Community First CU of Florida began in the Depression as the credit union for teachers in Duval County. It now is the ninth largest credit union in Florida with $1.2 billion in assets and more than 100,000 members. It serves a number of counties in northeastern Florida as well as education-related SEGs (colleges, private and public schools, etc.); it is headquartered in Jacksonville.
You are in one of the states most affected by the mortgage problems. When did you begin to see problems and how did you react?
JH: Yes, Florida and California are the two hardest hit states I believe. We began to see problems last summer. This was after many subprime-related problems were being written about in the press; I think the mortgages with more traditional underwriting – such as ours – saw their troubles coming later.
We noticed that problems were not confined to mortgages; early in 2007 we could see that there were challenges in our indirect lending portfolio as well. This occurred after we had decided in 2006 to exit the indirect lending business. We found these borrowers were not loyal to the credit union and that it was difficult to sell them additional products and services. We decided to put more resources into strengthening the relationships we had with our members and focus more on organic growth.
Did you see your mortgage portfolio suffer?
JH: We did. Mortgage delinquency began to increase last summer but did not increase markedly until the fourth quarter. Volume, on the other hand, was relatively soft for the first three quarters of the year.
Our ROA for the first three quarters was about 0.75 and then dropped to 0.5 in the fourth quarter. Through this time, however, our deposits remained strong, owing at least in part to our attractive rates.
How have you responded?
JH: Really, on two fronts. We are trying to control costs but at the same time expand so that we are stronger when all this trouble is behind us. In a way we are two organizations, one being very careful and the other reaching out to the future.
How are you dealing with the mortgage problem?
JH: Again, on two fronts. We expanded our mortgage program and we worked to establish a closer relationship with our third-party service provider; I’ll start with the first.
When the mortgage credit problems began and other lenders started tightening, we saw a real opportunity, namely expand our mortgage program. We had long prided ourselves as being the straight-talking, no-nonsense lender with good rates, so we stepped up our promotions. We have a program called Silver Lining – we are people’s silver lining in the mortgage crisis. We promoted this well, and we have seen record levels of first mortgage volumes for us – mainly in refis, but recently moving toward purchases.
Now the delinquencies. In the pre-problem days, delinquencies were very low. We read our service provider’s monthly reports and that was about it. When delinquencies spiked up we decided we wanted a different approach, namely a closer relationship. Now our collections manager and the provider have a weekly telephone call and we have access to their systems to review their daily collections activities. We’ve worked out ways of dealing with differing credit-related circumstances, for both people thinking they may be getting into trouble and those who have been delinquent for quite a while. The work between us and the provider is now rather seamless. We’ve learned how to improvise and to work with people missing payments on our non-mortgage loan categories. This has all helped quite a bit.
What are your expansion plans?
JH: We don’t think the economy is going to last like this forever, so we are planning for an expanded future. For example, we are going to open two new branches in two new markets for us. We won the contract to place a full-service office at the University of North Florida student center. We are also investing in new online technology – among other new features, our members will be able to open accounts online.
We feel we have to be very careful to prioritize and focus on the areas that will have the best impact for us for future growth. An aspect of that is to see how we can stretch our fixed assets. One way we are doing that is expanding our branch Saturday hours to 5 PM, the first financial institution in our market to do so. We studied this quite a bit and found that if we made adjustments to staffing we could do this without a lot of impact to the bottom line. Staying open until 5 PM on Saturday stretches or makes the most of our brick-and-mortar assets. Members have repeatedly said they want convenience and access, and we want to take every opportunity to grow in our market, to stand out in a tough environment. Staying open this way does both.
You have some other initiatives?
JH: We are looking to expand our active checking accounts and we are also working on member education. Check penetration is a common measure in credit unions, but what really is valuable is active checking accounts, because many checking account books are merely lying around in drawers. We did some data drilling and found that an active checking account leads to an increased relationship and more income. So we looked at how we can secure more active accounts. First we chose six transactions a month as our definition of “active.” By this measure 74% or our 59,000 checking accounts were active. Then we worked at making more accounts active. One thing we have done is offer 7.5% interest on the first $500 in a checking account – for this, members need to have an active card with us and bill payer. We know that it is very difficult to entice people to move their checking accounts from an other institution, so another thing we are doing is trying to win over members with other products and then work on them to do their checking with us.
What about member education?
JH: We wanted to add more value to our members and SEGs and we heard a lot about member education. Because we are an education-oriented credit union we thought this would be a good fit. We had done some financial education in the past but it was never formalized. So we decided to form an education committee of Board members and staff interested in member financial education, and it really took off. Soon we partnered with four other credit unions and together we offer the National Endowment for Financial Education (NEFE) curriculum to public schools. For example, in our area, we and the four other credit unions are engaged in teaching 9,000 ninth-graders; teachers teach the curriculum, but our people are the guest speakers. We have also put together an agenda for colleges, career academies, high schools and the like. We conduct seminars, assemble curriculums, develop in-house speakers and so forth, so we have a multi-level approach.
We have found that this gives us a great deal of exposure and brings us both new members and new business.