Earlier this year, Credit Union Strategy analyzed all federally insured credit unions in the United States. We looked at the return on assets of credit unions within four asset ranges using data gathered from the 5300 Call Report. Then, we ranked them into the top 100 credit unions in each asset category.
We have begun conducting interviews with these top credit unions so others can learn from their success. Following is our interview with Marine Credit Union in Wisconsin.
Marine Credit Union
Q: Tell me about Marine Credit Union
Marine Credit Union takes our name from Mercury Marine, the outboard motor manufacturer based in Fond du Lac, Wisconsin, which was our original sponsor in 1949. We have been a community credit union for over 30 years. We’ve completed 12 mergers in the last 16 years, and we are in the middle of buying five bank branches.
Marine is focused on service to the underserved. We do a lot of non-prime lending. Our average member is younger than average for credit unions, has a lower credit score and has less money on deposit. At Marine, you are more than a number. You are a human being with a story. We serve everyone, especially those with past financial challenges. Everyone, from our tellers to our Board of Directors, share a deep connection to our mission.
Q: What is your background?
At my core, I’m a farm boy from rural northern Wisconsin. I grew up on a dairy farm where we learned the value of discipline and hard work. I came to the credit union industry from the consumer finance business, which is similar to the approach we take at Marine. I’ve been the CEO since 2000. My job gets more challenging – and more rewarding – every year.
Q: What would you like to tell other credit unions about profitability or increasing their ROA?
Some executives are scared of profitability. They are concerned it doesn’t mesh with the mission of a credit union. We have to get past that. The reason small credit unions are going away is less about competitive pressure than it is about their inability to make money. They have to hold capital, but they are not even keeping up with inflation.
Credit unions over $500 million are growing faster than smaller credit unions. It doesn’t matter if you like the concept of profitability or not. It’s the price of admission to being a functioning business; you have to have it. The desire to earn a profit will distinguish which credit unions keep growing.
First, you have to commit yourself to it. Then you have to define your niche. Too many credit unions want to provide exactly the same products and services as other credit unions across town. That is not strategy.
Why should someone do business with you? Think about what your strategy is in terms of price, product or service. Then balance your scorecard language to support it. You can’t be a leader in all three. You have to be a follower or a laggard in one of those areas. For example, lag in price but lead in product. You have to be purposeful.
Q: What’s the real challenge for credit unions regarding profitability?
Credit unions have told themselves a lie about member value. The truth is, members would pay you for it. We have shifted the conversation away from profitability, and instead we talk about “member value.” However, what we are defining as member value is not how they define it.
The second challenge is identifying that niche. If we all have the same strategy – providing the best service – that is not the key to profitability. The key is differentiation. What makes you different than the competition?
Q: Is it your aim to be a top 100 credit union in profitability? If not, what are your three key focus areas?
We are not looking to lead in every category. We are looking to run our business the best we can. Our benchmark is to compare to ourselves against peers. Our market is the key.
We sit in the top 5% of our peer group. Yes, we are among the top 25 credit unions in the country in terms of ROA. And $1.49 will get you a cup of coffee.
If we were owned by investors, would that return satisfy them? We provide that return on equity. Some define return as lower fees, member dividends, etc. Our return is to the future of our organization – investing back into growth so we can serve more people and employ more people. Our goal is to make enough money that the communities we serve today, and the additional communities we will serve as we grow, benefit.
Is profitability a strategic goal or just a result of your other goals you set for the credit union?
We have two top-line goals: growth and earnings. We have key subordinate goals which drive growth and earnings, like how many people we are helping and serving.
Q: What would you want other credit unions to do to be more successful in increasing ROA?
Develop a niche. Following the herd doesn’t work. We have all been insulated from each other by geography or SEGs. Not anymore. Billion dollar credit unions will be competing with each other in the same neighborhoods. Some already are. You have to do something to be different. All of us need to be thinking about what to do when someone else shows up in our space.
Q: If you say yes to greater profitability, what do you as a credit union have to say “NO” to? What are the trade-offs?
One of things you have to say “no” to is being all things to all people. For example, you don’t have a credit card program, or you don’t do commercial lending. You’re not open on Saturdays. You have to be purposeful about saying “no” to things that are standard in the industry. At Marine, we chose not to offer credit cards, because ours could not be different. We walked away from that space. We walked away from Saturday hours and commercial lending, too. They were not what our members needed.
Secondly, profitability is like a see-saw or a scale. We can be all-in on profit, or we can be all-in on mission or service. The real mission question is about the balance on that see-saw. How much do you invest into profitability vs. other things?
Investing in profitability can help drive your mission. We have an obligation to our communities to be profitable. Because of our success, we are able to take risks on borrowers and members that other businesses can’t afford to take. Nearly half of the people we’ve served in 2017 have poor or no credit history. These are people whose past financial challenges cause other financials to turn them away, leaving no other options but predatory lenders. Since 2014, when we formed our Marine Credit Union Foundation, we’ve also given back more than $400,000 to charitable organizations in our communities. In the past two years our employees have taken nearly 1,000 hours of paid time off to volunteer. We award $7,000 in scholarships every year. We are able to do all of these things to give back to our employees, our members and our communities, because we are profitable. That’s our mandate in terms of being a good corporate citizen.
Q: What was the most valuable or useful lesson you learned while climbing the ladder of increasing profitability?
Doing fewer things better is the key to being profitable.