Bigger is better: First Citizens’ joins other credit unions to compete against larger banks
by Glenn RittLast December, First Citizens’ Federal Credit Union was among eight credit unions that met at a company called Octant Business Services to sign an agreement with the U.S. Small Business Administration that would ultimately allow them all to offer small business loans for the first time.
That might not sound like big news, but it was a watershed event, reflecting a dramatic shift in strategy for local credit unions as they move rapidly from serving only consumers to competing with big banks for commercial and business customers.
The timing couldn’t be better. With the housing market slowing down and mortgage lending on the wane, local banks are moving with abandon to win more commercial business.
Holding the signing ceremony at Octant was more than symbolic. Octant was formed by eight regional credit unions as a shared infrastructure to support their individual commercial businesses. It’s hoped the consortium’s scale and coordination under Octant will let these intimate, membership-oriented institutions compete with the likes of Bank of America, Citizens, TD Banknorth, Sovereign and Rockland Trust, as well as entrenched local institutions such as Cape Cod Five Cents Savings and Cape Cod Cooperative.
Moving into commercial space sets in motion efforts by First Citizens’ to reinvent the image of a credit union – away from being insular and inaccessible to anyone who is not a member.
Today, anyone can belong to First Citizens’ as long as they deposit $1 in an account. They do not have to be part of a big company, association or affinity group – they must only live or work in the six counties the credit union service.
Going one step further, it has created a program called First@Work, which lets a small business – even a self-employed one – essentially have its own credit union. Employers offer the program to their employees as part of a benefits package. The biggest value proposition: discounted loan rates.
Currently, First Citizens’ has brought First@Work to more than 365 individual businesses on Cape Cod and southeastern Massachusetts.
In addition, noting the growing trend of banks purchasing insurance companies, First Citizens’ opened its own insurance agency two years ago.
Expanding into commercial lending and insurance is particularly critical for First Citizens’ given the Cape’s economy. Here, more than nine out of every 10 businesses are very small companies, employing 10 or fewer people. As a result, it’s more likely that a financial institution can gain both personal and commercial business from company owners or managers.
“It was becoming increasingly counterproductive for us to refer our members to other banks that could handle their commercial business,” said Charles Simpson, First Citizens’ CEO. “We couldn’t continue to send them into the marketplace and hope to keep their personal business.”
Rob Kimmett, senior vice president of marketing with the Massachusetts Credit Union League, echoed that sentiment. “Credit unions are getting a lot more demand for commercial services,” he said.
But meeting that demand by itself would be virtually impossible for a relatively small institution such as First Citizens’, explained Simpson.
That’s the inspiration for Octant, located in Marlborough, to serve First Citizens’, Bridgewater Credit Union, Digital Federal Credit Union, Eastern Corporate Federal Credit Union, Jeanne D'Arc Credit Union, Rockland Federal Credit Union, Northeast Credit Union and Granite State Credit Union.
Since its inception, demand has been strong, said Jim Roche, Octant’s chief operating officer. Member credit unions had written $7 million worth of business loan applications between mid-February and early May. “The vision is to deliver superior lending and deposit solutions that help member businesses grow,” he said. “That’s no different than at a commercial bank.”
Simpson hopes to have the best of both worlds. The credit union image still resonates – a common bond among members, a nonprofit ethos and a legal structure that makes it virtually impossible for bigger institutions to swallow them up.
At the same time, those emotional benefits no longer are sufficient to stay competitive. Out-of-the-box thinking, along with collaboration, has become essential.
With $385 million in assets across its entire footprint from New Bedford to Orleans, First Citizens’ is dwarfed by other banks that dominate the peninsula. For example, Cape Cod Five boasts $1.29 billion in deposits on the Cape alone. But that picture changes when the deposits of all eight credit unions associated with Octant are added up. “The consortium,” Simpson pointed out, “represents a $7.4 billion credit union operation.”
Even so, size alone may not be so critical. The smallest financial institutions on the Cape have been the ones gaining market share over the last two years amid the latest round of mergers and consolidations. And despite growing competition, new upstarts – the Bank of Cape Cod and New England Savings Bank – expect to open their doors by this fall.
“Peter and I come from large financial institutions,” said Simpson, referring to his Chief Operating Officer Peter Muise. “The key today is not necessarily size as much as it is the ability to compete through technology, the Internet, a diverse product line and the ability to actually deliver customer service.
“Everybody talks about customer service,” continued Simpson. Credit unions actually have been built around that principal, with membership being key.
Currently, First Citizens’ employs about 125 full- and part-time staff serving its 50,000 members. Even with growth, those staff numbers have remained relatively stable. The credit union has been able to control employee numbers by consolidating its entire administrative operations in Fairhaven and by emphasizing cross-training among its staff.
Meanwhile, Muise has focused on technology investments to provide the same online banking and bill-paying services offered by bigger players.
Octant was launched with a $2 million investment by the eight credit union partners. From its first commercial loan in August 2004, it now services 63 loans representing $20 million, plus another $30 million in the pipeline. That represents double-digit annual growth.
Business services run the gamut – checking accounts, corporate credit cards, cash flow management, merchant services, direct deposits, wire transfers and online income tax payments.
But the key to commercial growth will lie with Octant’s economies of scale.
“Every loan comes back to the individual credit unions with a recommendation from the experts at Octant,” said Simpson. “But the final say is made by us. And the loan assets also belong to the individual credit unions. We provide service directly to the member.”
That lets First Citizens’ think globally and act locally in what is an increasingly complex environment.
Originally published in the Nov/Dec issue of Cape Business
Glenn Ritt Glenn Ritt is editor and co-publisher of Cape Business Publishing LLC. He is the former publisher of Cape Cod Community Newspapers and editor of The Bergen Record in New Jersey. 
Cape Business Newsletters
Keep up with the latest issues affecting your business and your life! To sign up for any of the Cape Business newsletters, click here.