View from the Trenches: From living room depository to ‘fastest-growing”
by Pablo DeFilippi, National Federation of Community Development Credit Unions
Southern Chautauqua’s affordable financing model grew membership from the outside in
Southern Chautauqua Federal Credit Union was named fastest-growing credit union in New York last year by the Credit Union Association of New York. Southern Chautauqua President and CEO John Felton attributes the credit union’s explosive year-over-year membership growth to a successful automobile financing program implemented as part of a strategic plan. Here, Felton shares the story of Southern Chautauqua’s modest beginnings and how other credit unions can capitalize on affordable financing products.
The beginnings of success
To Felton, Southern Chautauqua Federal Credit Union feels like home – literally.
“Many of our current members saw me crawling around in diapers, and they like to remind me of that,” he laughed.
Southern Chautauqua, headquartered in Lakewood, New York was chartered in 1953 as the Supervisory School District #2 FCU. The credit union’s original membership included employees of the Falconer and Frewsburg School Systems – including Felton’s parents, who held the 110th book.
While there was enough interest to organize, the credit union remained small. The books were kept in a briefcase and traveled from member to member for safekeeping. But they found a home when Felton’s mother’s first pregnancy ended her teaching career in 1966.
“My frugal and budget-minded father told her, ‘You’re not just going to sit at home and have a baby,’” he said. “So she became the credit union’s bookkeeper, earning $5 a week.”
Felton was born several years later and remembers his mother setting up shop in the family room of his childhood home.
“People came to the house to deposit their checks or get a car loan,” he said. “I literally grew up with credit unions. We never had to run a credit report – there were no delinquencies. Character was very important back then.”
After completing high school, Felton pursued a career in the culinary arts at night while helping his mother manage the credit union’s $4 million in assets during the day.
“The Board of Directors liked the fact that I had some business sense,” he said. “As time went on, I couldn’t work both gigs, so the credit union took that leap of faith and hired me full time.”
Southern Chautauqua grew, though slowly at first, sticking with the home-office model until 1998.
“Neighbors were getting a little upset, now that there was a constant flow of people coming in and out of the house,” Felton said, “so we bought a place of our own. I couldn’t believe at the time how much space we had.”
Growth through affordable financing
After a series of branch openings and mergers, Southern Chautauqua was growing at a rapid enough clip to attract the attention of the National Credit Union Association (NCUA). The NCUA approached Felton about drafting a strategic plan.
“Everything started with the strategic plan,” Felton said. “The first thing we did was define our target market. We knew that there are a lot of people who want squeaky-clean members and a lot of people who want people to stay in the hole. We knew, with our size, it would be easier to go after the people who are being abused.”
Felton and his board decided to target a ratio of 80 percent low risk, 20 percent low-income and applied for low-income designation.
“We grew rapidly because we (offered affordable financing) to the members of our community with low credit scores. We knew that the ‘Buy Here, Pay Here’ lots had grown rapidly during the past several years. Once we developed our product, dealers were thrilled. They were selling cars left and right. When one dealer noticed that their buddy down the street was selling more cars, the behind-the-scenes conversations between the dealers started.”
Membership exploded as Southern Chautauqua’s name began being passed as a source of financing – but the exposure came at a price.
Felton said the credit union’s first attempt at underwriting loans for members with low credit scores was a mess, and they felt the pain about 20 months into the rapid growth.
“We really found out that we weren’t as smart as we thought,” he admitted. “I think that while we had great intentions, we didn’t really know how bad the defaults would be. We refined the underwriting with a real focus on working with the working poor who had low scores. The dealers weren’t thrilled with the new underwriting, but by then (we) were (already on our way) to building our brand and reputation.
With a new focus, Felton honed in on celebrating small victories.
“When you measure it, you manage it,” he said. “The plan told us where our successes were, and where our weaknesses were. We’ve done a great job of making our plan; we’ve done a great job at communicating our plan.
“We grew rapidly because we developed a product that was better than what was offered on the street.”
Growing above and beyond
Along with victories, Felton has experienced plenty of hardships on the road to becoming New York’s fastest-growing credit union.
“Once we decided to apply for low-income designation, someone from the (National Federation of Community Development Credit Unions) reached out to us,” he said. “I strongly believe in networking. I blindly joined the Federation and, over time, we developed a rapport.”
Because the credit union was growing quickly, it was diluting its capital. “We couldn’t make enough money to keep growing,” Felton said. “We needed to put the brakes on.”
After receiving $1.7 million through Community Development Capital Initiative (CDCI) -the one-time program the US Treasury Department made available in 2010 as a result of the Federation’s advocacy-, Southern Chautauqua’s capital went from seven to 10 percent. Everyone geared up for the credit union’s continued growth – except for our regulators, even though NCUA had approved our secondary capital plan.
“Our examiner wanted to discount our secondary capital,” Felton said. “(The Federation) helped us with the process of becoming CDFI-certified and gave us the confidence to move forward. Their advice and direction aligned us with the proper attorney who helped us get through all of our paperwork.”
The NCUA eventually accepted the credit union’s infusion as secondary capital and Southern Chautauqua moved forward, but the experience reminded Felton of his early years and why credit unions are a crucial part of any community.
“When you grow up with the vision of a large and thriving credit union, it’s a hard pill to swallow to have the NCUA say, ‘you need to put the brakes on,’” he said.
Felton and the board decided begin work on a dream project: the Kid’s Credit Union program. The original program featured Southern Chautauqua employees teaching monthly savings lessons in local schools, with students saving over the course of a year.
“We had one girl save $34 (over the course of the school year),” Felton explained. “She told us she was going to go to Wal-Mart and buy a bicycle. That didn’t sit right with us.”
Armed with an NCUA grant and a dedicated program coordinator, Felton said he wanted to focus more on teaching the benefits of long-term saving. He pulled the Kid’s Credit Union back and redefined it. Now students in six school districts have deposited almost $100,000 in nickels, dimes and quarters.
“The idea is that second graders deposit and save $200 during the year, third graders save $300, etcetera,” Felton said. “At 10-percent interest, their savings mature and when they are a senior in high school, they will graduate with $10,000 they can use for school, a car, or their first apartment. The most important thing to us is that we’re changing the culture of the county.”
According to Felton, Southern Chautauqua’s influence is starting to bleed over.
“We have built our reputation as a community pillar,” he said. “We’ve even started branding ourselves ‘home of the Kid’s Credit Union.’”
As for the future, Felton believes the opportunities for credit unions to succeed through ingenuity, creativity and partnerships are endless.
“We’re very confident.”
