Dr. W. Craig Esrael
CEO of the Year 2013 Winner
Craig Esrael is celebrating his 30th year as CEO in 2013, but don’t call him over the hill. It turns out, Esrael — as public a face of a company in advertising locally as Corey B. Trotz — is just 54 years old. Combining those two pieces information, math says that … can this be right? … Esrael started as chief executive of his financial institution when he was just 24 years old.
How he got to that point in his career wasn’t typical either.
Esrael grew up in Okauchee, Wisconsin, in the middle of lake country. The community had a lot of lower- and middle-class families and also many wealthy people like corporate executives who owned homes on the lakes.
Esrael’s family was the former. He was raised in a blue-collar household; his parents divorced when he was 8, and he experienced trying times. “Back then child support wasn’t always enforced,” Esrael says. “My Mom didn’t finish high school. We had nothing for a long time. I remember returning bottles to get money to get food. Those were tough years but they had an indelible mark. Even though we worried about having enough to eat, I was still happy. It made me a person who doesn’t require a lot to be happy.”
His mother remarried, and his stepfather was a heavy equipment operator. It lent stability to his childhood. “We migrated into the lower middle class,” Esrael says. “It was a good family.”
No one from his family had ever been to college, and Esrael says he always thought he would have a career in construction. “I was pretty well into my senior year before hearing about my classmates taking a test to get into college,” he says and then recalls with a laugh. “A test? What is it? It’s probably a testament to how stupid I was more than anything.”
His guidance counselor didn’t think much of Esrael’s prospects and encouraged him to look into a trade. But Esrael took the ACT and applied to all of the public schools in state. “I miraculously got accepted by them all. I didn’t know what I did on the test, didn’t even know what was good or bad, and my grades weren’t all that good. But it’s part of my good fortune.”
He started out as a psychology major, but his advisor told him how much schooling would be necessary to make a career of it: a bachelor’s, master’s, and maybe a doctorate. “I told him nobody would go to school that long, and that’s not what I want to do,” Esrael says.
He wound up a business major, and got his bachelor’s in marketing. One of the last classes he took was finance, which he had put off because he thought it was something he wouldn’t like. “After the first finance class, I was on fire,” he says. Feeling a calling to continue with his education, he turned down a good job and went into the master’s program. He finished his M.B.A. in a year and a half. (He’d wind up going to school for even longer than he would have in a psychology program.)
After that, Esrael interviewed for a number of jobs in banking across the country, including some credit unions. He didn’t know much about credit unions beyond studying them briefly in a class. His classmates were taking positions with Citibank and Bank of America when “the CEO of this little troubled credit union in Memphis called and asked me to interview.” He visited for the interview experience and to enjoy a good weekend in Memphis.
He was surprised when the institution, Navy Memphis Federal Credit Union, offered him a job as the executive vice president. He accepted and told his Mom it was a great opportunity and that he’d be back home after a year and a half of great experience. Besides, “where else can you go at 24 and be the EVP of any institution? I would’ve been a trainee anywhere else.” The CEO had been in banking about 40 years and was very smart but had no formal education. So the board thought they would hire someone with academic credentials and build a team.
He liked the board, but his hiring was an unusual situation. The CEO wasn’t involved in the hiring process, and, he says, “I knew even at that age that something didn’t seem kosher. It seemed odd, and it is odd.”
A few months later, the board fired the CEO and named Esrael his replacement. “So there I am 24 and named the CEO. They met with me privately and told me, ‘The CEO’s not working out, we really want you to be our CEO. We understand you’re still learning, and we’ll work with you to make you the CEO we want you to be.
“As a kid, I felt bad for the [old] CEO. I thought about leaving. This was my first white-collar job. It seemed ruthless. He was their seventh CEO in six years. I did some soul-searching, but I stayed and it was a very good move for me. It was a crazy course of events.”
It was just the beginning.
MBQ: What kind of shape was Navy Memphis Federal Credit Union in when you took over?
Craig Esrael: “It was awful. I wish I could say I knew it was a diamond in the rough and knew I could transform it. But the truth is I was a 24-year-old kid who had a great academic background but had no banking experience. I didn’t realize how bad the shape it was in. if I looked at it today, I’d say, ‘Heaven’s no, would I work in a place like that nor would I advise anybody I liked to work there.’”
So ignorance was bliss?
“Ignorance is not only bliss but beneficial. They had $31 million in assets at the time and had six consecutive quarters of losses. They had about a million in capital. Turnover was rampant. Everything was outdated. Delinquency was in the stratosphere. Each CEO would fire people and bring in new people. Everyone had a short-term perspective because they thought they were going to be fired or the institution was going to go belly up. They had the regulatory rating that you get just before you fail, just before they liquidate you. They had a letter of understanding with regulators. They were on death’s doorstep, and I wasn’t smart enough to really know that.”
You didn’t have practical knowledge of leading a financial institution and faced a steep learning curve. What did you do that your predecessors didn’t?
“The board trusted me. They were more patient with me because of my age, and they did respect my academic credentials. They knew cognitively I could do the job. I was very naïve and had lots of theory in my quiver. A lot of things I started worked well, and a lot were great theoretically but not practically. But the staff knew I was trying. I worked really long hours and still do. The staff knew when they drove by on the weekends I was there working. They knew I was there before they got there in the morning and I was the last one to leave. I was bound and determined to do everything I could. It was that ethic and dedication that made them understand if I was that committed, they were going to be too.”
Did it take someone who didn’t understand the severity of the situation, who wouldn’t give up on it?
“It probably helped because I wasn’t afraid of it. Now if I looked at an institution in that shape, it would be the scariest thing in the world. I didn’t think that way about it back then.”
What’s a theory you had from college that did work?
“Back then the savings and loan debacle happened, when the whole industry was wiped out because there was a mismatch of assets and liabilities. I spent a lot of time studying it in college. When I started at Navy Federal, there was a tremendous mismatch as well. Back then by hand I modeled the asset-liability matches, looking at what that does to net income and capital when rates change. It was a crazy time and things were changing radically. It killed the S&Ls and was one of the things killing Navy Memphis.
“I got a handle on pricing and priced competitively but smartly. The quality of the lending process was terrible. The delinquency ratio was over 4 percent. I got into the lending process and started modeling it and what impact a certain level of delinquency would have on net income. Also, I started developing a level of quality service to customers and members. I started a profit sharing plan for the staff. If they worked with me to be more efficient, I’d give them a portion of the efficiency of the income we generated. And we still have it in place after all these years. It’s been fundamental in changing the culture. We’ve got a culture obsessed with efficiency.”
How many members did the credit union have back then?
“About 25,000 members. The challenge was that our only market was people on the Navy base. At that time it was a technical training command, and the average age was 18 or 19 years old. They got very small paychecks, and they all wanted a loan for a new car. They’d spend nine months in Millington and then go to another naval facility. The historic loan charge-off ratio was extraordinarily high and it was very labor-intensive. On paydays the lines would go out the door. The young military kids would cash their checks. It was a market that provided a lot of challenge. I tell our board today that even though I didn’t like it at the time, I think it taught me to be very efficient. It prepared us for the hyper-competitive market we’ve transitioned to today.”
Did you move the credit union beyond just serving the Navy or did the Navy scale back its Millington operations first?
“It happened concurrently. We started serving other selective employment groups when regulators started allowing credit unions to go outside of single employers. I was picking up groups to broaden and diversify our market. When the Navy announced it was moving the technical training command to Pensacola, that was still the core of our group.
“I flew to Atlanta and met with the regulator over the region. I took our business plan and told him we were getting calls on when the credit union will be closed down, that our market can’t differentiate between the Navy and us because of our name. I asked, ‘Would you allow us to broaden our market and serve the community?’ He said, ‘The business plan is solid but I can’t do it politically.’ I asked when he thought we could, and he said in two years. I told him, ‘We’ll be out of business in two years.’
“I came back to the board and will never forget the look on their face when I told them. They asked me to call the regulator and ask him to reconsider. I did and he said, ‘No, and if your board would like to fly to Atlanta I’ll explain it to them.’ My board told me, ‘Tell him — and don’t mince any words — tell him to go straight to hell. I called and said, ‘All due respect, my board wanted me to deliver this message to you: You’re supposed to go straight to hell.’ He hung up the phone.
“And the beauty of the banking system is you can be state chartered or federally or nationally. It dawned on me that we do have the potential for a change with the state board. We took the same business plan to them, they said it was viable and would give us this new market. In four to six weeks we went from Navy Memphis Federal Credit Union with a federal or national charter, serving primarily the people on the base, to First South Financial Credit Union, serving the community being a state charter.”
Once again, you were out of your comfort zone.
“I kind of like being out of my comfort zone. It required a whole re-think. It wasn’t a name and a new opportunity, we had to change the whole way we did business. We had a captive market on the base that required a lot of operating horsepower and lots of risk, but it was contained. But now we needed new marketing and strategic plans. We needed to increase our service delivery channels with new branches and technology. If we were going to serve the Memphis MSA, we were going to have to have the wherewithal to do it.”
Compare the credit union at the beginning to today.
“We’re pushing $450 million in assets, and capital is up to $121 million. We’ve gone from the weakest examination rankings to the highest. Every rating organization that ranks financial institutions ranks us in their highest category. We’re in the top 1 percent of all banking institutions in the nation for financial safety and soundness. Financially we’ve traveled very far. We’re proud of that. You see it in our advertising and we talk about it all the time. We’ve worked hard to get where we are. I was looking at a number last week. In 30 years since I’ve been there, we’ve created $300 million in tangible value for our members. That’s not assets, that’s tangible money in their pockets.”
What’s your approach to investing and loaning?
“We want to loan it out. We’re not an investment club or a banking institution. I would just as soon loan out every dollar we take in. But it’s our fiduciary responsibility, that when we loan it out there’s a good chance it’s going to be repaid. You laugh, but after going through this mortgage crisis, even the largest three or four banks in the country weren’t using that philosophy. They were making loans that everybody said there’s no way they can ever be paid back.
“Before, during, and after this recession, our approach to doing business hasn’t changed. We don’t have stockholders. We can run First South Financial for the long-term. I don’t have to worry about the next quarter that we’re going to meet the dividend payout on stock and if we don’t I’m going to be under fire and lose my job. The beauty is that I don’t have to lead the organization quarter to quarter, I literally look ahead to the next generation.
“All of the profits go back in dividends or into capital, which belongs to the members as well. Our form of bank ownership, this cooperative model, is the truest form of democracy. Everyone gets one vote. I get one vote, someone with $25 gets one vote, and someone with $25 million gets one vote in the institution. It’s the banking model our Founding Fathers and probably going back to Plato and Socrates would support. It’s truly the only democratic model of banking.”
What do you like to do when you’re not on the clock?
“I think of myself as a simple person who enjoys the simple pleasures of life. I like the outdoors. I have a great family, a wife and three children. I’ve always been goal oriented and always knew it wouldn’t take much to make me happy in life. It sounds clichéd but it’s very true. I’d characterize myself as the luckiest person in the world. Good things happen and I don’t know why.
“It’s been a wonderful 30 years. I feel so fortunate to still have so much of my career ahead of me. I’m proud of the organization and I’m thankful. Every day I get up I look forward to going to work.”
Name: Dr. W. Craig Esrael
Company: First South Financial
Address: 6471 Stage Road, Suite 200, Bartlett, TN 38134
Services provided: Full-service banking institution, providing everything from checking accounts to mortgages and more
Number of employees: 105
How long with company: 30 years as CEO.
Education: B.B.A.; M.B.A., Finance, University of Wisconsin. M.S., Operations Management, University of Arkansas. Ph.D., Administrative Leadership, Vanderbilt University.
Accomplishments: Turned around a failing credit union and led it into financial success over a 30-year career and counting. Today, First South Financial serves the employees of University of Memphis, St. Jude Children’s Research Hospital, NSA Mid-South, along with residents regardless of where they work in nine counties in the Mid-South area. First South Financial is consistently recognized by independent rating organizations as one of the financially strongest credit unions in the nation. First South Financial has 15 branches and offers a wide range of services including student loans. Consistently posts high Net Promoter Scores in surveys.
Professional Awards: Named Executive of the Year, Memphis Business Journal. First CEO ever inducted into the Tennessee Credit Union Hall of Fame. First South Financial was the Bergengren Award recipient in 2002 and has been recognized with the Dora Maxwell Social Responsibility Award, the Louise Herring Philosophy in Action Award, and numerous CUNA Diamond and CUES Golden Mirror Awards.
Professional certifications/memberships: Chairman, PSCU Board of Directors. Member, CUNA World Leadership Development Committee, CUES Executive Committee, and Tennessee Department of Financial Institutions Task Force on Credit Unions. Board Member, Tennessee Financial Literacy Commission.
Civic responsibilities/causes: Chairman, WKNO. Immediate Past Chair, Bartlett Area Chamber of Commerce. Board Member, St. Francis Hospital-Bartlett. Member, University of Memphis Advisory Board.
Family/PERSONAL information: Lives with his wife in Cordova. They have 3 children and one granddaughter. Enjoys the outdoors including hunting, fishing, running, and canoeing.
What makes a good CEO: “Someone who has the courage to make the hard choices, who sees change as an opportunity. A good CEO surrounds himself with trustworthy, talented experts and then gets out of their way.”