DETROIT-When Hank Hubbard walks the streets of inner-city Detroit, the CEO of Communicating Arts Credit Union doesn't see all the mom-and-pop businesses that used to line the sidewalks. In their place are often vacant, boarded-up buildings in a town struggling to get back on its feet.
And yet Hubbard remains an optimist. To some degree, so do many of the other CEOs of Detroit-area credit unions, who believe their city's future is brighter than its dismal national image, and that as veterans of tough times they have all learned management lessons other CU leaders are only now coming to grips with.
Hubbard runs a $28-million credit union in a city with one of the worst economies in the nation. Once the engine of the economy, the Motor City isn't motoring any more, with reports of 50% unemployment inside the city from a lingering recession - caused in large part by the auto industry's problems - problems that go back much further than the most recent recession.
A Rough Tenure, But...
"The Detroit economy was a little rough when I started, and it's been pretty rough my whole tenure here," said Hubbard, who has been at the credit union for 18 years.
Headlines point out the Big Three's problems, the city's rising murder rate, and numerous accounts of political corruption, including former Detroit Mayor Kwame Kilpatrick resigning and going to jail on felony charges. But the media reports, the public perception and the late night comedian's jokes don't tell one story, according to credit unions that spoke to Credit Union Journal - they don't tell the story of Detroit's resilience.
"That fighting spirit and determination of the Detroit community has always been here and always will be," said Gary Moody, CEO of Credit Union One. "There is a spirit about this place that you don't see anywhere else."
Moody said some of that comes from being punched, kicked in the face, and getting back up "economic cycle after economic cycle." But there is more concern this time, credit union leaders shared, due to the duration of the problems in Detroit and in the Great Lakes State. Michigan's 15% unemployment rate was the highest in the nation late last year. "But Detroit will be back," Moody assured.
Hubbard is a believer, too, and his CU has survived the city's latest struggles and is thriving by serving the underserved. Communicating Arts grew by 8.5% last year and plans to expand. Hubbard, and all of the CEOs who talked with Credit Union Journal, said that to make it in Detroit requires focusing on conservative business strategies, developing products to help budget-strapped members, and simply becoming accustomed to dealing with an extended economic downturn.
Moving to a Community Charter
Problems within the Motor City, including a $300-million city budget deficit and the elimination of thousands of municipal jobs, forced the hand of the 80-year-old Detroit Metropolitan CU last year. The $392-million DMCU converted from serving police and firemen to a community charter.
"About 15 years ago the city of Detroit had 24,000 employees. Last year the total was down to 13,000," said DMCU CEO Kathie Trembath. "Our membership kept shrinking. We are a healthy credit union with 15% capital. But for the sake of our future, we had to change."
The decline in city workers reflects the decline in the population of the city Detroit Metropolitan now serves. What was once the nation's fourth-largest city is today the 11th largest market, with 916,000 residents. The inner city has seen the greatest change, noted Hubbard, including the flight of numerous financials to the suburbs, outside of those still serving big business downtown. That void has been filled by check-cashers, payday lenders, and pawn shops.
"At Communicating Arts we said, 'OK. If you guys want to leave, we'll try to pick up the slack.' I actually think we can grow quickly if we can get things together," concluded Hubbard, who said the 8,000-member CU is signing 100 new members a month at its Highland Park location.
'Crying for Financial Assistance'
The reason for the rapid growth, Hubbard said, is that the entire inner city is "crying for financial assistance. When we showed up in Highland Park in 2008 we were the first financial to open there in 20 years. We saw the need and it fit our social and strategic mission of serving low-to-moderate income people. We moved in and there was so much pent-up need for credible financial services."
Hubbard said his two-branch credit union wants to do more, and expects it will, possibly adding a location later this year. But he admits it's a big undertaking. "It's not easy for a credit union of our size to add an office. We have to move about a third of our staff over and then backfill. It's a big deal for us."
The $530-million Michigan First CU has seven branches in the Detroit area, including four within the city, and navigated the local economy to grow by 10% in 2009. "That's growth both inside the city and in the suburbs," said CEO Michael Poulos, whose CU has been serving Detroit since 1926. Poulos said the city is in bad shape due to years of poor leadership. "Now the leadership is superb. If this town comes back, it will be because of the current mayor, Dave Bing, and the person heading the school districts" (acting superintendent Teresa Gueyser).
"To a certain degree, the city gets a bad rap," said Poulos. "Certainly there are some things that are true, but from an economic standpoint there is still vitality in the city and a lot of well-educated consumers looking for good financial institutions to do business with. We have found them to be very receptive to our credit union."
Come And See For Yourself
DMCU's Trembath, whose one-office credit union operates downtown, agrees that the negative perceptions are overblown. "There are still people who do not like to come downtown due to concerns about crime. It's just the fear of the unknown. Come down here and you see it's not like everyone thinks. I have never been concerned for my safety."
Hubbard chalked up some of the Motor City's bad reputation to the media, insisting news coverage shies away from the good things that happen within Detroit, including programs to help the homeless, in favor of stories about crime and political wrongdoing. "It seems they always emphasize the screwy things about Detroit," he said.
But the city, and the credit unions that serve its residents, face some real problems that are not going away anytime soon. "The challenge we now face is that this is not your typical downturn in the economic cycle that affects manufacturing," said Credit Union One's Moody. "It's systemic and structural, and it is going on for a decade now. People are starting to lose hope because they don't see light at the end of the tunnel."
Moody said that has brought a malaise over the membership. "We have been in a little different place than the rest of the country for quite some time. It weighs heavily on members, and to some degree on our staff, because people can take only so much negative news."
Trembath pointed to what she feels makes the challenges of serving CU members in Detroit so much more difficult than in most other parts of the country: a growing number of people do not have any source of income. "I personally know more than a half-dozen people who have been out of work for so long that they can't draw unemployment anymore. They are living off what their families can provide."
Hubbard believes that residents' financial problems are greater within the inner city than in the suburbs. But not all agree. Bill Thiess, CEO of Detroit Edison CU, offered, "I think that is a misnomer. Some of the toughest stories we hear are from members out in the suburbs."
Some Post Surprising Numbers
The $700-million Detroit Edison plans to merge with NuUnion CU later this year (Credit Union Journal, Nov. 16) to form a $1.6-billion CU to be known as Lake Trust. It will become this state's fourth-largest credit union, expanding DECU's reach and potentially spreading the risk of doing business in the Detroit metro area. But Thiess said risk management is not the reason for the merger, citing economies of scale the new credit union will achieve in the merger.
Thiess said his 64-year-old CU, which has 8.4% capital, has become accustomed to operating in a down economy, with relatively few years of losses. "I think things are starting to improve. But it's hard to tell when you are in the middle of a storm."
Last year Detroit Edison was profitable, Thiess said. "It takes a certain attitude to make it. You have to be realistic that the economic situation won't get better quickly and you have to be conservative, which we always have been. We are not immune to increased delinquencies and charge-offs, those are expected. We haven't reached out too far, though, even in our business lending. At the end of December we had no delinquencies within our business lending portfolio."
What may surprise some is that business at some Motor City credit unions has never been stronger. In 2009 Detroit Edison experienced its largest-ever growth in auto lending. Thiess, who's been CEO for 19 years, attributed that to pullbacks by the captive finance companies and banks, and to a boost from Invest in America, the national CU auto-discount program run by CUcorp, a subsidiary of the Michigan Credit Union League.
For CU One's Moody, doing business in Detroit means policies are always in a state of flux, adapting to changes in members' needs and the economy. "I keep telling our staff we have to continue to zig and zag through a minefield of credit and collateral risk," said Moody, who has run the show at Credit Union One for three years. "Add to that the systemic risk within the corporate system, and it makes, well, for some very interesting times to say the least."
Credit Union One's capital is at 7%, and it is purposely not pursuing growth strategies, expecting possibly a 1% to 2% gain this year, Moody shared. "Right now it's about preservation of capital. We are in a market where growth does not make a lot of strategic sense. The local economy is suffering from excessively high unemployment and very precipitous drops in real estate values. As an institution that has relied heavily on consumer lending for 70 years, making mortgage loans in this type of environment is not exactly optimal."
Not Waiting on the Automakers
What will help Moody's credit union, and others across the state, is a resurgence by the Big Three. But automaker CUs, according to Dianne Addington, CEO of Genisys CU, are not waiting for that day. Seeing the carmakers' troubles coming years ago, most credit unions that serve carmaker employees have diversified their fields of membership, she said. "I remember when we served nine GM facilities," said Addington about her $1.2-billion CU that is now community chartered. "We started losing GM plants in the early '80s and we don't have any left."
Addington said the 27-branch Genisys, which now serves over 300 SEGs, still focuses on its GM members. Most are retired, but make up about 35% of the CU's membership. "While there is no plant or union hall to visit anymore, we still attend GM retirement parties and picnics."
Adding SEGs has also helped Genisys better serve its GM members through tough times, said the CEO about the credit union whose Detroit roots go back to 1936. "It provides a more stable environment for the credit union that lets us help our members get back on their feet when plants close."
The rocky economic road Genisys has traveled, according to Addington, who has been CEO for 20 years, has prepared it for the latest downturn. "We've learned that in a dynamic environment you have to be willing to change. Maybe not change completely, but at least modify your focus so you are always relevant to your members. For example, our focus had been on building branches, but now our members need more assistance with basic needs than greater convenience."
The Value of Focus
Communicating Art's Hubbard agreed that simplicity is the answer. He said that five years ago CACU stopped being "all things to all people. We decided our focus would be serving moderate- to low-income people, which is what we do best." Hubbard said the credit union emphasizes free or low-cost products and services that members would otherwise have to get from payday lenders and check-cashers.
"It doesn't mean we are not a great deal for people of means, it's just that our products are designed more for people who don't have a lot of choices," Hubbard said.
For instance, Hubbard explained that its payday loan alternative and the Save to Win program, a statewide savings product run by eight Michigan credit unions (CU Journal, April 16), are right fits for CACU members. Save to Win offers a 1% savings rate and provides chances - based on how often members make deposits - to win monthly prizes and a $100,000 prize.
Hubbard said the product is encouraging members who never saved before to begin building a nest egg, and it is channeling money away from lottery tickets. "This way they still have the chance to win something and they are saving money," Hubbard said.
At Detroit Metropolitan, Trembath said the emphasis remains on building loan volume, as it has too much of its liquidity sitting in low-yielding investments. "We are trying to build our loan portfolio, but unfortunately that's difficult to do with many of our members being unemployed."
'No Credit Check Loan'
For that reason, DMCU members have often turned to the CU's $500 "no credit check loan," which was offered before Christmas and once in the summer to help struggling members. Applicants have to be working and have held the same job for a few years, explained Trembath, who has been CEO for six years.
"But that's all we require. We see lot of people coming in who would not normally qualify for a loan. We started it two years ago and the first time we ran it we put out a half million dollars. And the losses have been very minimal, considering the type of loans these are. We had only $3,000 in charge-offs the first time we ran the loan. Even people who file bankruptcy pay these back, because they know we make them every year and they won't get them again if they default."
The Detroit CUs all told Credit Union Journal that they regularly look at adjusting their products ands services to help members through the difficult times. What Trembath said is most important, is making sure staff reinforces to members there is "light at the end of the tunnel and we are here to help them in any way we can."
That support, along with a new city leadership and signs of the national economy coming back, bodes well for the Motor City, Hubbard believes.
"I know a lot of people think Detroit won't come back. If that happens, we'll turn out the lights when we leave," Hubbard observed. "But, despite all its problems, we are pretty optimistic about where this city is going."
