WILMINGTON, Calif.-The struggles of the worldwide economy can be seen quite clearly in the sharp drop in container traffic here at America's busiest port-a downturn that has been a big part of a deep malaise that hit California harder than most states.
But in the face of this seemingly dark picture shines the light of I.L.W.U. CU, a $110-million credit union that serves the longshoremen's union. Raddon Financial Group ranks I.L.W.U. CU as one of its top performers by credit unions with less than $500 million in assets, including an eye-popping 100th percentile in both the Loan Margins and Member Retention categories.
Down only by the smallest of notches are Raddon's ratings for I.L.W.U. in Household Profitability (98th percentile), Net Interest Margin (97th percentile), Efficiency Ratio (95th percentile) and Non-Interest Income per Household (90th percentile).
Effectively Following Model
Bill Handel, VP, research and development for Raddon Financial Group, said it is best to describe I.L.W.U. CU as, "a small credit union that has followed a business model very effectively." "It does a higher proportion of consumer lending than a lot of credit unions its size and does fewer real estate loans, especially seconds," he observed.
I.L.W.U. "incurs more risk in its portfolio, especially in today's economic environment, but it is paid for it in rate - as reflected in a Loan Margins percentile of 100. This results in higher net interest margins."
The CU also is "very effective" in generating non-interest income, especially NSF/OD income, Handel noted. He said I.L.W.U.'s "very high" member loyalty, as measured by the 100th percentile for Member Retention was impressive, especially given the tough economic climate in California.
Key To Success: A Deep Bond
I.L.W.U. CU CEO John Coleman said the biggest reason for the credit union's success is the deep bond it has with its membership. He said in order to be a longshoreman, prospective candidates must go through a training period. During that time they are known as "casuals," meaning they do not have full-time jobs. Casuals only work when jobs are available, until they get enough hours to be a longshoreman.
"During the time they are casuals, they need loans and we help them," Coleman said. "Longshoremen are very highly paid blue collar workers, but until they get to that point they come to us. When they are not working full time they need loans to take care of their families. Even though they don't have high credit scores or regular income, we give them help they can't get from any bank because we understand there will come a time when they make good money. During this time, our members become very bonded to us."
The single-sponsor model works well for I.L.W.U. CU, Coleman asserted. He said the credit union quite regularly makes what other financial institutions would consider "marginal" loans due to the often poor-quality credit of the casuals. "We couldn't do that with those same numbers if we were a community credit union. People would run out on us. But we understand the situation people are in and give them loans for automobiles or just personal loans."
I.L.W.U. is able to both help its members and be successful due to a policy of risk-based lending, said Coleman. Members with outstanding credit get outstanding rates; for those with less-than-outstanding credit they get less-than-outstanding rates. But in any case, he said, the rates are better than they could get elsewhere.
For any member that is in payday loans, I.L.W.U. CU helps them escape the tangle. Even the credit union's highest rate is "much more favorable than a payday loan," he said.
The standard rescue float is a "member loan" of up to $2,500, which for most people helps them pay off their payday loans. "Once people get involved in payday loans, they need help. Payday loans are worse than a credit card because the rates are astronomical," Coleman said.
About one-third of I.L.W.U. CU's loan portfolio is real estate, but the majority of lending is in auto and personal loans.
Hiring The Right Staff
Coleman said several factors contribute to the 100th percentile ranking for Member Retention, but the biggest is the CU's staff. He said every employee is cross-trained to ensure when a member comes in needing help someone can help, regardless of department.
"I have an outstanding staff, which really helps in making us a top-notch credit union. Most of us have not grown up in the credit union industry, but our focus is member service. When I'm hiring, I look more for those who understand the member is No. 1 as opposed to someone who knows how to underwrite a loan. You can teach someone how to underwrite a loan, but you can't teach someone the value of member service. Other than this latest downturn it has worked very well for us, but we'll come out of it."
