DETROIT-In the heart of Detroit's inner city, Communicating Arts CU works hard to meet the demands for the services of this community development CU serving low- to moderate-income residents. Already feeling growing pains from adding a location in Highland Park-where new members flock to this $29-million CU by 100 a month-CACU hopes to secure the dollars to expand. CEO Hank Hubbard shares his CU's story.
CUJ: What are the key issues?
Hubbard: Our key issue is that demand is outstripping our resources. We know we need to open another branch, maybe two or three. Only two years ago we were a one-branch CU, and the transition is difficult. People resources and how to pay for them is probably the biggest issue. We recently received a huge, $2-million grant that will help us keep our momentum. But we'll need to be self-sustaining in the long term.
Last year, we would have lost money without the grant. But knowing we were getting the money allowed us to make different decisions. The demand for credible financial services in many areas of inner-city Detroit is so great. Our new Highland Park branch is overcrowded. We sign up about 100 new members a month there.
CUJ: How does your field of membership help or hurt the CU?
Hubbard: Our field of membership is people who live, work, or worship in Detroit. This helps our CU-there are far more potential members in our target market than we can serve. That gives us the flexibility to locate where we are needed most. What is doesn't do is provide us with assets, and that will squeeze us at some point.
CUJ: What is the CU's brand?
Hubbard: We don't have a tag line really. The closest thing we have is "Proud to be a part of the community," which is on the wall in our branch.
CUJ: How do you support your brand?
Hubbard: We support it by being part of the community-being there all the time. We adopt families during the holidays, support community events and outreach programs, those kinds of things. I am perceived as a key person who cares about the city. Of course I always have my credit union shirt on, and people laugh about that. But I make sure we put up the credit union's sign at events so people know we are there.
CUJ: How are you handling marketing?
Hubbard: We take out limited newspaper ads, but most is community involvement.
CUJ: What is the shape of your loan and product portfolios?
Hubbard: In terms of asset quality, our loan portfolio is probably a little worse than our peers. We make good loans, but the fact is that 80% of our borrowers have subprime credit. I think our portfolio quality, if you could somehow judge it in relation to credit scores, would be much healthier than average.
Long term, I am worried about where our loan capital will come from, because our members do not have the money to save. Our grant went to lending capital, and we deployed all of it in six months.
CUJ: What is your pricing strategy?
Hubbard: We try to be in the top 25% of the market for both loans and savings, but we don't try to be the best for everything. We want to make sure that we are a good all-around deal for people, but can't afford to give away the store. When it comes to fees, we are not shy about charging market price. Our ATM fee for non-members is $2.50. We also use risk-based pricing. The most we will charge on a car loan, for example, is 18%. But that is way better than the 28% you get at the car lot.
CUJ: What are the obstacles to growth?
Hubbard: Human resources-both on the front line and at the executive level. My board is concerned that our two VPs and I will explode trying to do too much. It just keeps coming down to resources-if we just had another few million to invest into two more branches.
CUJ: What about operating expenses?
Hubbard: Our operating expense ratio is 11.41%, but what is more important is our net operating expense ratio, which is 5.21%. Still a little high, but for a credit union of our asset size, we serve a lot of members. Generally, you won't find credit unions serving as many people as we do until you look at CUs about five times our asset size. Our income and expenses are pretty average-it's just the area that we are trying to serve.
CUJ: How do you look at the future and what do the next five years hold for your CU?
Hubbard: Hopefully we'll get the resources to build two more branches. I am not really thinking about asset size as far as chasing a number, but more natural growth. If we double our branches we could get to $40 million. I'm excited. We are not fighting anyone for our members. Our success at Highland Park gives us reason to believe that we can do more good in this city. I think we can figure out how to work it out financially.
Assets: $28,966,876
Chartered: 1935
Members: 7,969
Employees: 25
Branches: three
IT system: Fiserv CUBEol
Capital ratio: 14.22%
ROA: 5.31% (received $2 million grant in 2009 from the CDFI fund)
Net operating expense ratio: 5.21%
Total loans: $19,965,000-$10.5 million installment, $0.8 million LOCs, $1.7 million
Loan growth ('09): 14.07%
Loan rates (Feb. 26): 60-month auto 5% APR, 24-month unsecured 12.25%, open-end LOC 10.25%, share secured 6.50%, Visa 14.5%, HELOC 7%, Visa, $1.5 million home equity, $5.4 million first mortgage
Total deposits: $24,146,285 $7.3 million share savings, $3.8 million checking, $7.6 million CDs, $1.6 million IRA, $3.7 million money market
Deposit growth ('09): 10.73%
Deposit rates (Feb. 26): share account .25% APY; checking-free, no interest; MMAs: $1,000-min., .45%, $25,000 min., .75%; CDs: 6-month 1.15%, 1 year 1.25%, 18-month 1.75%, 2 year 1.85
Delinquent loans: $365,505 or 1.83%
Charge-offs: $325,545 or 1.74%
Allowance for loan loss reserves: $455,428
Investment mix: 55% insured CDs, 45% corporate bonds
Net income: $1.4 million
