Attacking the Soft Areas

Despite excellent local penetration and a healthy economy, Citizens Equity First Credit Union (CEFCU) has identified three weaknesses about it-self and is determined to improve them.

Mark Spenny is the CEO of CEFCU, which began in 1938 as the credit union for Caterpillar, the construction equipment company. CEFCU at $3.1 billion with 228,000 members has had a community charter since the 1980s and serves 14 counties in central Illinois,plus hundreds of other employer groups, including Caterpillar and CAT Dealer employees nationwide. In the Peoria area, it enjoys penetration of more than 70% of households, 70% of which consider CEFCU their primary financial institution. CEFCU is well capitalized and has a good earnings record; member loyalty scores are very high. The credit union is the largest mortgage lender and auto lender in the area and has a strong business loan program. Lately, the local economy has been healthy Caterpillar has enjoyed record earnings, other manufacturing is strong, agriculture is doing well, and the area profits from a notable medical community. Still, CEFCU is concerned about three aspects of its business: declining consumer loans, online communications with its members, and connection with young people.

What is your most urgent priority?
Increasing our consumer loans – especially as a large portion of our membership ages. We’re doing a numberof things on this front. We’ve been very aggressive in risk-based pricing for some time. We’ve found this pricing model has been worth the slight increase in losses, and it’s one of the reasons we’ve grown to become the largestauto lender in the area. And we’re now teaming with CUNA Mutual on their Lenders Protection program. With their credit insurance, we’ll be able to write higher-risk loans than we otherwise would, which should help drive volume.

We’re also applying this strategy to other loan areas. We’re being more aggressive in pricing our home equity loans, and we’re also improving our loan pricing and terms for recreational vehicles, boats, and motorcycles. A growing segmentof our members are at a stage in life when they’re acquiring these items, and we’ve not been competitive in this market for some time. All of these changes will help us generate new business, both with younger people who aren’t currentmembers, and just as important retaining more loan business from current members.

We are also rolling out an alternative to payday lending, a product we call Quick Advance. It will not have a big impact on the bottom line, but it will help us talk to people we are not talking to now. Then we can perhaps help them with debt consolidationsor other services they need.

What is your most important priority?
CEFCU needs to enhance our electronic delivery and communication channels. We’re very good at communicating with members through traditional channels like phone and mail, and our 19 MemberCenters have always been a preferred choice with members. But we’re finding more and more members want to deal with us both in person and electronically. We haven’t been doing enough here and we’re going to change that. Weneed to evolve more rapidly than we have in the past.

We’re redesigning our website and upgrading our online banking system. In 2005, we added online mortgage applications with immediate approvals and saw noticeable results. We also need to speed up the online consumer loan application and upgradeto add an immediate loan approval function.

There are, of course, lots of online products out there. To assure that our work in this area is as effective as possible, we have appointed a vice president to oversee the effort. She was in charge of our Y2K work, and we are asking her to put the sameemphasis on this project.

What is your concern with the youth market?
We’re afraid we are losing these people. It has sort of been a case of benign neglect we really haven’t been paying enough attention to them. We make financial literacymaterials available that a large majority of the high schools in our 14-county area use. Yet when the students graduate, we haven’t been reaching out to them the way we need to, saying we want to take care of their financial needs now and inthe long run. It’s more difficult with a community charter, because there is no direct pipeline to them. But we consider this a very high priority and are starting to make changes. Our Board and senior management are very much behind this effort.

What do you think hurt your consumer loans last year?
In 2006, it was competitors for auto lending, specifically the captive lenders of the Big Three U. S. automakers and other credit unions engaged in indirect lending. We competedwell against the Honda and Toyota captive lenders. We could show our members, for example, how they would get a better deal taking a rebate and financing with us. We even have CEFCU representatives onsite at many area dealers, and have for years.But the Ford, GM and Chrysler people were offering below-market financing to keep their auto sales up. Then some credit union indirect lenders came into the market and were offering uneconomical rates hoping to build relationships. They bit into ourmarket, too. It’s difficult to see how writing loans at rates below break-even creates a successful business model. And I think history shows that, at least based on the news out of Detroit.

What do you expect to do to counteract these activities?
As I mentioned earlier, we’re getting even more aggressive with our pricing, and we’ll offer very attractive rates. We also expect to spend money on direct marketingand other media and are stepping up our efforts to reach the 18-25 age group. We see direct mail as tough, however, because people tend to throw it away unopened. We’ll do more on television it gives the advertiser credibility –and on the Web. We’re working more aggressively to differentiate ourselves, trying to redefine the rules or level the playing field and redefine our competitors.
We call ourselves the Unbank, and are also using the slogan:Not a bank. Better.

April 28, 2016

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