MILWAUKEE–Brewery CU has shifted its efforts from serving the Brewery Workers Union to finding creative ways to bring financial services to poor and underbanked communities, earning it a Best Practices award from Credit Union Journal.
One way Brewery has put its new strategy into action, explained CEO Jim Schrimpf, has been focusing on Individual Development Accounts (IDAs) wherein if a member saves $2,500 or more during a six-month period, the CU will match that $2,500.
“It’s very flexible; you can use it for buying appliances or for a down payment on a new home,” explained Schrimpf. “We don’t have any income limits, but we do have target ZIP codes. In the city of Milwaukee there’s a lot of troubled neighborhoods, and we felt that the best way to help those neighborhoods was to bring some stability to those areas.”
Schrimpf noted that many FIs with IDA programs have income caps in place. “That’s not serving our purpose,” he said. “We just want to get people into these neighborhoods to help stabilize them…There are people of means who will move into those areas and help stabilize them, and that was very important to us.”
Year-to-date, Brewery CU is reporting $1.13 million in net interest income after loan loss reserves, and net income of more than $204,000.
Lending To D&E Paper
Brewey CU also keeps the focus on lending to those with less-than-perfect credit.
“A lot of CUs talk about risk-based pricing and, of course, we do that, too, but we actually make loans to D&E paper,” said Schrimpf.
Today, 22% of the CU’s lending is in E paper, 16% is in D paper and 18% is in C paper–numbers that are pretty normal for Brewery CU. In 2005 it saw 25% E paper, 14% D paper and 18% C paper. Brewery serves about 7,500 members with $36-million in assets. As of its September 2012 Call Report it has more than $28.3 million in loans on the books.
“We certainly have a much higher charge-off than our peers, but on the other hand our net income is probably higher or equal to a lot of our peers,” he said.
Charge-offs year-to-date are at $460,000. “What’s significant to us is that we can service this segment of the population successfully and make money at it. I think a lot of times CUs are hesitant to put their toe into this and actually serve underserved populations, because they think they’re going to lose money or something bad is going to happen. That’s not the case at all if you structure it right and use best practices.”
A Lesson Learned
Brewery classifies E paper as any credit score below 569, while 619 is the ceiling for D paper. Members with E credit can get a secured loan limit of up to $8,000 and an unsecured limit of $1,500, and can have a total loan out of $12,000.
“We’ve learned in the past that it doesn’t really work out too well if you’re making a $35,000 car loan to someone with E credit,” said Schrimpf. “But you can still put people in a halfway decent used car for $8,000.” Rates right now for cars start at 2.20%, and D paper adds 750 basis points onto the rate.
“We only use the credit score and there’s no other factor. You don’t have to be a homeowner and you don’t have to have a job,” said Schrimpf. “As long as you have a lawful source of income, that’s our whole criteria; we’re looking to make loans.”