After Many Tiny Cuts, Start Up CU Opts for Merger
In the end it wasn’t any one thing that led the Inspire Community Development Federal Credit Union to look for a merger partner. It was the impact of many smaller things.
Chartered in the spring of 2010 in Battle Creek, Mich., the credit union set out to establish itself as a financial institution for half of the community that lacked access to other financial institutions and other resources.
But the $431,000 Inspire announced it had merged with the 72,000 member $685 million First Community Federal Credit Union, headquartered in Parchment, Mich., on Sept. 17.
Even before it was chartered, the credit union started to see some of the issues that would plague it later, according to Nancy Macfarlane, former chairman of Inspire’s board of directors and CEO of Community Action of South Central Michigan, a social services agency.
“We had two changes of leadership before we had even received our charter,” Macfarlane said. “Losing two coordinators like that made it very hard to find continuity of leadership.”
The early leadership problems heralded a challenge the credit union would face from the beginning. For example, when the credit union finally found an interim CEO who could take it through the chartering process and get the doors open in May 2010, that person didn’t have any experience running a financial institution.
Other challenges the credit union faced included opening during the depths of one of the worst economic downturns Michigan had ever seen and not having a product mix that made sense for the credit union and for the members, Macfarlane added.
“I guess the one that rubbed salt in the wound was when we lost our street entrance only a few months after opening,” she said. “I know that wasn’t as big a problem as some of the others but still is was just another thing.”
The credit union lost the street entrance when Battle Creek closed a number of streets in order to work on them for revitalization project.
In the end, the NCUA began to grow concerned at the credit union’s falling net worth ratio, which helped move the merger forward, Macfarlane explained. The ratio dropped from 42.49% in June 2011 to 13.09% in June 2012.
“Our business plan was just too lean,” Macfarlane said, meaning it lacked room and flexibility to maneuver in response to changing conditions. She said she wished the credit union had reached out to other existing community development credit unions for mentoring earlier. Doing so might not have changed anything, she said, but it might have enabled Inspire to put changes into place that could have saved it.
Hank Hubbard, CEO of the 8,800 member, $34 million Communicating Arts Federal Credit Union, headquartered in Detroit, agreed that early mentoring could have made more of a difference. Inspire’s leaders had asked Hubbard’s opinion about some of its challenges, but Hubbard said by that time there was little which could be done, especially since the two credit unions were geographically remote from one another on different sides of the state.
Hubbard called mentoring a very important part of a new credit union’s start up and said it goes beyond providing other sorts of assistance, such as back-office support. Mentoring is less about teaching a young credit union how to do something and more about helping it decide what it should be doing, he explained.
“Leaders of small credit unions are under such stress because they basically have to be able do everything,” he noted. “We have gotten to a size where I can go out and hire a specialist in something I don’t know about, or outsource it, but that’s harder for a new credit union to do.”
Rob Leonard, NCUA’s director of consumer access, agreed and said the agency has become more proactive over the past two years about urging new credit union start ups to seek out mentoring credit unions. He also said the agency had tried to be more considered about guiding community groups to seek membership in existing credit unions rather than try to start their own–particularly if it seemed that the group was liable to be imbalanced in some way, such as by having a significantly higher percentage of likely borrowers than depositors that could overwhelm a new credit union.
For her part Macfarlane said she still found the effort to launch Inspire worthwhile and said that, were she to do it again, she would work harder to tailor the credit union’s earliest product offerings to the credit union’s members. She said she would also work harder to improve the credit union’s fee structure. “Everyone wants to do the right thing for your members of course,” she said, “but you have to look after the credit union’s needs too.”