MIDLAND, Texas -
Midland Community FCU is reaping what it has worked so hard to sow.
Located in the oil rich area of West Texas, more than 25% of the population of Midland County is a credit union member, representing 50% of membership potential. The $133.4-million Midland Community, with 27,000 members, recorded a 2.23% return on assets (ROA) during 2006, the sixth-highest among the 656 credit unions in the $100 million to $250 million in asset range (which collectively returned .72% during 2006).
The secret, said CEO Ray Boss, lies in both member and community service-and tight internal controls.
"Our board of directors is extremely community oriented and we put a lot of energy into giving back to both our members and community," said Boss, who arrived at MCFCU as CEO in mid-2006.
Those community events have included working closely with area law enforcement officials to sponsor activities such as "Kid Print Day," aimed at enrolling children into a National ID program, as well as a child safety seat inspection program. During the holidays, the credit union sponsors Santa visits and Easter egg hunts.
No stranger to member service, Boss has a long history of credit union involvement starting with having a mother who was a credit union president for 25 years. Boss himself previously managed another Texas credit union for six years prior to being tapped by MCFCU.
"Our team is trained to fix member problems, it is hard to keep up with the number of movie tickets and gift-cards our employees give away to members," Boss continued. "Members will forgive you for long lines and busy telephones if you let them know how much you value their time." He added the credit union has given away approximately 40 sets of tickets or gift cards to date in 2007, at an approximate cost of $20 each.
Membership growth continues, almost doubling from the 14,000 members at the end of December 2000 shortly after obtaining its community credit union charter.
The strong bottom line performance at MCFCU is derived from a combination of strategies that include net interest margin management, conservative loan underwriting, timely collections and fee income expansion. In spite of a net interest margin squeeze, MCFCU closed 2006 with a net interest margin of 3.64% on average assets. That higher than industry average result is due in large part to having more (63%) of total loans loaned for vehicles than the credit union peer group average (35%). It also uses risk-based pricing on the loan side.
"Credit unions today must offer loans using a risk based pricing approach, otherwise the loan needs of a large group of members is being ignored," Boss suggested. Underwriting practices restrict lending to no more than 100% of loan-to-value and require at least 10% down on D and E credits. Unsecured loans are not made on lower quality credits. While maintaining great relationships with local car dealers, MCFCU's strategy is to maintain a face-to-face member focus without using indirect lending. "We do have plans in 2008 to launch a sub-prime lending program with some of our dealers," Boss said. "The dealers will place loss reserves with us providing us with guarantees to minimize our risk." The subprime lending program is expected to further boost loan yields.
The CU has also proven to be effective at collecting loans. The loan officer handles first calls for follow up on delinquent loans, and the delinquent-to-total loans ratio has fallen to .56% at the end of June 2007, well below the .80% peer average.
Similarly, it seeks to manage deposit overdrafts. "We first call the member to collect when they overdraft and if that doesn't work, we report them as a loss to the credit bureau," Boss said. "We find that most members will pay us back to correct their credit record, and we've been very successful with our recoveries."
Augmenting this strategy MCFCU provides a "Fresh Start" checking account to members with poor credit. Launched a year ago it has attracted more than 100 members who would have otherwise been lost, and consists of a basic checking account with an ATM card and Internet Banking privileges. A debit card and overdraft privileges are not allowed and a $6 monthly fee is charged. In 2004, MCFCU added a courtesy pay program on overdrafts, which has boosted fee income and other operating income as a percentage of assets-to 3.28% in 2006 from 1.74% in 2004. Initially, Midland Community used a third-party provider for its courtesy pay program; it has since moved that function in-house.
Loan growth at MCFCU has exceeded 30% the last several years and deposits that have been priced up have supported this growth. "This has been our challenge area. We have recently launched a money market account and our CD pricing remains in the top quarter of our market," Boss said. The credit union goal is to have 55% of members using a checking account and the management team continues to evaluate more effective ways to bundle and price credit union deposits.
ROA for the credit union through June 2007 was 2.61%, and it recently expanded its field of membership expansion to almost double the membership potential with the addition of nearby Ector County.
"We will certainly be adding at least one branch. However, the three we have now are at full capacity, so we are also preparing for further expansion," Boss said. "We have many irons in the fire for 2008, including a full business services launch, Internet banking functionality expansion and a core-system conversion, so we know our level of earnings will be going down in the short term."
The credit union does do some limited advertising in both local print and on TV.
While Boss realizes enhancements are required in order to service members faster, provide more branches and attract more members to use automated channels, the success at Midland Community runs far deeper. "We had 1,500 members at our annual meeting last year; there aren't many credit unions our size doing that," he observed. "Yes, we feed them lunch, but it has a lot to do with simply greeting them by name when they walk in the door, offering to get them a cup of coffee if they are waiting in the lobby and telling them to have a nice day when they leave-time after time when they do business with us."
It appears to be working. When Boss spoke with the Credit Union Journal he noted, "It's Friday and I'm looking at a line with members snaked out our lobby door while the bank branch right across the street is dead, go figure." (c) 2007 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com http://www.sourcemedia.com
