Banking On Values In A Crowded Montana Market

Clearwater Credit Union is growing rapidly by embracing values-based banking and characteristics of life unique to Big Sky Country.

High in the Rocky Mountains of Montana sits of one of nature’s rarest hydrologic features: Triple Divide Peak, where clear glacial waters flow down the summit to feed streams and rivers in three directions, eventually reaching the Atlantic Ocean, Pacific Ocean, and Hudson Bay.

Clearwater Credit Union ($899.0M, Missoula, MT) takes its name from the pristine waters that crisscross the state. Like a swelling river, Clearwater has expanded from three counties to 20 across the western side of the state during the past decade and has become one of the nation’s top-performing credit unions by nearly every performance metric.

Since 2013, Clearwater’s assets have more than doubled, rising from $383 million to $899 million, and the credit union projects it will reach $1 billion in 2023. Over the past few years, the credit union expanded its charter, underwent a name change, became the state’s largest Community Development Financial Institution (CDFI), completed a core systems transformation, and dramatically expanded its lending program.

Jack Lawson
Jack Lawson, president and CEO of Clearwater Credit Union

CEO Jack Lawson attributes Clearwater’s success to the credit union’s move to values-based banking in 2017. Clearwater’s strategy is to rise above the competition in the crowded Montana market with a strong commitment to environmental protection, financial inclusion, member centricity, and full transparency.

“Montana is not under banked,” Lawson says. “There are [45] other good credit unions operating in the state and a lot of good locally owned and regionally owned community banks. It’s a competitive environment. We win on values-based banking, while staying competitive on price. That and the ability to assemble good teams are what’s delivering our success today.”

Montana is not under banked, Lawson says. There are [45] other good credit unions operating in the state and a lot of good locally owned and regionally owned community banks. It’s a competitive environment. We win on values-based banking, while staying competitive on price.

Jack Lawson, president and CEO, Clearwater Credit Union

Just how competitive is the Montana market? By Clearwater’s own estimates, there’s one financial institution for every 32,000 people nationwide. In Montana, the fourth-largest state in terms of land area but with 1.1 million people among the smallest in terms of population, that ratio is one institution for every 12,790 residents.

Clearwater’s transformation to values-based banking has been a journey, much like Lawson’s professional career. He initially focused on biology and environmental studies at the University of Vermont before attaining a master’s degree in development economics at the University of London.

Lawson was working on a doctorate in economics at The New School for Social Research in New York City when he stumbled into an opportunity to help organize a small credit union serving predominantly low-income Spanish-speaking immigrants. That institution ultimately became Brooklyn Cooperative FCU ($55.6M, Brooklyn, NY), and after a decade as the founding CEO, Lawson moved on to Self-Help Federal Credit Union ($1.8B, Durham, NC). Coming aboard there in 2008 as chief operating officer and working out of Self-Help’s California offices, Lawson joined at a pivotal time, given how the Great Recession impacted the California market.

“Five years into that, I got hungry to be a CEO again,” Lawson says. “I was eager to get back to strategic and outward-facing work, so I started hunting around the country. Luckily, I landed the job at Missoula.”

According to Lawson, Missoula Federal Credit Union, now Clearwater, had a strong board, a brand with nearly full penetration in the Missoula market, and a reputation as a highly engaged, good corporate citizen. But the credit union had room to improve.

“We lacked a clear sense of strategic purpose, and our lending engines were broken,” he says. “We weren’t lending effectively. We had come out of the Great Recession later than many communities and later than most financial institutions. We needed new thinking about the way we led teams on pricing, underwriting, marketing, goal setting, and performance metrics.”

Since then, the lending program mortgage lending in particular has turned around. Clearwater’s loan-to-asset ratio has moved from 32% in 2013 to more than 60% today, even with the credit union selling approximately 40% of the mortgages it originates to the secondary market.

“It’s still not where we need to be, but it’s much better,” the CEO says.

Leslie Halligan, who joined the credit union’s board of directors in 1991 when the institution had just $83 million in assets, has witnessed dramatic changes at the cooperative.

“When I first started, the credit union was almost like a savings and loan a credit union where people came to get a car loan,” says Halligan, a circuit court judge and former prosecutor and district attorney. “Then we started to bring in more services to work toward being a full-service financial institution. The board is proud of the performance of the credit union, which has allowed us to continue to expand services and support the membership.”

Over the years, the credit union has lost many battles for high-net worth depositors to banks; however, it has filled an important role of supporting low- to moderate-income members.

Consequently, the credit union built a strong reputation of community impact. According to Halligan, two major changes brought greater focus to that mission: bringing in Lawson to replace a retiring CEO and adopting the principles of values-based banking in 2017.

As CEO, Lawson tackled CDFI certification and led the rebranding from Missoula Federal Credit Union to Clearwater Credit Union (which included the conscious decision to drop Federal from the branding, although it retains a federal charter). All of those developments came at a time when the state’s economy was shifting from industries such as logging, mining, and agriculture to tourism and outdoor recreation.

“Montana folks are fiercely independent, but they’re also interested in the environment, interested in communities, interested in the growth of families, and interested in the success of individuals,” Halligan says. “Values-based banking fits well with those our core values.”

In 2017, Clearwater became the second U.S. credit union behind Vermont State Employees Credit Union to join the Global Alliance for Banking on Values (GABV), an international network of forward-thinking financial institutions that collectively serves more than 50 million customers.

At Clearwater, the values-based approach revolves around five principles:

  • Member-centered
  • Long-term resiliency
  • Local economy
  • Social and environmental impact
  • Transparency

Since transitioning to values-based banking, Clearwater’s accomplishments to date include achieving carbon neutrality in its business operations, attaining a member growth rate of 4.3% in 2021, and donating 5% of its net income to charities, with $755,530 going to 151 nonprofit organizations in 2021.

“We set metrics under each of the principles of values-based banking,” Lawson says. “That is what our board holds us accountable to. It helps us drive forward to demonstrate a deeper commitment to values-based banking.”

Transparency to its 55,000 members is a key pillar of values-based banking, the CEO adds. Clearwater shares its five-year strategic plan along with overall compensation data on its website.

“We serve pretty detailed compensation metrics that help describe how we pay our workers, how women and men are paid differently or similarly in the same job classes, and the distance between the lowest- and highest-paid person in the organization,” Lawson says. “We also publish detailed environmental-impact statements that describe solid waste production, water consumption, and greenhouse gas emissions from our business operations as well as from our balance sheet. Those transparency initiatives are important to deliver impact and hold ourselves accountable to measuring and sharing where we’re succeeding and where we’re not.”

Values-Based Operations

Values-based banking principles are evident in the way Clearwater interacts with members in its eight branches, giving impetus to long-considered improvements such as universal associates, more inviting open floor plans, and interactive teller machines in the drive-thrus.

“We got rid of teller lines completely,” says Clint Summers, chief operations officer at Clearwater. “If somebody needs to come in and do a quick cash transaction, they have access to our universal associates. It’s more like we’re working through it together. We built toward this hip-to-hip model of sitting down next to people versus sitting behind a barrier. This allows people to feel more welcome.”

Clearwater’s open floor model, so far implemented at three branches, was partially inspired by branches in Germany. Meagan Kraft, Clearwater’s senior vice president of operations, was attending a GABV Leadership Academy in Berlin and snapped a few photos of open lobby. An architect worked with Clearwater’s team in Montana to design a new branch with a pod-style floor plan.

The efficiencies it creates are huge, Kraft says. “We don’t need giant branches to provide service to our members. The new layout with the pods allows members to get help sitting on a couch while they’re having a cup of coffee.”

Clearwater’s philosophy for branches is to never put a screen between an employee and a member who steps inside for service. For members who don’t want to step inside, the credit union is implementing a new online banking system. Glia, next-generation digital-communication platform, will enable contact center staff to interact with members via web, mobile, chat, email, co-browsing, and two-way video. It also provides seamless transfer to others.

Three years ago, the credit union replaced its core banking system with Corelation’s Keystone, which enabled numerous improvements that support member services. One key enhancement, Summers says, is the ability to automatically trigger surveys with members when they open or close an account or make changes to services or loans. Clearwater’s response rate to those is approximately 10%.

“We’re getting those notifications almost immediately so we can reach out,” Summers says. “That’s usually me or the senior vice president of operations. We’re looking at how to connect with those people immediately.”

Rethinking Consumer Lending

Consumer lending is another area of the credit union that has been growing rapidly, partly because of the focus on values-based banking, says Bill St. John, senior vice president of consumer banking.
Business for term loans, auto loans, and solar loans nearly doubled from $48 million in 2015 to $87 million in 2021, and the credit union is on track to reach $100 million in 2022. Unlike other financial institutions, Clearwater doesn’t rely on computer-based auto-decisioning to underwrite loans.

“This allows us to be more responsive to a variety of different levels of credit borrowers,” St. John says. “All of our lenders know how to look at credit, collateral, capacity, and character to see what makes sense for the credit union and what makes sense for the member.”

To address the needs of low- to moderate-income borrowers, Clearwater has introduced a variety of innovative programs, from a payday lending alternative to non-prime auto loans. Launched in January 2021, Auto Boost targets borrowers with no credit score or credit scores lower than 620 with loans in the 10% to 15% interest rate range. Recognizing that most of these borrowers are unlikely to walk into a branch, the credit union reached out to a half-dozen independent auto dealerships to spread the word about the new program. To date, Clearwater has made 63 non-prime loans with few delinquencies and no charge-offs.

Clearwater’s new Brooks Branch in Missoula features an open-floor design, drive-thru ITMs, couches, and coffee stations.

“We verify income and we have some other special qualifiers, but for the most part, we’re saying if they don’t have any auto charge-offs and no bankruptcies within the past two years, we don’t care how low their credit score is,” St. John says. “If they have the ability to repay and they’re putting some cash down on it so they have skin in the game, then let’s make some auto loans.”

According to St. John, the credit union has loaned slightly more than $400,000 through its Auto Boost program, but that represents 63 people who might not have been able to get an auto loan or would have paid a higher interest rate.

Similarly, the credit union targets members struggling with repetitive overdraft fees with its Overdraft Sweep program. Started in 2017, the program treats overdrafts as short-term loans rather than fee opportunities. To date, overdraft loans have saved members more than $1 million in fees.

Clearwater sees these values-based initiatives as a competitive advantage in the crowded marketplace.
“Everyone says, Come see us, we’re local,'” St. John says. “We were saying the same thing as everybody else. Now, we are still local, but we talk about values as our differentiator.”

Looking Ahead

Looking ahead in the face of rising interest rates and a slowing economy, Clearwater is actively preparing its balance sheets for continued growth with an infusion of secondary capital. Recent growth spurts diluted the credit union’s net worth ratio from 11% in 2019 to 9% in 2020.

In response, Clearwater in 2021 was among less than 2% of the nation’s credit unions to receive secondary capital from the Emergency Capital Investment Fund administered by the Treasury Department. The credit union is implementing $16.8 million of that secondary capital in 2022 and expects to return Clearwater’s net worth ratio to above 12% so it can continue as a well-capitalized institution.

“From a net worth standpoint, it will allow us to expand and take on additional risk, and continue lending in those different markets,” says John DeGroot, chief financial officer at Clearwater.

This infusion of capital, plus other activities, should position Clearwater to meet new challenges, Lawson says.

“We have to continue to grow the credit union, we have to continue to recruit and retain the best people in the market, we need to continue to lend effectively, and we need to continue to differentiate along values-based banking lines,” the CEO says. “We need to get better at that year in and year out. I see a lot of hard work ahead of us, but I see a tremendous amount of opportunity and exciting work as well.”

This is part of the “Anatomy Of A Credit Union” series, presented every quarter by Callahan & Associates. Read more about Clearwater or dive into a decade of archives. Contact Callahan to learn about gaining access today.

August 8, 2022

Keep Reading

View all posts in:
More on: