Small Alaskan Credit Union Secures Reliable Growth

Northern Skies Credit Union originates a substantial amount of used auto loans in the Anchorage area.

Northern Skies Credit Union ($62M, Anchorage, AK) once served the employees of Reeve Aleutian Airways, an airline that flew to remote areas of Alaska. Today its members are the grounded residents of Anchorage, AK.

Northern Skies CU, which converted to a community charter in 2003 after the airline closed, is one of the smallest financial institutions in the Anchorage area in terms of assets, says Kyler Howlett, president and CEO. But about one-third of Alaska’s population lives in Anchorage and Northern Skies CU’s two branches provide them with a credit union option.

In recent years and through the first quarter of 2012, the credit union has welcomed steady growth in membership, asset, and loan growth, according to Callahan & Associates’ FirstLook data.

Howlett recently spoke with about the financial institution’s steady successes.

Bailey Reutzel: What drove Northern Skies CU’s financial success during the first quarter of 2012?

Kyler Howlett: This quarter has been fairly typical of what we have seen over the past ten years in terms of growth and return on assets. Most of our business originates out of the loan department and that drives our other numbers. Our loan portfolio has grown an average of 15% per year during this time and we are always approximately 90% loaned out. This has also allowed us to pay top-of-market dividend rates on our deposit products as we have been able to lend out everything we bring in.

Callahan & Associates' Loan GrowthClick the image above to view larger.

BR: What does your loan portfolio look like?

KH: Our loan portfolio is made up mostly of used auto. We don’t do any first mortgage lending at this time, so our entire portfolio is comprised of consumer loans, including home equity loans. Most folks have a car loan and our loan department personnel are armed with the tools and flexibility to put members in a better position by bringing that loan here. A typical day is made up of many small victories in which we are able to save members money by refinancing with Northern Skies, or keeping new members from being charged 18% on an auto loan.

Callahan & Associates' Used Auto Loan GrowthClick the image above to view larger.

BR: Where are you seeing the most loans originating come from?

KH: Our new loans come from a combination of relationships with existing members and relationships with local dealers in the area. We do not have a formal indirect program set up with any dealers in town, so we are often the third or fourth institution to look at the deals we get. We have developed a knack for finding the diamonds in the rough and looking beyond the credit scores to help people. Dealers recognize this and have been sending us more and more paper over time.

BR: How is the credit union controlling loan losses and delinquency?

KH: Our Loan Control Department is an integral part of our overall success. They have been very successful in keeping delinquency and loan losses to reasonable levels. They understand that the loan portfolio is the machine that drives our performance and keeps it in tune with our hard work and helpful interactions with our members. Our delinquency ratio has only gone above .50% once in the past 12 months and net charge-offs are right in our comfort zone.

BR: How do you market your loan products?

KH: Most of our business comes from word-of-mouth and repeat business from existing members. We currently spend very little on marketing or advertising because we are content with the current level of growth we have been experiencing. This allows us to keep our focus on serving the members we have. When they experience outstanding service, they will tell their friends and family, and the growth takes care of itself.

Callahan & Associates' Member GrowthClick the image above to view larger.

BR: Did the word-of-mouth marketing play a role in your 34% share drafts growth in first quarter 2012 from first quarter 2011?

KH: Much of our new member growth comes from within the loan department. We found we were missing golden opportunities to create deeper relationships with those members when they first walked in the door. Our share draft penetration numbers have historically been low for this reason, but we have worked hard in the past few months to do more with these opportunities. So far we’ve seen encouraging results.

BR: Does Northern Skies CU have any programs to encourage member growth and/or account growth?

KH: We have an ongoing campaign to increase new account growth. We offer $50 and $100 gift cards that are given to new or existing members who open a share draft account and meet a few initial requirements. When the requirements are met direct deposit, home-banking, and debit card usage we make a deposit for that amount to their account. It’s kind of like a bonus dividend for new members and has been well received.

BR: How do you pull in new members to the credit union?

KH: With the exception of a small credit union on a military base nearby, we are the smallest financial institution in town by a long shot. We operate in an area that is home to the headquarters of institutions that probably represent 95% of the total assets held in the state. Despite this, we are able to carve out our own piece of business and provide our members with products that are as competitive and affordable as they can get anywhere else in town. I like to think our size allows us to be more nimble and flexible when it comes to pricing our products and meeting each member’s unique needs.

BR: As you move into the second quarter of 2012, what goals have you set for continued growth?

KH: Our goals for growth are just to maintain the same pace we have set over the past ten years: 8% membership growth, 15% asset growth, 17% capital growth, and 15% loan growth. We are on pace to reach these this year. In fact, loans are already up 9.5% year-to-date as of May 8.

We will also continue to focus on building deeper relationships with new and existing members. One of our large projects this year is broadening our menu of eServices for our members to include alerts and electronic letters, among other things. We have a fabulous group of employees and volunteers who embrace the changes that growth brings.

May 27, 2014

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