The Scale of Success Rises for Credit Unions

For seven years, Jay Magulski has been president/CEO of Landmark Credit Union – a role that in recent months has included shoveling dirt and operating a very large pair of scissors.

The Milwaukee, Wis.-area credit union has been growing, surpassing $4 billion in revenues last April. Since then, Magulski’s calendar has included a ground breaking for new headquarters last October and a branch opening in Brookfield, a Milwaukee metro area town about 13 miles to the west.

Credit unions are facing a period where scale is important to meeting the heavy costs of keeping up with technology, both for internal efficiencies and smoother member experiences. They also face challenges to get the attention of potential members as they compete with banks with far larger marketing budgets.

Credit unions like Landmark and Truliant Federal Credit Union of Winston-Salem, N.C. ($2.7 billion in assets, 254,373 members) are growing by cultivating the land under their community charters.

Baxter Credit Union (BCU) is growing nationally by strategically recruiting new employer groups and expanding within those already in its ranks.

BCU, based in Vernon Hills, Ill., just north of Chicago, has grown from $1.4 billion in assets and 157,690 members at the start of the last decade to $3.9 billion in assets and 269,316 members by its end. BCU began offering mortgages in the late 1990s, and in 2009 it celebrated reaching the $1 billion mark for mortgages that it owned or serviced. Now BCU manages close to $4.3 billion in mortgages.

At its last strategic planning session, managers discussed how large credit unions need to be to have the resources to remain viable, Ken Dryfhout, BCU’s vice president of strategy and growth, said.

“There’s no doubt the number is being moved up,” Dryfhout said. “When you look at consolidation trends, five years ago that number may have been $500 million. Now it’s closer to $1 billion.”

While technology can reduce costs in some industries, financial institutions have to contend with regulatory issues and legacy infrastructure while building systems that are more robust and efficient internally, and painlessly invisible to members.

“You have to retool in a way that allows you to continue to compete, and that’s not cheap,” he said.’

Landmark ($4.5 billion in assets, 358,236 members as of Dec. 31) is based in New Berlin, Wis., within the Milwaukee metro area, but about 10 miles west.

Before picking up a shovel and scissors, Magulski worked at U.S. Bank for 14 years. He joined Landmark in 2002 as vice president of business development and training. He was one of Landmark’s 426 employees in 2009 when it moved into its current 60,000-square-foot headquarters.

He rose to president in 2011 and president/CEO in 2013, when Landmark had $2.1 billion in assets, 209,000 members and 534 employees. As of Dec. 31, Landmark had 723 employees.

In October, he turned some dirt for the groundbreaking ceremony for a new 158,000-square-foot headquarters that employees expect to occupy in the spring of 2021. On Feb. 6 he hoisted an over-size pair of scissors to open a new branch in the Milwaukee metro area.

Landmark is the largest automobile lender in southeast Wisconsin and has a significant share of the area’s mortgages. Its business lending team works with an increasingly high number of real estate owners, developers and small business owners.

Branches are concrete, visual signs of Landmark’s presence, and provide another way to increase its brand awareness in communities, he said, adding growth is important to Landmark because it benefits its members, employees and the community.

“For our members, as we continue to grow we’re able to offer them the right financial options and technology options that they expect from their financial services partner,” he said. “For our associates, we create new jobs and advancement opportunities, and it’s fun to be part of a successful, growing team.”

Yet, like many credit unions, its size is still dwarfed by the banks around it. And as of September, NCUA data showed it had 33 branches, 23 of them in the four counties comprising the Milwaukee metro area.

Landmark is the eighth-largest financial institution in the Milwaukee metro area based on it having 23 of its 33 branches in the four-county area.

If the same ratio held for its total of $3.8 billion in deposits as of Sept. 30, it would rank seventh in the metro area with about $2.6 billion in deposits. Its deposits would fall between Wells Fargo’s $3.8 billion and Town Bank’s $2.4 billion reported by the FDIC as of June 30.

Educators Credit Union of Racine, Wis. ($2.2 billion in assets, 198,691 members), which surpassed the $2 billion asset mark in the past year, has the next highest number of branches among credit unions in the area. Its 13 branches in the Milwaukee area would put it in a tie for 10th place with three banks.

Altogether, credit unions represent 26 of the 72 financial institutions, and 101 of the 585 branches in the Milwaukee area.

Like Landmark, Truliant is a major credit union in its state but an ant among the state’s banking giants. So Truliant choose to expand in Charlotte, N.C.

“We went there because you’ve got a market of better than a million people. We felt there was an opportunity to take our value proposition as a credit union to a greater population,” Todd Hall, its president/CEO since January, said.

Truliant had a presence in Charlotte for about 20 years, but its branch count in the area rose from four in late 2014 to 14 by early 2017. At the end of September, Truliant had 32 branches, including two in Virginia and one in Greenville, S.C. Out of 29 branches in North Carolina, 14 were in Charlotte.

Of the 64,000 net new members Truliant has had from December 2014 to December 2019, about 20,000 have come from Charlotte.

Of its $799 million increase in deposits, about $200 million came from Charlotte. “I think that proves there were a number of people seeking what we were offering who were unserved,” he said.

“You’ll see us going into other markets as well,” Hall said. “If the right opportunity came to us, Upstate South Carolina would be an area where Truliant would bring a lot of value to the folks in those areas.”

Hall said he keeps in touch with institutions he thinks might be good merger partners.

“We do believe there is going to continue to be some consolidation in the credit union industry,” Hall said. “We’ll look for opportunities to partner with somebody who provides us with additional scale, and expands our market.”

Those partners could include banks. “We’re out there having conversations with some community banks that are the right size,” he said.

“Our message is just ‘if that conversation strategically comes up between you and your board, we understand your market, this is what we bring to the table, and we’d love for you to pick up the phone and call us,’” Hall said. “We’re not a high-pressure operation.”

BCU was formed in 1981, when leadership at Baxter International wanted to start a credit union as a financial benefit for employees of the Deerfield, Ill.-based hospital products company.

Most of its growth for its first 20 years came from the fast growth of Baxter International and other employer segments in healthcare. Since then BCU has pursued a strategy of recruiting new employer segments.

BCU focused on establishing and maintaining relationships with leadership at the companies in its network – and following them to new companies as their careers advanced. Having support at the top allows BCU to become a key part of the company’s benefits team, according to Dryfhout.

“A lot of credit unions take more of a shotgun approach where you sign up as many companies as possible and hope 50 or 100 come from each,” Dryfhout said. “I would characterize our approach as going very deep with a select number of large employers,” Dryfhout said.

As of Sept. 30, BCU had 55 branches in 19 states and Puerto Rico.

BCU broadened its growth strategy in 2011 when it acquired Target Credit Union, which had been created by the Minneapolis-based retailer.

Target CU’s last call report in September 2011 showed it had $62.5 million in assets, 10,397 members, 50,000 potential members and two branches located inside the corporate offices.

BCU’s latest expansion is its planned acquisition of Geico Federal Credit Union of Chevy Chase, Md. ($136.6 million in assets, 21,887 members); a merger that is expected to be completed by mid-2020.

Geico fits its target profile: A large nationwide insurance employer with significant concentrations of employees. Geico Federal Credit Union has 10 branches in eight states.

Baxter Credit Union began referring to itself as BCU a couple decades ago, but it became more intentional after its acquisition of Target CU.

BCU has branches at the retailer’s offices in Minneapolis, but employees might not recognize it. “What you’ll see is ‘Target Credit Union, powered by BCU.’ Still the same organization, just a different skin,” Dryfhout said.

This allows BCU to deepen its tie with the partner company, and “gives this company a great deal of pride that they can offer this benefit to their employees,” he said.

The same branding model will be applied to Geico FCU, which will be referred to as “Geico Credit Union, powered by BCU.”

BCU said it expects it will be able to build its membership among the insurer’s employees.

“They felt there was an opportunity to increase that level of value even further by partnering with BCU, which has a national reach and is making all the investments to ensure we’re staying above trend in terms of member experience and the tools and talent needed to compete effectively in 2020.”

In the past, BCU has been more passively opportunistic toward mergers. In the future, Dryfhout said he expects BCU will be more proactive.

“We’ll probably be doing more work to identify what opportunities exist, and making some of those proactive connections to understand if there are additional opportunities to grow inorganically,” he said.