What Did You Learn From 2003?

Record-low interest rates, tough competition, and shifts to community charters are some of the challenges CU CEOs faced last year. Find out what they learned from these challenges and where they're headed in 2004.

THREE CREDIT UNIONS with diverse backgrounds learned to live with 2003's low interest rates, each in their own way. Volunteer help with marketing and statement stuffing held down operating expenses at Faith Community United Credit Union in Cleveland, while low investment yields pinched margins.

"That's why we're working so hard to get money out in loans," says CEO Rita Haynes, who began as a church credit union volunteer in 1958. She didn't become a paid employee until the 1990s.

The $8.4 million asset church-based community development credit union is blessed with some seed capital and low-cost nonmember deposits, which help it cope. It also partners with local businesses, the local Consumer Credit Counseling Center (CCCC), and labor unions.

"The low-rate environment shines a big old beacon on your expenses," says Ken Bordelon, president/CEO of $107 million asset E Federal Credit Union, Baton Rouge, La., since 1996. "We're pretty much fee-averse."

Zero-percent auto loan competition and low mortgage rates cut into E Federal's loan portfolios. "Take the rebate" auto loan price comparisons had little success with members, and used-car loans didn't take up the slack. "It's so easy to get into a new car now, it's taken away the used-car business," says Bordelon. He believes 0% financing could violate the Truth in Lending Act, a point he makes at meetings of the Federal Reserve Board Consumer Advisory Council. Bordeion is the credit union representative on that council.

Meanwhile, members holding variable-rate mortgages choose to refinance with low fixed rates. The credit union sells its fixed-rate mortgages, so its mortgage portfolio (45% of all loans) shrunk. E Federal did pick up fee income from refis, but that's a one-time gain.

Home equity loans, introduced two years ago, were a bright spot. They took off last year when E Federal dropped most closing costs.

A low-cost operating model at United Airlines Employees' Credit Union has been a great advantage in surviving with low investment and loan yields, says David Mooney, who became president/CEO last May. Mooney has 26 years of experience in banking, the past 15 years on the retail side with J.P. Morgan Chase & Co.

The $4.5 billion asset, Chicago-based credit union has 167,000 members and is run by a mere 225 employees. That's one employee per 742 members or one per $20 million in assets. The low-cost model means "we still have a margin that allows us to pay above-market dividends," says Mooney.

In early November, that was 2.25% on savings. The no-frills credit union offers one rate on savings and one on share draffs. It offers no share certificates or money market accounts (MMAs), but 2.25% is better than the rates for MMAs and most certificates anyway.

E Federal and United Airlines Employees' underwent major changes during 2003, and, in a profound way, both relate to the terrorist attacks of Sept. 11, 2001.

The longtime, single-sponsor United Airlines Employees' began recruiting select employee groups in an attempt to broaden its membership base and diversify credit risk.

The terrorist attacks rocked the airline industry. United Airlines currently is in Chapter 11 bankruptcy reorganization.

In Baton Rouge, the National Guard showed up after Sept. 11 and pretty much locked down Exxon-Mobil Corp.'s refinery. That led to a merger Jan. 31, 2003, between E Federal and EXCO Federal Credit Union, two longtime sister credit unions.

"Plant security is still tight," says Bordelon. "You have to be escorted on site."

That meant family members of EXCO Federal were locked out. All three of its branches were on plant facilities. ExxonMobil has a refinery, a chemical plant, and a plastics plant in Baton Rouge.

"For a time, our shared-branching platform allowed EXCO Federal's members to use our facilities," explains Bordelon. E Federal has three branches-two in town and one just outside the plant entrance.

The merger came at an opportune time for EXCO Federal CEO Jody Landry, who was planning to retire. "No one lost their job," Bordelon notes, adding E Federal expanded its board temporarily from nine to 15 to take in six board members from EXCO Federal.

Although there were lump-sum costs involved with the merger, Bordelon says the credit union is beginning to realize efficiencies.

Officials met with vendors and renegotiated contracts where possible. Savings also come from combining departments, such as accounting and data processing.

An answer to payday lenders

Faith Community United began two new programs last year, one to help members save and one to help them stay away from payday lenders.

The credit union opened 200 "Cleveland Saves" accounts. The program partners with the local CCCC and with local labor unions. It aims to help members save for shortterm (one-year) goals, either to make a purchase or to clear debts. Nationally, the program is known as "America Saves" and is backed by the Consumer Federation of America, Washington, D.C. The credit union also has offered individual development accounts (IDAs)-the matched savings plan-since 1997.

The second new program is called the "Grace Loan." It's a fast signature line of credit. The application and note take just 15 minutes to complete. It requires no credit report, but members must have direct deposit or payroll deduction to qualify.

The Grace Loan is Faith Community United's answer to payday lenders. Members can draw $100 to $500 and repay in weekly installments or one lump sum within the month. It carries a 17% rate, which doesn't pay for the paperwork. But each draw requires a commitment of $25, which includes a $15 credit union fee and a $10 deposit to the member's share account. That compares with fees averaging $75 at payday lenders, notes Haynes.

"The Grace Loan brought us some new members and got some current members to start direct deposit," she says.

Haynes' New Year's resolutions include a program called "Get Checking." It gives members an opportunity to clear their debts and get their names off of bad-check lists. The program requires financial education and certification by Cleveland's WECO Fund, a 501(c)(3) community development organization.

Haynes also is working with Fannie Mae to become a loan originator and with the local housing authority in cooperation with the National Credit Union Foundation to provide housing counseling to section 8 buyers. "We bring in members through the IDA program. Then when they're ready to buy a house, we have to refer them to another credit union," Haynes laments.

Haynes also is looking into youth IDAs and at adding branches.

She's pleased that the low-income credit union now has five employees who have health insurance, 401(k) retirement savings plans, and "wages good enough to keep them."

New Year's resolutions at E Federal are a continuation of 2003's goals: Get through the merger, eliminate duplication, take and refine the best of both worlds, and take care of existing products.

Goals remain the same this year at United Airlines Employees', too: Continue implementing the diversification strategy, recruit new sponsors and members, and focus on high-quality service.

The tricky part is to diversify without alienating primary members, says Mooney, who took over after the process was set in motion. Early this year, United Airlines Employees' will take on a new name as part of taking on a new identity.

"United Airlines understands and appreciates our reasons for diversifying," says Mooney. The company even has helped the credit union add sponsors.

Among primary members, Mooney admits there's a measure of concern with the changes. "Our challenge and our mandate is to make sure the service proposition doesn't change for them.

"The airline industry appears to be stabilizing," Mooney adds. "Recent results for United Airlines look good. We're pulling for the airline and the airline industry. United and our members have gone through a tough period, and we continue to support our United members through various programs and services."

Learn more about these executives 2004 resolutions at

CREDIT.UNION magazine.com

Copyright Credit Union National Association, Inc. Jan 2004
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