Entrepreneur transforms tiny credit union into publicly traded bank

Daily Record, The (Baltimore), Mar 15, 2003 by Neil R.G. Young, CLU, ChFC

Herb Moltzan, bank president and CEO, began as a letter carrier in Buffalo, N.Y., but he wanted something better so he signed up for night school at SUNY, the State University of New York.

It was hard work, but eventually he earned a degree in accounting.

Now it was time for better things. In 1976 he started a new career using his accounting skills as a credit union examiner, moving to the District of Columbia office of the National Credit Union Association in 1981. As an examiner, he traveled extensively, working mainly as a case manager for problem credit unions.

Doing this kind of work you get a good insight into what can go wrong, Moltzan explains.

Moltzan learned two things in his job: how to manage a credit union well and something else.

Here were credit union managers, some of whom were making big mistakes and taking home bigger paychecks, remembers Moltzan. I thought to myself, 'there's something wrong with this picture.'

His chance

In 1985, Moltzan got his opportunity. It was a little credit union in Towson, in the lobby of the old Blue Cross & Blue Shield building on Joppa Road. The name of the credit union was Blues United Cross & Shield or BUCS, for short.

I took the job sight unseen, says Moltzan. This wasn't your big operation. I had one employee and one little room.

Moltzan knew that his little credit union faced a major threat: Although they had many depositors, in reality they had only one customer - employees of Blue Cross & Blue Shield. If anything happened to Blue Cross, his little credit union would be out of customers, and he would be out of a job.

In 1986, Moltzan sat down with his directors. He laid out the problems they faced. Besides the limited market, he pointed out that the credit union also had limited capabilities. He explained that the reason customers were coming to him was because of convenience of location, not quality of service.

You couldn't make a withdrawal and get your money the same day, explains Moltzan. If we were going to keep customers, we needed to provide good service.

Shortly after laying out the vision for the credit union, Moltzan was able to do just that. In early 1987, the company bought its first true credit union software package.

We loaded the new software on Blue Cross' mainframe computer, and spent all night converting our customer's data, Moltzan remembers. The next day we had our first withdrawal request. We put the data into the computer - I was a little stressed waiting - and out popped the check. It was only $20, but we knew the system worked!

BUCS opens

The next step for Moltzan was finding a way to broaden their customer base.

Although they have a limited market, credit unions have a major advantage over commercial banks in that they are income tax exempt.

As credit unions began to figure out ways to expand their customer base, they began to pose a threat to small commercial banks, and in the mid-1990s, lawsuits began to emerge. Moltzan watched the situation carefully.

After a planning meeting where the directors assessed the risks associated with having virtually all customers from a small number of employers in one industry and expressed their desire to expand their service throughout the community, Moltzan told them, Why don't we look at this bank thing?

On March 1, 1998, BUCS Federal opened the doors as a bank.

We left the word 'bank' out of our new name so as not to alienate our old customers, says Moltzan, but we found they didn't care whether we were a credit union or not. As long as we kept giving them great service, in their eyes, we were still the same old credit union.

Now BUCS Federal was a bank. They didn't have the restrictions imposed on a credit union, but because they were mutual, they could not raise capital. So, they took the steps to put together an IPO, and on March 15, 2001, BUCS Federal gave up its mutual status and became a publicly traded bank.

Throughout the transition from credit union to mutual bank to commercial bank, Moltzan and his growing staff worked diligently to get their name out. They maintain an excellent relationship with Blue Cross, keeping an office at the company's Owings Mills headquarters. Meanwhile, they did everything they could to increase name recognition with the general public.

We decided to do everything we could to promote the name BUCS Federal, says Moltzan. We sponsored kids' baseball and softball teams. We made sure our logo was on their uniforms so their parents would recognize our name.

The logo played off the natural nickname for the dollar - Buc$ Federal. The bank started publishing a newsletter, Your Buc$ Worth.

We run two philosophies here, explains Moltzan. We are a commercial bank to the community, and a credit union to the depositors who stuck with us for all these years.

Still growing

Moltzan intends to focus on the bank's core business, but also wants to attract new commercial accounts.

We want to help people get started in business, says Bill Howard, BUCS Federal senior vice president of Business Banking.

Moltzan admits that converting from a credit union to a bank was a risk, but the opportunities and rewards were worth it.