Strategies For Measurable Growth
Solutions For Every Scenario
SAN DIMAS, Calif.-There isn't any one solution for every credit union. Rather, there are different solutions unique to every credit union's challenges when it comes to growing, according to WesCorp.
Kevin Lytle, vice president of marketing for WesCorp, based in this Los Angeles suburb, said helping its member CUs begins with a thorough examination of the financial condition of the credit union.
"I wouldn't push one particular thing on everyone who asked me (what can WesCorp do for us?)," he explained. "There are many questions to ask: Do they have liquidity? Do they have a strong return on assets? Are they seeing a growth or decline in members?
"This really plays on the breadth of expertise WesCorp has," Lytle continued. "Many factors come into play for an individual credit union depending on its unique situation. We look at how our expertise matches what the credit union has, and how we communicate and convey that expertise across a variety of initiatives to help credit unions make better management decisions as easily as possible."
Lytle discussed two sample scenarios:
Case No. 1: a CU that is experiencing slow membership growth.
A key driver for growth is checking, he said. We must ask the CEO how competitive the credit union's checking account is. How competitive are its features, its convenience and location, and does it have sticky applications such as bill pay? What is the dividend rate? This also gets back to liquidity: how competitive can they be in offering good rates?
Case No. 2: a larger CU with strong membership growth.
"We would ask how is the growth in checking or deposits translating into loans," Lytle said. "What is growth doing to the credit union's capital ratio, so it can maintain a strong capital base? All of those things are interconnected, and the credit union must have the ability to manage its balance sheet depending on rates and other aspects.
"The best way for us to apply all the resources our members have allowed us to accumulate over the years is to ask questions and help them run their CU as profitably as possible," said Lytle. "We want to apply the exact expertise to their situation."
Make Time To Make Money
BURLINGTON, Mass.-Looking to improve the budget? Then budget more time.
That's the advice of Alan Bernstein, senior VP-business development and strategic planning for EasCorp here, who urged credit unions to allow plenty of time for a meeting with their corporate credit union, because it has a "long list" of products, services and strategies to help CUs' bottom lines.
"First and foremost, and most obvious, is money," he began. "Look at what has been going on in the U.S. the past few years-there is a negative savings rate, yet consumer spending and borrowing remain strong. Corporate credit unions provide term and overnight loans to fund whatever types of growth needs credit unions have if they are unable to do so via member deposits. We make money available to credit unions to fund growth, especially loan growth."
But some credit unions prefer not to borrow to fund loan growth, and turn to sales of some assets to provide additional liquidity, Bernstein noted. As an example, he pointed to secondary market provider Charlie Mac, which specializes in buying non-conforming or jumbo loans, and a separate program EasCorp has developed a loan-purchase program in conjunction with Fannie Mae. "We have negotiated favorable rates for our state-chartered credit unions. Naturally, credit unions have found their way to the government agencies on their own. But to trade with the agencies more efficiently brings better pricing and allows them to be more competitive."
Meanwhile, EasCorp, like many organizations, has been involved in the development of a CUSO to help member business lending activities, Bernstein said. In late 2004, EasCorp formed a CUSO with seven of its members called Octant Business Services LLC. The CUSO offers underwriting, processes loans, makes recommendations and performs loan portfolio maintenance.
Bernstein said an EasCorp program that made its debut in 2006 brings trust services to CUs who previously could not afford to do so. Members Trust Services, a Tampa, Fla.-based CUSO that is owned by approximately 30 of the largest CUs in the U.S., including EasCorp, provides back-office functions at a manageable cost and allows CUs to help members with trust planning, he said.
"Until last year, the economics of opening an agency office with Members Trust Services favored credit unions with $500 million in assets or greater," he acknowledged. "Last year, we partnered with them to establish an office here in Burlington, and this helped make a trust officer available to smaller credit unions at a fraction of the cost. This gives credit unions another reason not to send people down the street to their competitors to get a service they cannot provide."
With the Baby Boom generation nearing retirement, Bernstein said there will be an "enormous" transfer of wealth in the next 20 or 30 years, "and we want to help credit unions be a part of it."
Like a number of other corporates, EasCorp also mentioned branch capture and other services designed to improve payment systems. According to Bernstein, EasCorp was the first corporate CU in the country to use check imaging in 1994.
"It still represents an important value for the credit unions who are using imaging," he said. "Today, we are connecting with home banking systems, e-statement providers and other ways to allow credit unions who use us for share draft processing to distinguish themselves from their competitors. These developments add a modern edge that makes them appealing to young people."
EasCorp also offers financial consulting, including ALM modeling to help CUs identify a sound growth strategy, he said. "Developing a growth plan entails a variety of factors, including maintaining adequate capital and an appropriate risk level."
Shed Tears? No, Tiers Shed
ST. LOUIS-Credit unions that have smaller balances are not at a rate disadvantage when parking funds in overnight accounts at Missouri Corporate Credit Union.
President Dennis DeGroodt noted the corporate does not tier its pricing on the accounts.
"We are one of the few who offer a single-rate overnight account," he said, noting MCCU also does not require credit unions to manage their account. "We pay a very competitive yield, and the money does not have to be moved from one account to a settlement account. The rate is much higher than that typically paid on settlement accounts. We think that is a huge advantage, and credit unions have told us it helps them succeed. They do not have to pay staff time for someone to manage the account."
Missouri Corporate's overnight loan rate is indexed to the Fed Funds Target Rate, which DeGroodt called a "very competitive" rate. "We want to make things as simple and efficient as possible for our credit unions. They don't have the time to manage OUR products and services. The same holds true for our correspondent services: our fees are very low, and they are simple and easy to use."
According to DeGroodt, Missouri's CUs have told the corporate they want the process "to not only be simple, but invisible. They want products to work so seamlessly, they don't have to be aware they are there. That is our goal, and it just goes right to the bottom line for our credit unions."
He noted that in broad terms, Missouri Corporate offers three categories of assistance to CUs: loans, investments and correspondent services, including wire transfers, ACH processing and currency orders.
"We give credit unions all the things they need to run their day-by-day operations," he said. "We can make those services more efficient, lower cost and higher yielding to help credit unions grow and make money.
The corporate also joined with nine others in late 2006 to sponsor a conference called "Dare to Succeed" that focused on growth. In addition, Missouri Corporate's CFO works with the Genesis Group, which is sponsored by U.S. Central CU, and develops ways to help credit unions grow.
Branch Capture To Cut Losses
PORTLAND, Ore.-Northwest Corporate FCU has a very specific strategy for helping its credit unions become more efficient in 2007.
The corporate's chief objective for this year, said Chief Operating Officer Kim Bickford, is to move credit unions to branch capture.
"It will help with improving efficiency of operations, and hopefully their bottom lines," she said. "It should make them less dependent on their courier lines, the weather, or any other issues regarding check delivery. We started on the process in 2006, and actively worked on it over the last six months."
Northwest Corporate serves most of the credit unions in Oregon, and about half of those in Washington, Bickford said. To accomplish its goal of getting these credit unions to switch to image capture, she said the corporate is meeting with each of those that have expressed an interest.
The first step is to interview each CU's operational staff to analyze the current operation. Bickford said Northwest performs a detailed needs assessment and analysis. "We realize it is a decent-sized switch to change something that has been the same since they opened the doors of their credit union. It is up to their operational needs and which projects they want to work on, but we impress upon them the financial and operational benefits."
Northwest Corporate sells the image capture software license to the individual credit unions, which is supported by VSoft. The credit union can purchase a check scanner from any vendor, though Bickford said Northwest recommends Canon because CUNA has negotiated a good price. At that point, the credit union simply has to train tellers to scan checks, she said.
"Our other main initiative for 2007 is on the ACH side. Many of our credit unions do not originate ACH, but we are seeing many wanting to be an ACH originator," she explained. "This will allow members to make car loan payments automatically from their checking account, increasing the credit union's ACH volume."
Seek Out ALM Expertise
GREENSBORO, N.C.-While it has a product and service menu similar to other corporates, where First Carolina Corporate CU believes it can best help its member CUs is in asset/liability management.
In a written response to the Credit Union Journal, Fred Eisel, senior vice president and chief investment officer with First Carolilna, said the corporate encourages credit unions to work with its experienced ALM professionals. First, the First Carolina team helps assess credit unions' current balance-sheet and risk positions. From there, it can apply a number of investment and liquidity solutions that are designed to help them grow effectively. "And, because these solutions work to complement a number of First Carolina's correspondent services, member credit unions can operate much more efficiently," Eisel said.
'Virtual Deposit' Drives Efficiencies
TALLAHASSEE, Fla.-Corporates have to excel at the basics-like offering great rates-while also delving deeper into new technology and developing tools to help build new markets for CUs, according to Southeast Corporate Credit Union.
"I believe Southeast helps credit unions in three key ways: first, we pay high market rates on both our short- and long-term investment offerings," said Southeast CEO Bill Birdwell. "In fact, we are consistently one of the most competitive corporates in the network."
But Southeast goes beyond just the basics, he noted. "Southeast also was a leader in developing a branch-capture solutions. Our service, Virtual Deposit, offers a great way for credit unions to reduce costs and increase efficiency. They can eliminate the expense of couriers, save staff processing time and cut down on fraud."
Like a number of other corporates, Southeast is also working to help CUs capitalize on member business services. "Our Member Business Solutions CUSO helps credit unions fill a vital need of their small-business members while also tapping into the lucrative business-services market," Birdwell offered. "MBS has helped credit unions throughout the East generate a combined $100 million-plus in credit union business loans."
Partnerships Deliver Value
HELENA, Montana-As one of the smaller corporates, Treasure State Corporate CU has sought to provide value to its member credit unions through various partnerships.
Due to the limited assets ($209 million), "There are not a lot of things we can generate internally," said CEO Brad Miller. "Because of this, we are in several partnerships with other corporates so we can deliver value to our member credit unions."
Among those is a partnership with CU Business Group, a CUSO that brings member business services to Montana credit unions.
"It is having a positive influence," he said.
In 2006, Treasure State added a bill-pay service via a partnership with Mid-Atlantic Corporate FCU and its CUSO, My CU Services. "Many credit union members are asking their credit unions for bill pay. We do remittance processing through My CU Services.
"We have added ALM and educational services, because those directly affect credit unions' bottom line," Miller continued. "We help them manage their balance sheet more effectively. We have balance sheet modeling and reporting tools that we offer to Montana credit unions. We have a web-based educational service through a partnership with WesCorp. We are getting support from our credit unions on all of these services."
Disengaging From Banks
COLUMBUS, Ohio-Corporate One Credit Union has ambitious plans for itself and its member credit unions 2007, including expansion of its surcharge-free ATM network known as Alliance One (3,800 ATMs in the U.S.), launching an Internet-based coin and currency service, and expanding ACE, its Check 21 solution.
Robert Coyan, senior VP- marketing and operations said the coin and currency service will allow credit unions to disengage from their "rather expensive" bank relationships.
"We are excited about giving credit unions the ability to order and maintain cash at their branches online in an automated way," he said. "It allows for more cash control, and for credit unions to have more of a just-in-time inventory rather than having too much cash sitting around-which can cost you money as a CEO."
The ACE Check 21 solution is in more than 500 CU branches today, and "more credit unions are calling every week." Coyan said ACE will help credit unions improve their bottom lines by eliminating or minimizing courier fees and microfilm costs, and it allows early identification of fraudulent items.
"It enters payments into the payment stream earlier. We foot the bill. We provide the hardware, the software and the services and get the credit unions up and running, knowing it will help their bottom line."
In addition to the electronic and web-based systems, Coyan said Corporate One will host conferences and offer web seminars to its member CUs to ensure they are up to date on issues that will affect them.
"We feel communicating knowledge to our members is imperative. Education on public policy and enterprise risk management are our top priority in 2007," he said. "There are things coming out of Washington, D.C., that are permeating the entire credit union industry, and we want to be a conduit for our members."
METAIRIE, La.-Credit unions SHOULD be rate leaders, according to one corporate leader.
"Since we enjoy a tax exemption that equals up to 38% of a taxable operation's income, beating (competitors) on rates should not be a problem for those of us in the credit union industry-especially with the economies of scale we are supposed to be gaining from consolidation," said David Savoie, CEO of Louisiana Corporate in a written statement. "So if we're not beating them on rates at the corporate and natural-person levels, its time for some introspection. Great personal service comes naturally to most credit unions. And web-based banking and bill pay are no longer optional, they are a necessity."
Credit unions do not have a monopoly on that "great service," noted Savoie. He pointed to successful financial services providers, such as ING, USAA, and Washington Mutual, all of which offer all or a combination of three common factors: outstanding rates, convenient web-based delivery, and great personal service.
When a credit union manager calls Louisiana Corporate for help in growing, Savoie said LCCU points to its affordable electronic bill pay product, makes sure the CU is getting the efficiencies offered by its web-based transaction and ACH systems, and offers its assistance in establishing a web presence if the CU does not already have one.
"We also show them we are offering some of the best term rates in the country, and suggest they leverage our rates to offer their members superior rates," he said. "If they need additional help in raising deposits to facilitate loan growth, we tell them how we can help them easily issue non-member CDs nationwide through our SimpliCD issuance program, and how we can assist them with liquidating blocks of loans."
The SimpliCD program is offered by numerous credit unions across the country. Savoie said the litmus test for any individual product in Louisiana Corporate's product line is "whether it can assist our member credit unions in enhancing competitiveness."
ACH A Real Opportunity
PHOENIX-First Corporate CU here is among those that believe converting checks to ACH presents real opportunities for CUs.
That strategy is part of an overall "passion" the corporate has, according to CEO Pete Pritts. "We pump value into credit unions so they can succeed," he said.
Pritts said First Corp's top goal for this year is helping credit unions take advantage of new methods of processing checks, with an ultimate goal of converting every check into ACH.
"Presently, not all checks can be converted, but beginning in March, back-office conversion, or BOC, will be available at the teller window," he said. "It will provide credit unions with an opportunity to convert another segment of deposited items into ACH transactions. Eventually, all checks will be able to be converted into ACH, but this is probably two or three years away."
As a result of the enactment of the Check 21 legislation, Pritts said First Corp is modernizing its payment systems to allow CUs to take advantage of the opportunity to reduce costs. "We will provide the hardware, software and training to CUs to participate in this BOC process."
First Corp is also working on its infrastructure-from HR practices to information systems-to ensure it is providing the best service for its member CUs, he said.
"We are allocating resources to make our systems more robust, and we are purchasing backup systems to make them more secure. As payments migrate to electronic, we need to stay ahead of fraudsters and bad guys."
In 2007, First Corp will also offer higher rates in shorter-term investments, specifically overnight accounts, Pritts said.
Say '?Hola!' To New Market
PLANO, Texas-Based in a state that shares a border with Mexico, Southwest Corporate FCU is attuned to the opportunities to be had in the burgeoning Hispanic marketplace throughout the U.S.
For credit unions who want to grow their business in the Hispanic market, Southwest SVP-Sales and Marketing Bob Rehm said Southwest Corporate recently began offering a product in conjunction with the Federal Reserve and Banco de Mexico known as Directo a Mexico.
"It is a program that allows a person in this country to transfer funds to a person in Mexico via the ACH system," he said. "It is, in effect, an international ACH transfer. The advantage is it is very low-cost: under a dollar to the credit union to do this transfer on behalf of their members. It can cost $10 to $15 out in the marketplace. And, the exchange rate is very good. It offers a very low-cost way to move money from the credit union to someone in Mexico."
On the money savings side, Rehm said teller capture is a way Southwest Corporate is helping CUs reduce branch expenses by removing much of the expense of collecting checks, using either branch capture, in which there is one scanner used by all tellers, or teller capture, in which there is a scanner installed at every teller station. For branch capture and teller capture combined, he said Southwest currently has 115 CUs live and several more in the talking stages.
Another good deal: structured certificates of deposits. "We can offer credit unions 10 to 15 basis points above agency securities. This is a good help on the bottom line, and these days, credit unions are looking to add wherever they can."