Serving Distressed Industries: Lessons from a Defense CU

June 22, 2010

During the late 1980s and early 1990s, Service Credit Union, Portsmouth, N.H., shuttered 10 branches in seven years due to the Base Realignment and Closure (BRAC) program that closed numerous military installations. This affected up to 30,000 of the credit union’s members overseas and 13,000 stateside.

“We planned for the worst,” recalls Gordon Simmons, CEO of the $1.6 billion asset credit union. “We were concerned that we’d lose half our members; possibly more with additional base closings. Our very existence was in doubt.”

Simmons tells Credit Union Magazine how Service Credit Union rebounded from the devastating base closings.

CU Mag: Can you tell me about the base closings that affected your CU in the past?

Simmons: The first round of base closings occurred in the late ‘80s and the second BRAC took place in the early ‘90’s.

Before the closings we had 15 military branches in Germany, one in New Hampshire and one in Massachusetts. Pease Air Force Base in New Hampshire was the first to go around 1988, which was quite unexpected. Pease was always deemed the “Gateway to Europe” and the first President Bush often landed Air Force One at the base when vacationing in Kennebunkport, Maine.

That didn’t matter: BRAC closed it anyway and we lost the location of our first branch office and the birthplace of Service Credit Union, as well as more than 8,000 potential military members.

Not much later in the decade, our Ft. Devens, Mass., Army branch closed and more than 5,000 potential members were lost. Pease and Devens were the only two military branch offices we had stateside. And as devastating as these closures were, the eventual loss of eight more Army and Air Force branch closures in Germany were quite trying for the credit union.

We experienced 10 branch closures in five to seven years with a potential 43,000 members; 30,000 overseas and 13,000 stateside. Fortunately, we were able to retain many of the members we had accumulated at these offices. But our membership potential was greatly reduced and a trickle of membership losses followed. This is devastating to any organization.

CU Mag: What was your initial reaction to the closings?

Simmons: Our initial reaction was disbelief in regard to Pease Air Force Base, then acceptance. The other closings were pretty much expected as we knew that many overseas and stateside bases would close.

We planned for the worst. Our fears were that we would lose up to half of our membership, possibly more with additional base closings and what the financial impact would be on credit union.

CU Mag: How did the closings affect your CU initially in terms of membership and asset declines, income, and other measures?

Simmons: We realized a slow loss of members, accounts, and assets. Naturally, members with loans were locked in with Service Credit Union and couldn’t move until their loans were paid off.

Delinquencies and chargeoffs rose only slightly, and our assets fluctuated mildly. Our assets stood at $282 million at the end of 2004 and have risen steadily to $1.6 billion as of March 2010.

Fortunately, we regained opportunities to expand our footprint in Germany on U. S. military installations in the mid ‘90s, and we retained an office on the former Pease base, now the Pease Tradeport that serves businesses there, as well as the Pease Air National Guard.

Overseas, our branches grew from seven to 17, increasing our member and business potential. So, during and immediately following the closures we had new opportunities to expand and grow.

CU Mag: What strategies did you implement to turn things around?

Simmons: We did several things:

  • Looked, and continue to look, for future expansion opportunities on military bases in Germany.
  • Expanded our New Hampshire field of membership (FOM) by converting from a federal to a state charter. This allowed us to serve nine of the 10 counties in New Hampshire with a population of around one million, and continue serving the military in Germany.
  • Maintained our branch at Falmouth, Mass, serving four towns in that state, but under the New Hampshire.
  • Expanded our FOM during the early 2000s to include all branches of the U.S. military around the globe, bringing 10 million potential members into the fold.
  • Merged in five small credit unions; four in New Hampshire and one in Massachusetts.
  • Invested greatly into improving our technology and member service, equipping our two call centers with the technology they needed to better serve members quickly and efficiently. We also expanded our service reach at the call centers to 24/7 live person member service.
  • Instituted “employee empowerment,” which essentially gives each member of our team the authority to make whatever member service decision is necessary—even out-of-policy requests—to meet members’ service needs. This has been expanded into a “give members what they want” mentality, meaning that we do not make members jump through hoops to receive the financial service and products they desire.

CU Mag: Looking back, what might you have done differently?

Simmons: As bad as it may sound or read, nothing. A combination of good planning and some “luck” paid off handsomely.

CU Mag: What lessons did you learn from your experience?

Simmons: We learned to be ready for any situation at any time. The unthinkable can always occur and you need to have a plan if it does come to pass. We entered BRAC like babes in the woods hoping for the best, but with a plan that expanded over the years. It worked.

We all have to expect the unexpected and plan accordingly. What happed to Service Credit Union happened to many military credit unions across America in the 80’s and 90’s, and many may be even better off today than they were during BRAC. Plan for the unexpected understanding how your credit union could survive if you lost your main sponsor or FOM.

CU Mag: What advice would you offer CUs that are serving industries in distress?

Simmons: Be aware of anything that may impact the membership base you serve today. Stay on top of legislative, regulatory, and other initiatives that may impact your operation negatively—or positively. And plan ahead.