A ROCK IN THE STORM
The Winds and Waves of Tough Economic Times Test Everyone's Mettle.
Michigan Credit Unions are Passing that Test in Impressive Fashion.
What to say about Michigan’s economy? Employment sharply down, foreclosures sharply up, state and local government struggling to pay their bills, a steady trickle of emigrants — particularly the young — seeking jobs and opportunity elsewhere. In describing the current economic climate, the storm metaphor is certainly fitting, as Michiganians struggle and brace themselves in the face of some pretty cruel winds and waves.
No Michigan citizen, business or organization is immune from the effects of a sour economy, credit unions included. And yet, some definitely fare better than others. While many ships share the fate of the Edmund Fitzgerald, others emerge from the tempest like Forrest Gump’s shrimp boat Jenny — safe, intact and prospering.
The available data show that Michigan credit unions, as a group, belong in the latter category. In 2007, in the midst of the bleakest local economy in a quarter century, Michigan credit unions finished the year with a net worth of 12.6 percent — actually besting the national average of 11.44 percent.
Michigan credit union net income, as measured in Return On Assets (ROA), was a solid 0.55 percent, compared to the national average of 0.65 percent. Michigan’s loan-to-share ratio in 2007 stood at a very respectable 77.75 percent.
The Great Lakes State’s high unemployment and the loss of so many high-paying jobs would logically be expected to show up in a rash of non-performing loans in 2007. And yet, Michigan credit unions had a delinquency rate in 2007 of just 0.88 percent.
These numbers are a testimonial to the skill, foresight and prudence of Michigan credit union professionals and volunteers — and the timeless value of the credit union philosophy and principles. Perhaps, too, given the deep and frequent cycles in Michigan’s economy over many years, Michiganians have more experience and savvy when dealing with downturns in the economy. Whatever the reason, it is good to know that Michigan’s credit union movement remains a rock in the ongoing storm.
One credit union that has managed to hold its own against the recessionary storm is NuUnion CU (LN), formerly State Emp. CU. One of the state’s largest credit unions with assets of $794.8 million at year-end 2007, NuUnion has continued to show strength despite the negative impact that the state’s ongoing fiscal problems have had on its core membership, state government employees.
There’s no mysterious process at work, according to President/CEO Stephen Winninger — just basic prudence and foresight.
“I don’t think there’s any secret involved in getting through difficult times,” Winninger says. “It’s really just common sense. We saw some of this coming several years ago, and began positioning the credit union then. Of course, it’s been a tougher ride than we originally thought and we’ve had to further refine some of our strategies.”
Long before the Michigan recession began, NuUnion tightened up its loan standards and reined in its expenses as the economy began showing signs of deteriorating. The credit union also made the prudent decision to avoid the sub-prime lending market completely. As a result, when the storm arrived in force, NuUnion was ready.
“The situation we faced might have demoralized some, but I think our staff has just been energized by the challenge,” Winninger said. “Optimism comes from the fact that we can see what we’re doing is working and that we’re hitting the benchmarks we’ve set for ourselves. Plus, we’re fortunate to have a very understanding and knowledgeable board of directors.”
Jeanne Dawson-Collins, treasurer/manager at Blue Water FCU (ME), also credits the “strength and foresight” of her board of directors in keeping her credit union among the high performers. Although small in size at under $10 million, Blue Water FCU finished 2007 with a net worth at 19.84 percent, ROA at 1.37 percent, a 95.21 percent loan-to-share ratio and a miniscule delinquency rate of just 0.1 percent.
Careful Strategic Planning, sound Asset/Liability Management, a lean operation, conservative policies and an awareness of the competition have proven to be a winning combination. And, with 34 years of experience to draw upon, Dawson-Collins is unlikely to be fazed by any new developments down the road.
“I guess I’ve seen it all — 18 percent interest rates, 1 percent interest rates, recessions and boom times,” she says. That experience has underscored the importance of preparation and planning, and avoiding extravagance and unnecessary risks.
Although Blue Water FCU has the advantage of a single, stable field of membership (FOM) in federal employees, the current statewide recession has made itself felt in a small drop in membership and assets, and a decrease in certificate and share account balances as members draw upon their savings to help make ends meet.
Still, “things are going pretty well,” Dawson-Collins says, noting that Blue Water FCU is one of the few credit unions of its size that offers a nearly full menu of financial products and services to its members. “We offer almost everything, and we’ve been told we do it well,” she says.
In contrast to the stable memberships some credit unions enjoy, the FOM at FME FCU (ME) is concentrated in the struggling automotive sector. Seventy percent of the credit union’s members are employed by either core sponsor Federal Mogul or other auto-related companies.
Given that as a starting point, FME FCU could be expected to be struggling — even with $62.5 million in assets and a multi-state presence. Yet, this is a credit union that closed out 2007 with a 14.11 percent net worth, a positive ROA at 0.51 percent, a 94.1 percent loan-to-share ratio and 0.1 percent delinquency rate.
A talented and enthusiastic staff, tight controls on expenditures, a personal approach to lending and old-fashioned hard work are all contributing to the credit union’s success in the face of what President/CEO Jim Bonaventura bluntly describes as “the worst economy I’ve
ever seen.”
Knowledgeable and experienced employees — exemplified by Operations Manager Ann Ciesluk and a dedicated marketing staff that racks up thousands of miles a year selling potential members on the benefits of belonging to a financial cooperative — are an essential part of the credit union’s success, Bonaventura adds.
“The biggest way you get in trouble is also the biggest way you get successful — lending,” he says. “And we know our members, look at their credit reports and individually evaluate every single loan. We don’t use point scores in evaluating loans — I don’t believe in them — and we don’t have any collectors on staff. If there’s a problem, we’re on top of it. We know how to collect loans.
“I guess I’d describe us as being very ‘hands-on’ when it comes to lending — but we don’t make loans just for the sake of making loans. A bad loan is a bad loan, regardless of what the interest rate is.”
At Gogebic County FCU (UP), a $9.9 million credit union located in the town of Bessemer near the Wisconsin border in Michigan’s Upper Peninsula, the situation is a bit different. Manager Marcella Boline notes that life is always hard and money frequently tight in the western fringes of the U.P., regardless of what might be happening to the economy across the state or the nation.
That environment has helped make Gogebic County FCU’s 3,600 members stoutly loyal to their credit union, which posted numbers in 2007 that would make any credit union proud: net worth 14.52 percent; ROA 2.12 percent; delinquency 0.43 percent. Moreover, Gogebic County FCU grew its assets by 3.68 percent and membership by 0.50 percent — no mean feat in a year in which two-thirds of all Michigan credit unions experienced a decline in at least one of those categories.
Boline attributes her credit union’s strength to old-fashioned credit union values, a world where “character loans” are still common and loan agreements are often closed with a handshake. It might not be a practical way of doing business for today’s larger credit unions, but the old model is still a successful and viable one in Michigan’s Gogebic County.
“We know our members, and our members know us,” Boline says. “People feel welcome here and they feel comfortable doing business with the credit union. We’re fortunate in that we have some very good tellers, good people who are pleasant, helpful and treat our members with respect. People feel welcome when they come here.”
This kind of “at-home” feeling has allowed Gogebic County FCU to more than hold its own against banks in the area. “We’ve done some advertising in the past, but the best advertising we have is word of mouth, people talking to their friends and family,” Boline says.
Economists differ on whether or not the state and national economy has bottomed out, or if a further dip will take place before things turn around. But, as even a casual study of U.S. economic history will ascertain, that turn-around is inevitable — and when it comes, credit unions that skillfully managed the crisis will be in an excellent position to prosper in the coming recovery.
“In the end, we’ll be a more efficient credit union,” Winninger notes, “positioned to be an ever better credit union for our members.”
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Isabella Community CU’s New Home
 Isabella County is right in the middle of central Michigan. But, it might as well be an island within the state. The unemployment rate is significantly lower than the state’s average and the foreclosure crisis has not had much impact. Isabella Community CU (MM) President/CEO Jay Anders says those are two big reasons his credit union is thriving in the current economy. It’s also a reason Anders is so proud of the new office that was opened this spring.
For the past 50 years, Isabella Community CU has been an active credit union in Mt. Pleasant. However, the road wasn’t always smooth. The credit union began inside Mt. Pleasant High School in 1958. Along the way, the credit union was housed in a former board member’s home, an old carpet warehouse and an old tuxedo shop. The latest building was near a busy and potentially dangerous intersection.
 In 2005, Anders brought a plan to the board for a new $2.3 million building. The credit union has never had its own identity in a building made specifically for its needs. The first day the new office opened, Anders saw a difference.
“It was like a light went on with the community,” says Anders. “They finally saw us for what we are.”
The new office has six drive-up lanes equipped with two-way video screens, as well as six new teller windows, safety deposit boxes and a vault. Members can also conduct business in private offices with loan officers or just open up a new account in some privacy — something that wasn’t possible in the old building.
Isabella Community CU put money aside each year in anticipation of the new facility, so it was completely paid for by the time it opened — something that is very special in today’s economy.
“To see it all come together was phenomenal,” says Anders. “But, to finally see the finished product now — it’s unbelievable.”
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Regulatory Affairs
