DETROIT — For the $32 million Communicating Arts Credit Union,the National Federation of Community Development Credit Unions'40th annual conference brought moments of both triumph andstruggle.

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As the CEO of the conference's host credit union, Hank Hubbardinvited executives from dozens of other CDCUs to witness CACU'simpact in one of America's most blighted cities.

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As a Detroit-area resident and supporter, however, he alsoshowed his guests the depths to which much of the Motor City hasfallen.

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“You can see here that even on nicer blocks, you will have oneor two or even three houses that need some work or may even beabandoned,” Hubbard said as he narrated the May 13 visit to creditunion's branch in Detroit's Highland Park neighborhood.

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Hubbard, who was CEO in 2010 when CACU won CU Times'Trailblazer Award for Outstanding Service to the Underserved,provided commentary during the trip to the branch, pointing tostreets where it appeared entire blocks had been abandoned.

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“Communicating Arts is the only depository financial institutionleft in the city of Highland Park,” Hubbard said. Opening a branchin the severely economically depressed area had been part of thecredit union's growing awareness of its mission as a communitydevelopment financial institution, Hubbard explained, but it stillrepresented an enormous challenge.

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For example, providing security for the credit union branchwhile at the same time not appearing to fear its own members. Partof the solution was to locate the branch in a new, outdoor mallarea where the parking lot was surrounded by a short, decorativefence. The metal fence enhances the site's appearance but also madeit harder for thieves to pull smash-and-grab robberies on parkedcars.

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The branch also installed a security vestibule to slow entry andscan for concealed weapons. Once inside, however, Hubbard pointedout the branch had maintained an open, welcoming feel. Tellersconducted business with members without heavy security panels inthe way, and loan officers sat in small offices with doors closedonly for privacy when needed.

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The visit also allowed Hubbard toshowcase the impact the credit union has had in the area.

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DeAndre Windom, a local entrepreneur and mayor of the smallcommunity, praised CACU for seeing beneath the surface blight andinto the lives of the residents. Windom is pictured at far left,along with Hubbard at center and CACU Chairman Matthew Barbour atright.

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Windom in particular highlighted Highland Park as a key locationin American industrial history, the place where Henry Ford built amanufacturing plant with the first assembly line and began payinghis workers the then unheard of wage of $5 per day to allow thembuy the cars they were making.

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About two-thirds of that original Ford plant still stands inHighland Park and has been recognized as an historic site, with theplant's former administration building having been at leastpartially renovated. But the city is still looking for supporterswho can help it finish the renovation and better exploit the brand,“the Home of the Model T.”

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Meanwhile, Highland Park struggles along with Detroit as the bigcity works to emerge from its much publicized bankruptcy. Hubbard'sown credit union also has its financial challenges.

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According to NCUA data, CACU ended 2013 with just over $1million in negative earnings, a number which was almost exactly thesame as its provision for loan losses in 2013.

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With a loan delinquency ratio of more than four times its peergroup in 2013 (6.51 for CACU vs. 1.42 for the peers) and a loancharge-off rate of more than eight times its peer group for thesame period (4.20 vs. 0.51), Hubbard said collections also has beenan issue.

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“With collections, the problem has generally been pretty highturnover,” Hubbard said, recounting how CACU had often been hiringcollections specialists from other credit unions, often with largerasset sizes. “We bring in someone new and they get frustrated andcome back to us and often their recommendation is something like,'Don't loan money to so many lower-income people.' But that's thevery thing we were founded to do,” he emphasized.

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Still, he said the board recognized that lending to lower-incomepeople is not the same as high-risk lending and he said his boardwas prepared to adopt a different approach to underwriting thatwould allow it to make loans in a more sustainable way.

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He also pointed out that other pillars of CACU's operationsremain solid. In 2013. for example, CACU's yield on average loansstood more than two points over its peers (8.57% vs. 6.10%) and feeincome ratio stood significantly higher (8.07% vs. 1.00%).

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However, the credit union was also more expensive to operatethan its peers last year, with a net operating expense ratio of8.20% versus 2.94% for its peers. Hubbard said that's in part dueto having 40 full-tine positions, which was a a result, he said, ofthe membership's preference for face-to-face service.

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But Hubbard also said the credit union had needed a bit of abreather after four years of rapid growth in the wake of grantsfrom the U.S. Treasury's Community Development FinancialInstitutions Fund and a changeover in its core processingsystem.

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“I think everybody just got a little tired,” Hubbard said. “Andwe lost some of our focus. But I expect we will see a significantimprovement in 2014.”

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