency of our member service team and processes allow us to take care of our members with a relatively small staff and only two locations.”
According to CEO Winne, BFCU operates at approximately 2.5% of expenses against average assets. The industry average at year’s end was 3.11%.
“That’s low, but we do that with a business model that makes enough money for us to do well while delivering good fees and prices to members,” he says.
Paybacks to members go beyond savings and loan rates. BFCU has paid an average of $1.5 million in dividends per year, or 0.80% of average member shares, for the past three years.
“Our pricing strategy is two-fold,” Armstrong says. “We regularly monitor market prices to ensure we offer our members the best rates. We also look at our own profitability to ensure we are returning as much of it as possible back to the member.”
Making Mortgages That Matter
One of the strongest indicators of BFCU’s engagement with members is its mortgage business. According to data from Callahan & Associates, BFCU posted a first mortgage loan penetration rate of 5.95% at year’s end, compared with 2.38% and 2.35%, respectively, for the 343 credit unions in its asset-based peer group and all 5,967 U.S. credit unions.
And even though it’s barely in the $250 million to $500 million asset class, its $112.3 million in first mortgages as of fourth quarter 2016 is far higher than its peer group’s $87.1 million average. First mortgages comprised 62.4% of BFCU’s loan portfolio at year’s end, compared with 36.9% for similar-sized credit unions.
Numbers aside, mortgage lending is an area where the credit union’s ability to serve its members stands out.
Boston requires its firefighters and police offers to live within the city for their first 10 years on the job. That’s a costly proposition, especially for those who want to buy a home. For them, BFCU offers a first-time home buyer’s mortgage program that’s similar to a VA loan and is available to the large number of military veterans on the credit union’s member rolls.
“It’s strictly a portfolio loan, and we lend up to 100% of the purchase price,” says vice president of lending Kaitryn Thornton, a 17-year employee of BFCU. Those loans now account for approximately $24 million of the credit union’s $180 million total loan portfolio.
Non-veterans can get a piggyback second mortgage of up to a combined 95% loan-to-value, Thornton says.
This saves them the cost of PMI, which is pretty pricey when we’re talking $500,000 mortgages, she says.
Relationships That Lower Risk
Most lenders rely on traditional FICO measures and Fannie Mae’s decision engine to approve or deny loans. But here, also, BFCU makes exceptions.
“We look beyond credit scores,” Thornton says. “Sometimes a long-time member falls into a financial hardship, and because of their history with us, we do everything we can to help them. That’s where our role as a portfolio lender comes into play.”
The credit union values relationships enough that it stays out of the indirect lending market altogether.
“We like to be in control of all our products, and as a closed SEG credit union, we don’t think indirect lending would be beneficial to us or the dealers,” Thornton says. “Furthermore, setting up a geographically balanced dealer network would be difficult in light of the fact we have a relatively small membership.”
But that small membership pays its bills. BFCU’s delinquency ratio was 0.23% in fourth quarter 2016, compared with the 0.82% average for credit unions in its asset class and 0.83% for all U.S. credit unions.
Net charge-offs, meanwhile, were nearly non-existent 0.05% compared with 0.50% and 0.55%, respectively, for the peer group and the entire industry.
“Our members have a stable income, and they support the credit union,” Thornton says. “We also have a relationship with their payroll department, where their loan payment is taken from their check and applied directly to the loan. We get the money before they do. It’s a win-win.”
Vendor, Vendor, Feet On Fire
A final piece of the cost control/value puzzle at BFCU is managing the multiple third-party services the credit union uses to deliver a full palate of products to its 8,500 members.
That’s not necessarily easy. Given the number of members versus its asset size, the credit union doesn’t generate the sheer number of transactions needed to achieve scale in pricing with many providers.
Callahan’s proprietary Return of the Member index is a measure of member value that relies on loan and savings rates and member service usage to rank credit unions among their peers. BFCU is at the head of the class at 99.74 out of 100 in the quarter ending Dec. 31, 2016.
That’s not by accident.
“We manage to that metric,” Winne says. “ROM scores are in our goals as a management team, and they help determine how we calculate bonuses at the end of the year.”
But the message is not just in the metric.
“We consistently return as much value to members as any credit union in the country,” Winne says. “That happens because we forego a lot of opportunities to make additional money while building relationships and providing members a great deal of value. All while we manage the risk.”
That doesn’t stop Winne. Sometimes size works in his favor, especially when it comes to striking deals based on member numbers.
“You won’t find another $250 million credit union in the country that pays core processing costs as low as us,” the veteran credit union manager says.
Of course, most credit unions that size have 25,000 members, not 8,500, he points out. But small can still be mighty.
“You have to hold vendors’ feet to the fire,” Winne says. “And make sure nothing renews under an evergreen clause.”
In fact, BFCU is not renewing its current core contract at all. It’s staying on a Fiserv platform and moving in October from a hosted CUnify platform direct from the company to a DNA system hosted by COCC in Connecticut.
“We haven’t had the most efficient mix of technology delivery relationships over the past few years,” Winne says. “Now we’re going to get most of it delivered by a team that we’ll have a great relationship with as our problem-solvers.”
That relationship will include integration of home and mobile banking and debit processing with a more seamless look and feel. Keeping up is important, Winne says.
“If you’re going to run with a lean branch network, you’ve got to provide electronics that people are looking for,” the CEO says. “We’re not on the bleeding edge, but we’re also not on the trailing edge.”
It’s not just BFCU’s branch network that is lean. The credit union’s entire internal IT department consists of one person. That makes effective outsourcing critical from both operational and compliance perspectives, says John Maguire, the 28-year employee who spent 12 years as vice president of lending before becoming vice president of IT. But there are also opportunities in a trim staffing strategy.
Working with mostly third-party vendors for our IT services gives us networking opportunities and subject matter experts to help us keep up with industry changes, Maguire says.
The current lineup of digital banking products Maguire oversees includes mobile bill pay, deposits, and credit and debit card control as well as the digital wallets from Apple, Samsung, and Android.
“Our apps are continually upgraded,” Maguire says. “And we’re always looking for new products that will allow us to better meet the needs of our members.”
That’s just a couple of new ways Boston Firefighters Credit Union provides Simple and Honest Banking as it builds on a tradition of providing direct, affordable service to those who serve the people in one of America’s oldest, most historic cities.
This is part of the “Anatomy Of A Credit Union” series, presented every quarter by Callahan & Associates. Read more about Boston Firefighters Credit Union or dive into a decade of archives. Contact Callahan to learn about gaining access today.