According to the report, 70% of American households are financially unhealthy. What’s more, finances are getting worse for many.

The need for community development financial institutions has perhaps never been greater. CDFI certification enables credit unions serving vulnerable populations to tap into special federal funding to address needs like affordable housing, small business financing, financial literacy, and more.

Same Credit Union, Higher Gear

Karen Madry, president and CEO of Afena Federal Credit Union ($98.3M, Marion, IN) knows all about surviving hardship. Raised by a single mother in Chicago, Madry grew up experiencing economic instability. That firsthand understanding has made her a fierce advocate for the financially vulnerable today.

“I’m no stranger to the school of hard knocks,” the CEO says. “I made a lot of mistakes. I filed bankruptcy. I wanted to take the things I learned along the way and pour them into the community to help people avoid some of those pitfalls.”

Afena serves a mostly rural population, with places like Grant County, IN, recording a 19.3% poverty rate. Major stressors for residents include housing, childcare, and transportation costs. These areas of need, combined with Madry’s background, highlighted where grant funds could make the biggest impact.

In 2022, Afena received a FA grant in the amount of $590,000.

“This grant was easy to implement because it was already a part of our DNA,” Madry says. “It was doing what we normally do, only we were able to kick it into high gear. We focused on single parents and on empowering women by helping them become financially sound through education and coaching. We also noticed a lot of grandparents raising their grandchildren out of necessity while on social security. They can barely take care of themselves, so how can we help them?”

It’s not an understatement to say Afena has changed lives.

In just one example, the credit union refinanced the auto loan of a mother struggling with transportation to make the payment fit within the family’s budget with enough leftover to purchase new tires for the winter.

“That was so exciting to her,” says Shelby Schuh, vice president of marketing at Afena. “She was grateful there was some place that would help her.”

Take The Money And Run

Ft. Randall Federal Credit Union ($40.4M, Wagner, SD) was awarded a $3.7 million Equitable Recovery Program grant in April 2023. The grant helps CDFIs expand lending and investment activities as well as increase organizational capacity through new technology, staff, and other tools.

FRFCU has used the grant to broaden its services and improve its loan portfolio.

“The funding allows us to help more people,” says president and CEO Julie Thomson. “We’ve taken it and run.”

In the cluster of six counties FRFCU serves in southeast South Dakota, the average poverty rate sits at 11.8%. That number grows to as high as 48.6% for Native American tribal lands, such as the Yankton Reservation near the credit union’s headquarters.

CDFI grant funding has helped FRFCU expand and enhance its offerings for those struggling the most, leading to continuous growth in new membership among Native American and Spanish-speaking individuals.

“This year we’ve been able to work with several Native American members to improve their credit so they could get a better interest rate and get into their own homes,” Thomson says. “Last month we opened 35 new accounts.”

The funds have also helped address another challenge: a lack of financial education. All staff members at Ft. Randall have completed HERO Counseling to become certified as community development financial counselors. That’s an important component of providing full-service finances.

“We touch on all the basics such as reminding members they need full coverage insurance,” Thomson says. “But sometimes we forget they don’t even understand what full coverage insurance is.”

As a part of its commitment to its community, Ft. Randall also has introduce Banzai, an interactive financial education platform, into eight area schools.

Weighing Risk With Reward

When comparing third quarter data from 2023 to 2024, both credit unions reported growth in multiple areas.

At Afena, loans grew 6.7%, membership grew 4.2%, and net income increased 233.3%.

Madry says grant funding helped the credit union make changes in its approach to unsecured lending and customer service. Before Madry became CEO, Afena did not approve loans higher than $10,000, and even that required perfect credit.

“We’ve come a long way in changing how we measure risk,” Madry says. “That comes from a lot of training — not judging a person based on a credit score or an income but listening to their story. We pride ourselves on understanding where a person has been.”

Now, loan officers spend as much as an hour and a half with members to ensure solutions meet an individual’s specific financial situation.

“About 40% of our loans are hitting families that are considered low to moderate income, Madry says. “Not all of them get funded, but we are saying yes to approximately 80% of the loans we see.”

At FRFCU, loans grew 13.08%, membership grew 9.17%, and net income increased 1,155.64% in the past year.

Much like Afena, FRFCU has used CDFI grant funds to take on riskier loans — particularly auto loans. Because the credit union serves a remote area, many members face long commutes and need reliable transportation to remain employed.

“We used to never finance more than 100% of the vehicle,” Thomson says. “Based on their credit score, there were some cases we would only finance 75%. Now we finance 100% or 105%.”

PSSST, Pass It On

According to Thomson, FRFCU has promoted changes primarily through word-of-mouth —  especially among the local Native American population. According to a Nielsen survey, 92% of people trust recommendations from friends and family more than other forms of advertising. FRFCU’s approach creates a powerful ripple effect capable of breaking through the noise.

“It amazes me when I see the numbers,” Thomson says. “They’re growing and growing and growing. How is this happening? What are other financial institutions doing to these people that they’re getting upset and wanting to leave? What do I need to be marketing?”

Word has spread similarly for Afena. Madry says this is largely because of its reputation for saying yes when many others say no.

“We do empathy training with our staff, so we have been able to secure a level of trust with a lot of the nonprofit organizations in our community that I think others have not,” Madry explains.

Afena partners with multiple organizations that are focused on helping the same demographics the credit union prioritizes, including low-income families, domestic violence survivors, and people of color. The credit union even has relationships with area banks.

“Banks started calling us and saying, ‘I have a customer I can’t help. Is it OK if I send them to you?’” Madry says. “We love what we do. We love having the opportunity to serve our community. We feel very blessed.”

Thomson at FRFCU echoes Madry’s enthusiasm for going down the CDFI path … with one caveat.

“It was a little overwhelming — I’m not going to say it wasn’t,” the CEO says. “But at the same time, there’s a lot of need and this can help you grow. Do it!”

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Top-Level Takeaways

• Co-locations diversify branch networks and can attract community members to a branch for reasons completely unrelated to banking.
• The collaborations provide opportunities for credit unions to align themselves with unlikely partners, and some arrangements provide non-interest income streams.

Co-location strategies in which credit unions share space with another business often completely unrelated to financial services have become more popular in recent years. As credit unions continue to rethink their brick-and-mortar networks, two institutions share how their partnerships with local coffee shops have helped perk up their branching models.

Bean Counters

Pam Brown-Graff, CEO of Med5 Federal Credit Union ($110.3M, Rapid City, SD), had long planned a co-location strategy, so when she brought the business case for branch expansion to the credit union’s board, she offered a vision that had been percolating for many years.

“I always knew our next branch would involve a coffee shop under a co-location and co-branding arrangement,” she says. “You can’t be a financial institution with your finger on the pulse of your membership without seeing how much your members spend in the coffee industry alone.”

Brown-Graff dug in with her research on coffee, looking into everything from sourcing and roasting beans to the operating model needed to run a coffee shop. Her plan was to build a coffee shop from the ground up rather than partner with an established shop or major national coffee retailer. Her board unanimously approved her concept and authorized the funding to get the new enterprise off the ground. In her final comments to the board, she said, We’ll call it The Bean Counter, a playful nod to a stereotype associated with financial institutions.

From the beginning, Med5 designed the new branch with the intention of benefiting the Rapid City community throughout the process as well as in the final product. Local contractors many of whom were Med5 members built the branch, and Brown-Graff collaborated with an architect on the building’s design, features, and flow. She met with local business leaders, nonprofit charitable foundations, and regulatory officials to promote the concept and gain the required permits. She sourced the coffee beans and found a local roaster before hiring a general manager who she sent to barista school to better learn the coffee trade.

The facility opened in 2019, and one of the most popular features has been a lower-level conference room used by local groups for everything from business networking to book and sewing clubs, training for nurses, meeting places for teachers and retiree groups, and more. The room is nearly always in use, and there is no charge to use it, although groups must make bookings in advance.

“We became friends of the community before we moved a shovelful of dirt,” Brown-Graff says.

Today, a credit union committee redistributes the Bean Counter’s profits to deserving nonprofits in the area. And a Med5 debit rewards program gives members a 10% discount, along with rewards points that are trackable and redeemable through an app. Thanks to drive-thru windows, members can do their banking and get their java without leaving the car.

Since the new branch opened, Med5’s assets have grown from $70 million to $100 million, much of which Brown-Graff attributes to heightened awareness of Med5’s mission in Rapid City. Not even the pandemic slowed its growth. Drive-thru service enabled the credit union to continue serving members without missing a beat even during the worst months of the pandemic.

Perfect Timing

When Canopy Credit Union ($202.7M, Spokane, WA) wanted to expand, it had already decided to lease about half of the new branch to a co-location partner. Charlotte Nemec, Canopy’s president and CEO since 2018, knew she wanted to increase the efficiency of the branches as well as attract younger members. The credit union acquired a building in an ideal location but scrapped its initial renovation plans in favor of a complete rebuild that leveraged the original foundation. During construction, the credit union signed a coffee partner to a lease, but the selected partner determined later it was not yet ready to expand.

Ladder Coffee Roasters, another established Spokane coffee shop, noticed Canopy’s social media posts about seeking a coffee partner. Ladder’s owner, Aaron Rivkin, reached out, andby the time the two connected, Ladder had opened a bustling retail location and was looking for a second.

“Aaron and Ladder were precisely what we were looking for,” Nemec says. “I loved their story. It fit who Canopy was all about and the timing was perfect.”

Canopy moved into the new building in September 2019, with Ladder following three months later. Along with the coffee shop inside, Canopy brought in ITMs to provide a high level of service within a small branch. High-top tables give members a place to sit or stand while they wait to meet with credit union staffers, two or three of which are on-site to help with account and lending needs.

With the pandemic beginning just six months after the new location opened, the decision to outfit the branch with ITMs proved particularly well-timed as many institutions moved to limit branch access.

“When COVID hit we were able to continue serving via our drive-thru at all branches and keep our tellers socially distanced,” Nemec says. “We did close the lobbies for a bit but were also able to re-open our lobbies sooner than we would have if we hadn’t had the ITM model. Ladder closed for a short time but reopened with limited hours at Canopy locations, equipped with drive-thru service.”

Ladder has a lease with the credit union for space at two different branches and pays rent to use the facility, generating non-interest income for Canopy. The credit union did not provide details of that arrangement.

Although Canopy was looking to differentiate itself within its market, it never lost sight of the industry’s people-helping-people ethos.

“We well understood our coffee competition was fierce,” Nemec says. “We wanted to focus on and reinforce why credit unions were created in the first place, which was to serve people of modest means.”

As part of that mission, Canopy became the Spokane region’s only CDFI-designated credit union.

The formula has proven a success. Since the branch opened, membership, lending, and checking account penetration are all on the rise. “More importantly,” says Nemec, “there is a heightened awareness in Spokane about what credit unions stand for and how they contribute to the fabric of a community.”

Nemec says the partnership between Canopy and Ladder shows bigger isn’t always better, and even the smallest credit unions can still make a major impact in the communities they serve.

“We punch above our weight class,” she says, noting that Canopy is helping local nonprofits improve how they serve the community as well as offering its own employees paid time off to give back to the community.

“When people in the communities of Spokane and Pend Oreille need a loan,” the CEO says, “they are more likely now to remember the credit union with the coffee shop.”

The post Just Add Coffee: How 2 Credit Unions Are Rethinking Branching appeared first on CreditUnions.com.

The Pine Ridge Reservation is a true bank desert. The nearest bank, Security First, is 40 miles away from the center of the reservation in Martin, SD. First National in Gordon, NE, is 50 miles away. And except for a mobile banking van from Security First that made the rounds in parking lots across a few communities, Pine Ridge had never had a federally insured financial institution until Lakota Federal Credit Union ($4.1M, Kyle, SD) opened its doors in 2013.

CU QUICK FACTS

lakota FCU
Data as of 03.31.16

• HQ: Kyle, SD
• ASSETS: $4.1M
• MEMBERS: 2,402
• BRANCHES: 1
• 12-MO SHARE GROWTH: -22..08%
• 12-MO LOAN GROWTH: 10.81%
• ROA: 2.52%

The lack of access to banking services and poverty conditions for Oglala Sioux tribal members had created a mostly cash and prepaid card economy. In fact, a 2012 study found that 60% of residents on the reservation were unbanked.

Today, Lakota FCU has attracted nearly 2,500 members and made more than $2.5 million in loans. Most telling are statistics from a member survey in 2015, which found 31.37% of members had opened a savings account for the first time in their lives and 30.39% were saving more money.

We have a matched savings account for kindergartners and first-graders in which Lakota Funds matches deposits 3-to-1 through eighth grade for educational expenses, says Tawney Brunsch, executive director of Lakota Funds, a community development organization that promotes socio-economic sustainability,and chairman of the board of Lakota FCU. We really get to see the impact. The kindergartner comes in to open his or her first savings, which is no surprise, but it’s also a first account for the mother and maybe even the unci, the grandma, is opening her first account. This is about the individual, but it’s also about the bigger impact on the economy, and that’s exactly what we wanted.

In conjunction with National Financial Literacy month in April, Lakota FCU introduced the Rolling Rez, a mobile banking van painted with colorful Native American art that offers a full range of services to residents, including check cashing, account opening, and loan applications.

Lakota FCU’s Rolling Rez brings a full range of services to residents, including check cashing, account opening, and loan applications. The vehicle also offers workshops related to financial management.

The credit union has been swamped since it opened its doors, and Brunsch expects membership to continue to increase as services are expanded across the reservation.

We’re seeing people increase their savings and not having to get title loans, she says. They’re spending less on gas.

Bank Deserts On The Rise

The community served by Lakota FCU poses daunting challenges in terms of distances and getting the word out to potential members, but banking deserts in the United States occur in both rural and urban areas.

In the study Banking the Unbanked: Bank Deserts in the United States, authors Russell D. Kashian, Ran Tao, and Claudia Perez-Valdez of the University of Wisconsin, Whitewater, define a bank desert as an area that has fewer than .02 branches per 1,000 in population. Using postal ZIP code data, the researchers identified 350 urban and 650 rural bank deserts. Those numbers are growing and disproportionally affecting minority populations.

The growing inequality and lack of economic opportunities our country is experiencing has resulted in millions of people becoming disfranchised from the financial mainstream, says Pablo DeFilippi, vice president of membership and business development for the National Federation of Community Development Credit Unions. When a bank closes a branch, there’s an obligation to those communities, and some banks ought to be more responsive to supporting a credit union that’s willing to step in.

DeFilippi has personal experience with bank deserts. Prior to working for the federation, he served as CEO of the Lower East Side People’s FCU ($45.4M, New York, NY), which was established as a result of a Community Reinvestment Act (CRA) challenge to the closure of the last bank branch serving that community.

CRA encourages banks to rebuild and revitalize communities through sound lending and access to services. Stepping in to fill the gap, Lower East Side People’s FCU has helped more than 8,000 mostly Hispanic members access credit, establish savings, and build wealth.

The federation helps low- and moderate-income people and communities achieve financial independence through credit unions. A big responsibility facing all credits unions, DeFilippi says, is finding ways to serve communities that banks have abandoned.

Credit unions that have adapted their business model to meet the needs of low- and middle-income consumers and have modified their underwriting and collection processes to extend loans to these populations are doing well financially, DeFilippi says. More importantly, they’re doing good in these communities.

It Takes a Federally Funded Village

In South Dakota, Brunsch says Lakota FCU would not be here today without help from the government and the surrounding community, including three credit unions in the region, Black Hills Federal Credit Unio ($1.1B, Rapid City, SD), Highmark Federal Credit Union ($109.4M, Rapid City, SD), and Sentinel Federal Credit Union ($107.29M, Box Elder, SD), which committed to being the new credit union’s first depositors.

The U.S. Department of the Treasury also played a major role through its Community Development Financial Institutions (CDFI) Fund.

Last year, Lakota FCU received $750,000 from the Native American CDFI Assistance Program, created by Congress in 1992 to increase access to credit, capital, and financial services to Native Communities. Treasury grants covered startup costs and staff salaries for the credit union’s four employees.

We wouldn’t have been able to get it off the ground without this support, Brunsch says.

Having a credit union on the Pine Ridge Reservation has always been a dream for Brunsch. She spent eight years working at Black Hills FCU covering almost every position, including branch manager, before taking over the reins at Lakota Funds.

I’m a big believer in credit unions and the fact that they’re member-owned, Brunsch says. You can see the power of credit unions and how they can change lives.

Tawney Brunsch, Board Chair, Lakota FCU

Lakota Funds, founded more than 30 years ago, is one of the oldest Native American CDFI-funded entities, focused on business development, employment, and training on the reservation. Lakota Fund’s loan portfolio exceeds $7 million, with a maximum loan size of $300,000. Since 1986, it has helped thousands of artists and aspiring entrepreneurs, created more than 1,400 permanent jobs, and helped establish hundreds of businesses.

Lakota Funds, however, cannot accept deposits or make auto loans, so a significant amount of money was leaving the reservation every month. Tribal elders approached Lokota Funds regarding the March 1, 2013, deadline when all Social Security checks and other federal benefits were to be distributed electronically only. They feared unbanked tribal members would stop receiving their checks.

Demonstrating The Need

Lakota Funds pledged its support, including free office space for the new credit union in the Lakota Trade Center, but Brunsch says NCUA officials had a difficult time seeing beyond the major challenges to the opportunity the application presented.

We’re seeing people increase their savings and not having to get title loans.

The reservation is located in the nation’s third-poorest county, and average annual income is well below the national average, so the NCUA questioned the demand for loans. Brunsch had to convince a representative to visit the reservation to witness firsthand the area’s poor access to financial services.

It wasn’t until he saw how remote we are that he understood the need for a credit union, Brunsch says. There are no city blocks. There isn’t ATM access in every community, and the communities are 50 miles apart.

Lakota FCU received its charter from the NCUA on Aug. 29, 2012, and conducted a soft launch less than three months later. The credit union offers savings, secured loans up to $50,000, unsecured term loans, and lines of credit up to $5,000.

We’ll take any type of collateral, including a horse trailer or a four-wheeler, Brunsch says.

So far, 12% of members have purchased new vehicles with Lakota FCU loans.

Next Steps

In addition to increasing banking services in its communities through the Rolling Rez, Lakota FCU plans to offer checking accounts. The credit union already offers online banking and members use pre-paid debit cards for most transactions. Checking and debit cards will give members access to thousands of shared-branch ATMs, extending the reach of Lakota FCU.

Two telling statistics about Lakota FCU: It has virtually no debt, so its ROA was 2.5% as of first quarter 2016, and even though it’s in one of the poorest areas of the country, delinquent loans account for only 4.2% of the total portfolio. That’s not so bad when compared to the 1.9% average reported by all credit unions with $2 million to $5 million in assets.

Our members are people who save and who repay, and I attribute that to relationships, Brunsch says. They understand the $5 to open their account reflects their ownership in this credit union. Our whole staff is from here. We know everybody, so it’s a very user-friendly environment.

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The post The Role Of Lakota Federal Credit Union In A Banking Desert appeared first on CreditUnions.com.

What Is ROM?

ROM goes beyond traditional safety and soundness issues covered by CAMEL scoring to instead assess member value.

Learn morE ABOUT ROM

For credit unions, which typically offer better rates, fees and service than for-profit financial institutions, members recognize benefits in proportion to the extent of their financial transactions and general usage, says the Cornerstone Credit Union League on its website.

But how do credit unions measure the benefit of their membership?

Enter ROM, a comprehensive metric designed by Callahan & Associates that uses savings, lending, and product usage to quantify member value and assign a score to every credit union in the United States. Credit unions across the country use their ROM score to set member-facing goals and hold staff accountable to better serve members.

The interactive graphic below shows the top ROM leader in every state. Filter the view by state, ROM score, and credit union name. Click here to learn more about ROM calculation.

The post Which Credit Union In Every State Returns The Most Value To Members? appeared first on CreditUnions.com.