When Amy Sink took over as chief executive officer of Interra Credit Union ($705.5M, Goshen, IN) in October 2013, she focused the credit union on increasing loans. At the time, Interra held $381.7 million in total loans, according to Callahan Associates. As of third quarter 2014, Interra held $428.6 million, an 11% increase year-over-year. The new focus is working, but with increased lending comes an increased need for deposits.
Our goal is to grow loans, says David Birky, the chief strategy officer at Interra Credit Union who oversees retail services. As we do that, we need deposits.
How Do You Solve A Problem Like Deposits?
To determine how it could quickly increase deposits and test its members appetite for a high-rate certificate of deposit, Interra offered a two-month CD with a 2.0% APY . Members had to make aminimum deposit of $500 and could not exceed a maximum
CU QUICK FACTS
Interra Credit union
data as of 9.31.14
- HQ: GOSHEN, IN
- ASSETS: $705.5M
- MEMBERS: 56,450
- BRANCHES: 13
- 12-MO SHARE GROWTH: 5.7%
- 12-MO LOAN GROWTH: 12.3%
- ROA: 0.67%
deposit of $1 million.
The promotion worked.
From November 1 to 29, the credit union raised $34 million in deposits through 890 CDs with an average balance of $38,000. The fact the CD matures after two months means members will see the return which equals two-twelfths of 2% on their deposits sooner rather than later. More importantly, the credit union knows is has the ability to raise deposits
If we get to where were almost 100% loaned out, we know we can offer a more aggressive, higher yielding campaign in search of deposits, Birky says. We were validated that our members are paying attention, and theyre interested in the deals were offering.
No Failure To Plan
Leading up to the November deposits special, Interra was in a strong cash position. Its investment portfolio of more than $220 million is quite liquid, according to Birky. But instead of waiting for a liquidity emergency and possibly having to purchase deposits, the credit union proactively tested a growth strategy for the future.
It was a chance for us to see what kind of response we could get from a deposit promotion when there wasnt really any consequences, Birky says. We hadnt actively tried to increase deposits for a long time.
A 2014 goal of Interras was to achieve a 70% loan-to-share ratio. The credit union hadn’t surpassed that benchmark since 2009, according to Callahan Associates, but Birky says the credit union hit the goal in December. Even as loan-to-share increases, Interra is not desperate for deposits.
The CD Promotion Brings Business
Approximately 60% of the CD money came from existing Interra accounts. The other 40% represents new business opportunities created by the promotion. This includes new members and new money from existing members.
We have a chance to interact with those members now in a way we didnt have previously, Birky says.
For new members, that means onboarding. The credit union contacts new members six times in the first six months. Member service representative are calling all new CD holders to introduce them to Interra. One week before the CD matures, Interras outbound call center will contact CD holders to tell them about other ways to deposit money with Interra as well as talk about other products and services to engage members. If a member doesnt take action, the credit union will roll over the money into a six-month, 0.25% CD.
Promotions like this bring the possibility of hot money from depositors that chase the best deal and withdrawal their money when the promo expires. Birky admits this is Interras biggest challenge. But instead of looking at hot money as a threat, the credit union looks at it as an opportunity that didnt exist before.
Some of this money is not going to stick, Birky says. The opportunity for us, and the challenge, is to find ways to engage members before the CD matures.
And even if depositors pull their money, the promotion has started a conversation, bolstered Interras brand, and returned value to members. In this sense, it cant really fail.
I would much rather return money to our members in terms of a higher yield than pay a television company or a billboard company to try to get the same results, Birky says.