MUSKEGEON, Mich.-Tough decisions made four years ago are making it easier for Muskegon Co-op FCU to do business in difficult times-including growing loans by 37% in 2009.

With the credit union experiencing low loan growth and a shrinking membership in 2005, Muskegon Co-op FCU made significant changes the following year-creating a structure that rewarded members based on their relationships and toughening lending standards to include not granting loans to C, D, and E credit members.

CEO John Rupert realized the decisions segregated member service-and also realized that may not be such a bad thing.

"But we learned in 2005 that 21% of our membership had household incomes of $15,000 or less. We knew these are people we must serve, but they don't make for a profitable or break-even relationship."

The first step of the CU's three-year plan to turn things around was "throwing our resources and energy at making loans, setting goals for quality lending growth, and establishing higher lending standards," Rupert explained. "What gets measured gets done."

MCFCU set aggressive loan goals, capped off with an objective of reaching 30% loan growth in 2009 while maintaining delinquency levels below 1%. Last year Muskegon Co-op attained 37% loan growth, .36% delinquencies, and .75% charge-offs. "We took a hit early on with loan growth dipping in 2007," Rupert said. "But when the credit crisis hit we were flush with cash, good loans, and indirect lending took off."

Opportunity Door Opener

The recession opened the door wider for indirect lending when manufacturer and bank financing dried up, helping the $41-million CU-with total loan volume of $30 million-to record 25 months in which it generated at least $1 million in loan volume. "We are doing well because of our lending practices," stated Rupert. "Our loan-to-share ratio is up to 86% at end of September, and we are looking at 20% loan growth for 2010."

More than 85% of the credit union's loan volume ($19 million) comes from auto lending, and it's primarily used car business, with only $3.6 million in new cars. Rupert estimated that 60% to 70% of the business comes through indirect channels. "Overall, our lending strategy was to do fewer of the large real estate loans and focus more on the $12,000 to $18,000 used car market," said Rupert, adding that decision has helped the credit union avoid the high delinquencies experienced by many financials.

To stem declining membership, MCOFCU looked to attract and keep quality members.

"It was not as much a push to gain new members as it was to increase the percentage of existing members with multiple products," Rupert said.

The credit union established its Rewards Program, a tiered incentive structure in which members gain benefits from the aggregate of their relationship.

For example, an active debit card returns 50 points and an active checking account 75. Tiers are from 199 points and below (Basic), 200 to 350 (Silver), 350 to 475 (Gold), and 475 and up (Platinum).

Silver members receive free cashier's checks and 10 free ATM withdrawals or balance inquiries.

Gold members receive those benefits plus free wire transfers and free account history inquiries and account printouts.

Platinum members receive all those advantages with the addition of no holds on ATM deposits, unlimited ATM withdrawals, discounted Visa gift cards, free travelers checks, a .25% loan discount, 25 basis points extra on a CD, and free checks and overdraft transfers.

Results have been very good, Rupert said, with more than 30% of Muskegon Co-op's membership expected to land above the Basic category by the end of the year. In 2009 assets grew by 28%.

What has also helped the credit union to prosper and drop its operating expense ratio to 68.5% while boosting ROA to near 1% this year is a greater attention to expense control-including the CEO personally reviewing a large percentage of the credit union's expenses.

Yield Twice Peer Group

Investments have helped, Rupert observed, due to the fact the portfolio is limited, since the credit union has little trouble rolling maturing investments in its laddered portfolio into loans, and because Mustkegon Co-op made wise decisions.

"Our investment yield last year was about twice our peer group," Rupert said. "In the middle of 2008 we bought a lot of 5% to 5.25% five-year CDs. That has helped. I was not afraid to buy long when rates were high."

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