While many credit unions remain rookies when it comes to expansion into underserved communities, Kern Schools FCU here qualifies as a veteran.
The credit union expanded its services an underserved community five years ago, and management says the program has been to an unqualified success.
The credit union's original underserved FOM was Delano, an agricultural community in northern Kern County. Prior to the CU's arrival, Delano was awash in check cashing stores, but had few legitimate financial institutions. Kern Schools FCU first installed an ATM, and later opened an express office- no tellers handling cash, ATMs only. When member demand outstripped the capacity of the express office, a full-service branch took its place.
Michael George, the business development manager for Kern Schools FCU, said the success in Delano led the CU to follow the same, three-step pattern, eventually opening a branch in Ridgecrest, about two hours northeast of its headquarters.
"Bakersfield is the largest city in Kern County," George said. "But most of the rest of the county is low-income compared to other areas in California. For example, Ridgecrest was underserved because its population dropped 10% from the 1990 Census to the 2000 Census-largely due to the cuts at the China Lake Naval Base, the largest employer in the area."
When Kern Schools FCU applied to add eastern Kern County as an underserved FOM, NCUA asked it to take on the entire county. George said the CU is working "as fast as we can" to expand to other cities.
Promoting The Whole CU Message
"This is an opportunity to promote not just our message, but the whole credit union message," he said. "The low-income and underserved areas have lots of check-cashing companies that do nothing but gouge the consumer."
The population of Kern County is diverse, and includes migrant farm workers from Mexico, Central America and South America, as well as a significant number of Filipinos. The credit union advertises is Spanish on area radio stations and in small, community newspapers.
Kern Schools FCU also offers financial literacy programs in Bakersfield and Delano for the migrant workers, whom George said traditionally are untrusting of financial institutions.
"As a teachers' credit union, it is natural for us to go out to the adult schools and do classes. We do home buyers' seminars. We also get involved in local events such as parades and fairs. We participate to let people know we are out in the community."
While some stereotypes about the underserved areas turn out to be true-such as the distrust of financial institutions-George said years of working in communities like Delano have shown other stereotypes to be false.
"There is an assumption that low-income people are minorities, but that is not the case," he said. "And beyond that, a Caucasian family of four making less than $40,000 a year has the same wants and needs as a minority family with low income."
Kern Schools FCU has several products and services designed for the underserved FOMs, including access to the IRNet wire transfer service and risk-based pricing on loans. It recently introduced low-income loans for housing.
George said the credit union is not doing check cashing. Instead, it tries to get members to apply for loans by pointing out that even if they qualify for only the credit union's "worst" loan rate, it still is better than what they can get elsewhere.
Two Kinds of Profitability
In July 2002, Kern Schools FCU opened its full-service facility in Delano. In less than one year, the branch operated at a profit. "And on the feel-good side, teaching people how to establish good credit and other lessons is something we find very profitable," George said.
The other branches have not been in operation long enough to determine ROI, he added.
The credit union's board of directors is made up entirely of Bakersfield residents, but George said it is looking into forming an advisory committee in Ridgecrest that will report to the board.
"We want everyone to have a voice, and we realize every community is different," he said. "Ridgecrest is high income compared to Delano, but Ridgecrest is underserved because of its population decrease. Delano has lots of migrant workers, and the second-largest employer is the local prison. They are two totally different areas."
For CUs contemplating adding an underserved FOM, George recommends having products and services ready before venturing out into the community.
"When we did our first seminar on home buying, we had mortgage products in place," he explained. "If a credit union is going to add an underserved area, it can't do so half-heartedly. Once a credit union has the right philosophy, it can expand into other areas."
"We've been successful because we started with one community," George continued. "We got our feet wet in Delano before moving on. Since then, we've been able to deliver the credit union message of people helping people to other areas. Banks would have someone hundreds or thousands of miles away look at a spreadsheet and decide to close branches in these communities. We look at things differently, which is why we are opening new branches. There is profitability beyond the numbers."
