Price Obsession Drives Double-Digit Growth

University of Iowa Community Credit Union reported 22.3% in loan growth in the third quarter with a business model that tracks efficiency “almost fanatically.”

 
 

Instead of investing in new carpets, the latest apps, or state-of-the-art branches, University of Iowa Community Credit Union ($1.7B, Iowa City, IA) aggressively puts its money back into member pockets and staff salaries.

In its vision statement, the credit union strives to be in the top 100 credit unions for total giveback to members as measured by Callahan & Associates’ ROM Index. In recent years, it’s done more than meet that goal — it has been No. 1 among all credit unions for the past six consecutive quarters.

“It’s our business model that, quite frankly, drives so much of our growth — not only loans, but deposits and membership,” says Jeff Disterhoft, who became the credit union’s CEO 13 years ago, when assets were approximately $186 million. “It starts from knowing price is our driving factor, and we derive the rest of our strategies from that.”

In the third quarter of 2012, University of Iowa Community Credit Union reported 22.3% 12-month loan growth. Auto and real estate loans — which increased 38.0% and 18.1%, respectively — were the primary drivers of that growth. The $1.0 million in total loans granted year-to-date was up 7.3% from the third quarter of 2011. Membership grew 13.4% in the past year.

Disterhoft is adamant that the credit union still aspires to provide stellar service. And although it does focus on sales, the credit union is willing to make many concessions in the name of a good price. For members, it offers competitive pricing on both loans and deposits. For employees, it offers above-the-market compensation to attract and retain top talent. Disterhoft says the credit union tracks efficiency “almost fanatically” because executives want to return the costs savings to members in the form of great rates.

EFFICIENCY RATIO (LOWER IS BETTER!) | DATA AS OF SEPTEMBER 30, 2012
© Callahan & Associates | www.creditunions.com

efficiency-ratio-iowa-cus

Generated by Callahan & Associates' Peer-to-Peer Software.

“If we run an efficient shop, we can give those cost savings back to our member in the form of great rates on loans and deposits,” Disterhoft says. “At the same time, University of Iowa Community CU uses those efficiencies to provide above-market compensation for our staff, which allows the credit union to attract and retain staff.”

The Three Cs

The credit union offers 3% on checking accounts. Members have been able to secure car loans for as low as 2.5% during the past year. And the credit union’s credit card product includes a six-month introductory rate of 0% to 11.9%. After that, rates range between 9.9% and 18.9% based on credit scores. With no exotic or custom-fit loan products, University of Iowa Community Credit Union relies heavily on these three traditional products, and much of its strategic planning revolves around them.

The credit union tracks by branch and by employee the number of checking accounts, credit cards, and car loans — which it calls “The Three Cs” — members have. The credit union then uses this tally to determine how it is faring in its target to have 20% of households with all three products. The credit union considers the three Cs a “real driver for PFI,” meaning if members buy them, they’re likely to spread the word and explore more products.

AVERAGE MEMBER RELATIONSHIP | DATA AS OF SEPTEMBER 30, 2012
© Callahan & Associates | www.creditunions.com

avg-member-relationship-iowa-cus

Generated by Callahan & Associates' Peer-to-Peer Software.

Executives, trying to set a clear and consistent message, talk about the three Cs statistic every month at staff meetings and then again for each employee’s performance review. The measurement is even embedded in the incentive plan, with a good amount of compensation tied to it, even for back-office staff. In line with the 20% goal, training focuses on the product knowledge and the skills the sales staff needs to get those three products into members’ hands.

Lean, Efficient Staff

University of Iowa Community Credit Union admits members might have a slightly longer wait time than other credit unions and members might have a longer hold time when they call into the call center, but the credit union does staff its branches “sufficiently” and call centers “adequately,” Disterhoft assures.

Longer wait times are OK because members lately are more concerned with price than wait times, and the credit union pays its employees in the 75th percentile to draw performance in that same percentile.

“It’s not hard to figure out why we wouldn’t be seeing growth on both sides of the ledger — we’re blessed to be able to offer aggressive pricing and provide the pricing with some of the best staff in the market,” Disterhoft says. Now, the credit union is trying to better communicate its price-first business model to staff so they’ll embrace it further.

The credit union’s performance has hinged on price for more than a decade, during which time its assets have grown 18% on average every year. It markets products and offers a few promotions throughout the year, but no more than other financial institutions in its market. Disterhoft is confident it is the price that continues to differentiate University of Iowa Community Credit Union. And, aside from maintaining lean operations, it leverages the federal income tax waiver given to all credit unions as a spring board to aggressive pricing.

ASSET GROWTH | DATA AS OF SEPTEMBER 30, 2012
© Callahan & Associates | www.creditunions.com

asset-growth-iowa-cus

Generated by Callahan & Associates' Peer-to-Peer Software.

Executives hold monthly meeting to scrutinize their competitors’ pricing in each of the markets its branches serve. Recently, they looked at indirect auto loans and set the credit union’s rates 10 basis points below the pricing in each tier. And the credit union has long guaranteed members that if they can find a better deal, then the credit union will beat it. Many credit unions are skeptical to adopt a similar price-first strategy, but University of Iowa Community Credit Union has no plans to adjust a strategy that is working in its market.

“It has stuck a cord with consumers in eastern Iowa for several years now,” Disterhoft says. “It’s been a long term journey to make sure we understand this business model. … We’ve figured out a while ago that we can’t afford to be all things to all people. We decided to make our living off of price.”

 

 

 

Dec. 10, 2012


Comments

 
 
 

No comments have been posted yet. Be the first one.