Credit unions don't always seek to serve the underserved just because it's the right thing to do; sometimes, it also makes good business sense.
In the case of Nestegg Federal Credit Union, however, serving the underserved became a strategy for survival.
Nestegg Federal found itself without a sponsor group when the Nestle Co. closed its Fulton, N.Y. plant last year. In addition to losing its sponsor (and the 500 jobs it provided to the community), the credit union itself would have to move from the former plant and find a new home before the National Credit Union Administration closed it down, said Frank Mancari, Nestegg's president and chief executive officer.
"We had 104 days to establish a new office," said Mancari, noting the local communications company reserved the right to have 60 days to install the necessary T1 line. "We were within two months of closing our doors."
In addition to the situation at Nestle, Nestegg itself was struggling. Under prior managment, the CU had lost 15% of its capital and the institution was about to go under, he said.
"The previous administration did a bang-up job lending to people who shouldn't have received loans," he said.
Mancari, brought in to reverse the negative trends facing Nestegg, knew something had to be done quickly before the credit union was merged out of existence. Nestegg found a location in Fulton, N.Y., and then realized the current condition caused by the Nestle plant's shutdown was also the answer to the credit union's problems.
Employers Exit City
"The entire city of Fulton was declared an underserved area, meaning that the population's median income was less than 80% of everyone else in the nation," said Mancari. Fulton, N.Y., a city of 12,000 located north of Syracuse, is a blue-collar community dependent on local manufacturing. The city took its first hit when SBAMiller Inc., then Miller Brewing Co., closed its bottling plant in the city 10 years ago. Nestle, one of Fulton's four largest employers, had 2,000 on its payroll at the height of its operations. By last fall, the chocolate manufacturer had only 500 workers left when it closed its doors, moving its manufacturing operations to Brazil.
Nestegg chose not to apply for a community charter, but did petition the NCUA for license to serve the underserved, essentially the entire city of Fulton. The credit union applied in November and received the regulators approval Feb. 4.
Nestegg, on its own for the first time since it was chartered in 1949, is going through some growing pains, admits Mancari. An April marketing campaign is beginning to yield a new crop of members, but Mancari is careful not to let the credit union outpace its ability to grow safely.
"We've opened up a lot of new accounts, but we're also closing out dormant accounts left and right," said Mancari.
Cognizant of the tough times the credit union went through in 2003, Nestegg is proceeding with caution.
The credit union has reduced it's the dividends being paid on deposit accounts. In addition, Nestegg is building relationships with area car dealers in an attempt to boost its loan portfolio, said Mancari.
The credit union offers all the basic consumer services to members, but hasn't ventured into business loans, he said.
"If we see a decline in capital due to asset growth, then we know our plan will have backfired," Mancari said.
In addition to its Fulton branch, Nestegg also has branches Canajoharie and Purchase, N.Y., as well as one inside a Nestle facility in Burlington, Wis. Mancari turned down the offer of a charter for Oswego County, N.Y., in which Fulton is located, because he didn't see it as practical.
"We couldn't afford to open branches throughout the county and people are not going to drive 10 to 15 miles every time they want to do their banking," he said. "Our biggest opportunities will come in growing our base in Fulton."
Nestegg currently has 5,200 members, of which 2,300 are located in Fulton. Mancari is banking that the Nestle plant's new owners will help boost that membership level once they're up and running.
The former facility is being split into two separate chocolate manufacturing facilities, Mancari said.
A Connecticut company will use one-half of the plant to produce low-carb chocolate bars, while a company headquartered in Africa's Ivory Coast plans to establish an operation that manufactures bulk chocolate.
"Once the Ivory Coast operation is fully functional, they will produce six times the chocolate Nestle did before it closed," said Mancari. "But it will take several years to get to that point."
The new company also will only pay about 70% of what Nestle had paid it's workers, but it's still better than the alternative, Mancari said. "When Nestle closed, people thought it's be the end of Fulton, but the city survived and will again," said Mancari.
In the meantime, Nestegg is shooting for 900 new members-8% of Fulton's current population-by year-end. NFCU still struggles with the fallout from past bad loans, but the market appears to be coming back.
Risk-based lending is on Nestegg's horizon once it irons out its current situation.There has been uptick in demand, prompting Mancari to add a part-time loan officer to his Fulton staff. "We're experiencing a little bit of trouble right now," Mancari said of the increasing demand, "but it's a good kind of trouble to have."
