CEO Interview: Acting Boldly In Good Times

Backed by record-setting financials but with low member growth, Pete Sainato, CEO of Justice FCU, is instigating a program of significantly boosting return and value to members.

Total annualized auto sales as of June 2006 were 16.1 million units down from 16.6 million units from the 1st quarter and down from 17.5 million units this time last year. This loss carried over to the Big 3 in the auto lending world despite their initiatives of 0% financing and $0 down, employee pricing, and other manufacturer and dealer incentives. The Big 3 are not experiencing increased returns on these initiatives.

US Auto Sales versus Big 3 Auto Sales

Consumers Look Beyond the Dollar Signs

A recent study conducted by Consumer Reports* found that buyers are looking for more than dealer discounts and flashy financing when purchasing their cars. Twenty-seven percent of the respondents say fuel efficiency is most important in their decision making process, most likely due to the increasing awareness of consistently higher gas prices. Reliability (25%), purchase price (14%), and safety features (12%) of the car all ranked above dealer incentives (5%).

According to the study, 25% of respondents claimed that only dealer and manufacturer discounts over $5,000 would have an effect on their final purchase. Such incentives have fallen from an average of $4,712 in June 2005 to $3,253 in June 2006. Manufacturers are discovering the need for new initiatives beyond those currently in place.

Credit Union Summer Performance

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Peter Sainato is CEO of Justice FCU operating out of Chantilly, VA. Justice is a $400 million credit union of 43,000 members serving the U. S. Justice Department, Homeland Security, and law enforcement communities around the nation. Lately it has been quite successful. Loan growth in 2005 was 22%; in 2006 it was 13%. The credit union just exceeded a net worth ratio of 9%. But management was displeased with member growth of 2.5% last year even though this figure is higher than the industry average. Sainato said that the credit union has launched a major initiative to increase value to the member and to attract new members.

What is your principal goal for 2007?
Our main goal is to infuse extra member value and thereby attract new members and new business.

How do you expect to accomplish this?
We will dedicate 40% of 2007 income for returning to members in the form of higher dividend rates, lower loan rates, enhanced products, new products, new services and greater support for business development. It was not easy to convince our Board that we should do this, and it took several months to do so. We have had so much success in the past, there was the thinking, Why change course? This question forced us to look at ourselves from the inside out in order to get the agreement to move forward. But having just surpassed 9% in net worth, we felt we are were overcapitalized for the risk involved. We don’t have to grow that net worth ratio, so we can use income to augment member value.

Can you give some examples.
We identified four life cycles of our members. These are youth, new career, established career, and retired or second career. For each group, we asked ourselves how we could be more relevant to the members in it and developed a full-scale plan. Some examples: For the youth segment, we are introducing a parent-guided credit program by which parents can begin credit cards for their children with a defined credit limit. We also are lowering our overdraft fee from $28 to $5 because we’ve found that young people often charge a Starbuck’s on too little balance and they shouldn’t be hit with a $28 fee. For the established career segment, we are rolling out what we call Auto Draft, pre-approved car loan checks we mail to members of this segment; they can write in the amount needed for a car at any car dealer.

Why act so boldly when things seem to be going so well?
Like most credit unions, ours has an aging membership. We’re coming off seven good years. Last year we had record earnings, and we’ve had two years of double-digit loan growth. Recently, we’ve had the highest level of member satisfaction we’ve ever recorded. So the 2.5% member growth looks bad in comparison. We feel that now is exactly the right time to work on demonstrating member value because we are strong in so many of the fundamentals. We are trying to shake things up now while we are doing so well. History has shown us that successful companies have to keep reinventing themselves and that is what we are doing.

How long will your effort last?
Once we implement the program, we are not likely to stop it. Already the staff is completely energized by it. I see it running indefinitely, and it may not show the kinds of results we want for one or even two years. But we expect members to recognize we are enhancing the value of the credit union to them and that will bring us more of their business. The key is to remain relevant.

The members have more business to bring?
Our comprehensive surveys tell us that our members have about $1 billion in assets in other places, so there’s a lot more business they could bring us.

Who do you see as major competitors?
We believe ING Direct, Bank of America and USAA are formidable competitors. But we try not to act like they do; if that’s all we did, we’d wither away. We have to do much better.

Take our affinity groups, which represent some of the most prestigious law enforcement groups around the country. Who knows them better than we do? We have to capitalize on that. We go to their annual conventions, sponsor events, and are very visible. We work very hard at supporting them. When we learned that the National Sheriffs Association was collecting old cell phones to donate to elderly and abused persons, we offered our branches for the collection of used phones they could have for their program. We need to be doing more of these kinds of things that demonstrate a real partnership.

Are there other strengths you can play to?
About 70% of our loans come through the Internet. We are working to try to make the online application as simple and quick as possible. We are going to stop asking questions that don’t need to be asked like what kind of car the applicant is going to buy. We’ll find that out later anyway, so why slow the applicant down? The simpler and shorter the better. We want to live in as simple a world as possible.

Any other tips for lending?
Price accordingly. Our charge-offs are very low, about half the industry standard. So we price accordingly. Yet, I’ve seen places with lower charge-offs than ours pricing as if they are getting C- or D-paper. Know your members, and charge accordingly.

April 21, 2016

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