Top-Level Takeaways
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New approaches to lending, expenses and culture have helped this small Ohio-based credit union rebound
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CDFI grants were used to cover the costs associated with hiring new employees to serve consumers with less-than-perfect credit while also bolstering loan-loss allowances
After a run of poor performance, Buckeye State Credit Union ($102 million, Akron, OH), has turned the ship around. The key, explains CEO Michael Abernathy, is embracing the things that make it unapologetically different.
Following years of losses including losing about $2 million in 2014 and 2015 Abernathy was brought in as a lending executive as part of a 2016 staff shake-up and was appointed CEO in 2018. Much of the worst was already in the past by that point, but his task since then has been to ensure things didn’t backslide and even find ways to keep growing.
Multiple factors contributed to Buckeye State’s troubles, including conservative leadership that struggled with expense management, insufficient lending, and overconcentration in a costly indirect auto loan program.
The credit union had already begun pulling back from indirect by the time Abernathy took the helm in 2018, with balances in that category falling by more than 51% from their high point at the end of 2015. That trend continued under Abernathy, and balances at the end of 3Q21 stood at about $7.4 million, compared with more than $34 million in 2015. Because of high concentrations in indirect, Buckeye State’s overall loan balances fell as the credit union reduced its indirect portfolio, but loan growth was on the rise again by the end of 2019. Today its lending portfolio is anchored by mortgages and used car loans, along with a sprinkling of credit cards, new auto loans, and other categories.
The Springboard
Abernathy says Buckeye State’s turnaround was helped by a change in culture, which in the past had been too narrowly focused on A-paper borrowers. Rather than prioritize prime-credit consumers, Buckeye State aims to serve a wide spectrum of the market. That includes an increased emphasis on blue-collar members with less-than-perfect credit, and the credit union uses a variety of data and analytics tools as part of its underwriting. Some of that shift was also the result of implementing certain strategies from the University of Lending program by Rex Johnson, a credit union lending guru who passed away in 2021 and preached the value of looking at more factors than just a member’s credit score.
That’s the key change, says Abernathy. “As we started changing some of the culture and some of our lending practices, that was kind of the springboard that started to shift the momentum.”
Today, Buckeye State serves just over 15,000 members, a 17% reduction compared to a decade ago, but as the credit union has expanded its lending base, the average member relationship has also risen. That figure hovered around the $6,000 mark for much of the first half of the last decade but has risen gradually since 2015 with some minor fluctuations to the just over $10,000 as of 3Q21.
Buckeye State has also taken steps to differentiate itself from the competition by providing a positive and comfortable in-branch experience. Visitors can help themselves to fresh popcorn and cold bottles of water, while in-branch TVs play Hulu Live generally ESPN, HGTV or the like and iPads are on-hand to keep kids busy while they wait on their parents. Member service representatives wear jeans and have a business-casual dress code to help put branch visitors at ease.
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“We want to dress and look and feel like the people we’re working with so the conversations flow more smoothly,” he explains. “We’re trying to drop the guard a little bit. It seems like a lot of small things, but the small things add up.”
An e-branch contact center is also intended to improve the service experience for members who need to contact the credit union but can’t come to a traditional branch. Rather than members having to call a branch four or five times to reach an MSR, the e-branch contact center allows faster responses with the same level of service.
CDFI Status An Engine For Growth
Because the credit union was already serving consumers of modest means, Buckeye State sought out certification in 2017 as a Community Development Financial Institution and has received upwards of $2 million in grants from the CDFI Fund. Those grants have helped the credit union bulk up its staffing to better serve riskier borrowers while also beefing up its allowance for loan losses. Risk-based pricing is in place to account for the possibility that borrowers might become delinquent or default on a loan.
Management has also shifted how it thinks about lending, moving from focusing on simply dollars loaned to an emphasis on how much it saves members in interest a figure that topped $2.7 million last year alone, says Abernathy.
Not surprisingly, Buckeye State’s net worth ratio suffered as loan volumes fell and overall performance suffered. Net worth was well above 10% at the start of the decade but by the end of 2016 had bottomed out at 6.34%, under-capitalized by NCUA standards and in need of a net worth restoration plan. Beginning in 2017, management began working to simultaneously cut costs and generate revenue, including closing a branch. After some substantial increases in allowances for credit losses, those allowances slowed somewhat beginning in 2018. Staffing levels were also kept at 2017 levels for a few years, but have generally been on the rise since the end of 2019.
The goal now, says Abernathy, is to keep growing including some merger activity and a new branch and build on the successes of recent years and lessons it learned in the past few years.
“When you’re a $100 million[-asset] credit union with limited resources, we’re not always going to be better than [the competition] and we certainly don’t want to be less than but one thing we can do is be unapologetically different,” says Abernathy. “We can be different on purpose and stand out to the communities we serve and our members as being a true alternative and being truly different from the banks.”