COMMERCE CITY, Colo.-One small credit union that put itself through a "brutal" review of every expense believes it is now well-positioned to grow and to serve niche markets.
Rainy Thoen, CEO at $37-million Community Choice CU here, said that too many small CUs try to grow within their current expense structure, rather than reducing that and then trying to grow. Thoen should know-her CU spent the last four years going through a substantial expense review and contract renegotiation process that cut costs by more than 15%.
"We're focused on growth," said Thoen. "We feel like we've cut all the expenses we can without hurting service or changing our product line."
Community Choice reported net income of $293,000 at year-end 2012, which improved to $105,000 for Q1 2013. Some of that strong Q1 showing is the result of absorbing another small CU, said Thoen, but CCCU is on track to earn 1% ROA for the year.
Reviewing Every Item
During that four-year process, according to Thoen, "We went through every line item and analyzed 'Is this an expense that's needed? Are we getting anything out of it? Can we move the contract to another vendor?' It was a brutal process, but it really helped us to see where we were spending our money. In some categories we've seen substantial savings; in others we didn't see any."
Collaboration is also key to small CUs' survival, and Thoen said she had to find creative ways to bring the expertise that the CU needed in-house. "We hired retired CEOs who wanted to work just a few hours, and what a remarkable base that's provided for us in that we've been able to build a really strong team by thinking outside of the box on where to get good employees," she said.
Thoen brought aboard two former CU professionals and another retired professional to assist with functions such as ALM, policy review for the board, and more. The positions are paid, although "it's nowhere near what they could make on the open market. But the two folks from the credit unions really loved the industry, and they wanted to help and give back. They are very aware that being at a smaller credit union, we probably didn't have the budgets they were used to."
Thoen said part of what made the process work was finding specific projects where the credit union needed help and then aligning those projects with the people and the expertise.
Thoen also said that serving the underserved remains the biggest growth opportunity for small CUs. Because Community Choice has a low-income designation (as well as a CDCU designation), "we've been able to reach out to our community and offer lending products that other financial institutions may not be willing to offer. So that's helped us with our yield and also helped the community in getting a better deal than a payday lender or a bank."
One of the biggest successes there has been car loans, an effort that has seen the CU partner with local dealers and community institutions to help benefit low-income consumers in the area.
Those loans are risk-priced-generally 8-10% above traditional rates-and all borrowers are required to have their cars outfitted with PassTime, a starter-interrupter that beeps when payments are late and can disable the vehicle if the loan becomes delinquent.
The credit union currently has about 820 new and used car loans on its books totaling more than $8 million. Total value of all loans on the CU's books is about $18.1 million.
If low-income members make 12 consecutive on-time payments on auto loans, Community Choice encourages them to come for an in-person visit to have their credit reviewed to see if the device can be removed from the vehicle or if they can get a better rate.
"It's been wildly successful," said Thoen, adding, "We've had members come back to us that have said 'I'm not good with my money, so can I still get that device?'"
That willingness to work with the membership has generated a lot of loyalty, and Thoen said that the credit union remains focused on serving that niche. "In past years we tried to be all things to everyone, and we just don't have the resources to do that."
A Mistaken Attitude
That kind of attitude is a mistake that can easily sink small CUs, she continued. "It's very important not to get caught in that trap."
Community Choice does offer mobile banking or bill pay, but those services are not widely used nor are they top-of-the-line applications.
"A member once said 'This is nothing like Chase's app,' but we do have something, and when we look at our members' resources, is that the best place to spend our money-on an app? No."
