ST. GEORGE , Utah -
A deposit pricing strategy that segments members according to their price sensitivity, combined with risk-based pricing on the lending side are being credited for helping to drive growth at SouthWest Community FCU here.
Deposit and loan pricing are certainly not alone in helping SouthWest Community to post the numbers it has, as the credit union has deployed a number of other strategies over the years as well, according to CEO Muriel Blake, who started her credit union career as a part-time collector in 1984 when the credit union had $5 million in assets.
Today, SWCFCU supports $160 million in assets for about 20,000 members in one of the fastest growing U.S. market areas. SouthWest Community recorded a 2.08% return on assets (ROA) during 2006, the 13th highest among the 656 credit unions in the $100 million to $250 million in asset range (which collectively returned .72% during 2006). Its six branches serve five counties in southern Utah, two communities in Nevada and the area northwest of Colorado River in Arizona.
The First Order of Business
"When I took over as CEO in 2001, we had a capital-to-assets ratio under 7% with weak earnings," Blake said. "Our first order of business was to strengthen our margin, capital and earnings." Five years later, assets have doubled; earnings have increased over three times while capital is now a healthy 10.7%.
For Blake, putting policies in place as CEO came after a decade of other roles. By the late 1980s Blake's expanded role and accomplishments included leading the start-up of the mortgage and construction lending programs, two other cornerstones for growth. During the mid-90s Blake led efforts to adopt a risk-based loan pricing model.
After analyzing its membership base, the CU expanded the deposit menu to incorporate a more sophisticated pricing model and a wider variety of services. Today SWCFCU offers four checking accounts (including high-yield checking) and other options.
"We implemented a deposit pricing strategy in which members segmented themselves into rate-sensitive or non-rate-sensitive groups," Blake explained. Instead of raising rates across the board, new products were introduced with higher rates and features to attract the rate-sensitive members, which Blake estimates is approximately 50% of member deposits. In order to attract higher deposit balances, higher tiers have been introduced, with the highest tier on balances exceeding $350,000.
To encourage saving, SWFCU offers an account paying 2% if the member adds $50 each month; the rate reverts to .65% if the increase requirement is not met.
Decrease In Cost Of Funds
That strategy has paid off with a cost of funds decrease to 1.69% during 2006 from 3.68% in 2001, and net interest margin improvement to 4.56% from 3.87% for the same period. Today, 56% of members have checking accounts at SouthWest Community, and its share draft percentage of total deposits at 24% is double the industry average. Additionally, the average member checking account balance has doubled since 2001 to more than $2,800 per account.
The credit union's loan pricing strategy also changed. "We price our loans based on bottom-line requirements by deriving a loan price after considering our internal funding and servicing costs as well as a credit score adjustment," Blake said. " We try to price the loan according to the risk-this keeps our loan yield higher than average."
SouthWest Community FCU's mortgage strategy has been to focus on quality and T-bill-indexed ARMs with reasonable rate change caps. The CU originated nearly $60 million during 2006. During that same period, it also originated another $24 million in long-term, fixed-rate mortgages that were sold in the secondary market. As a result, SWCFCU closed 2006 with mortgage loans as a percentage of total loans ratio of 49%, compared with a 32% industry average.
Both business and residential construction remains strong. According to the local Chamber of Commerce, the St. George area consistently ranks in the top 10 among lists of the best places to live and it was recently ranked as the second best city in the nation for business. Blake said the credit union has worked to take full advantage of the local market conditions.
"The last five years has provided the opportunity for our team to capitalize on our construction lending expertise; we currently average between 130 and 140 construction loans in process at any point in time," she said.
As of June 30, more than $30 million in construction loans were outstanding. The lending team has used the Interlinq's Builder Blocks software over the last 10 years to manage the construction lending volume. "It would have been impossible to handle manually with the number of staff we have," she added.
Expansion of Business Banking
These demographics have also allowed for expansion of SouthWest Community's business banking strategies. Having offered business loans for years (currently it has more than $14 million of business loans outstanding), additional business services launched during 2007 have included SBA loans, business checking, credit cards and merchant services, and e-bill payment and payroll processing are in the works.
Meanwhile, placing computers in the branch lobbies to teach members how to use its Internet banking service has boosted usage to nearly 40% of members at the end of June (59% of checking account owners use online banking).
"We've had a big push over the last year and a half to educate our members on our automated services-Internet banking, telephone and shared branching services," Blake explained.
Employees incented to set a member up for Internet banking and issue a debit card to new checking accounts. Employees are rewarded for exceptional member service with dinners, movie tickets, gift cards, and extra vacation days.
Fan of 'Net Promoter'
Member service and bottom line returns will continue as key focal points at SouthWest Community.
Blake is a big fan of the "Net Promoter" philosophy (see www.netpromoter.com), a discipline by which companies profitably grow by focusing on their customers. Based on a book titled 'The Ultimate Question" by Fred Reichheld, the practice is simply asking one's customers would you recommend us to a friend or colleague?
"We were pleased to learn that most of their members would recommend SouthWest Community after we conducted our own targeted e-mail campaign asking nearly 3,000 members this question," Blake said.
There are significant numbers of companies using this survey, and Net Promoter Scoring is now an integral part of the credit union's ongoing member monitoring and feedback process. (c) 2007 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com http://www.sourcemedia.com
