Soul Of The SEG

A Minnesota credit union channels loyalty to a select employee group into a boom year.

At a time when many institutions seek membership from just about anywhere, Novation Credit Union ($87M, Oakdale, MN) shows the strength of a local, focused approach. Since its predecessor’sinception in 1954, the credit union has remained strategically tied to employees, family members, and retirees from the global diversified technology company 3M, as well as the residents of McLeod County.

This partnership affords us thousands of brand impressions each day through 3M corporate headquarters, so membersand non-members alike can see how much better our products, services, and rates are than the competition, says Kristi Mukomela, President and CEO.

Growing awareness about Novation’s products and services in a targeted pool drove a 3.2% share increase from 4Q 2010 to 4Q 2011, according to Callahan & Associates’ FirstLook data, and a 3.3% increase in membership over the same period.

The credit union made the decision not to openly participate in November’s Bank Transfer Day, as it had actively promoted its differences from big banks since March. Instead, Novation used those months for marketing and business development efforts at 3Ms Headquarters and plant locations in Minnesota, Wisconsin, Iowa, and South Dakota.

That’s not to say the credit union doesn’t move on opportunity when one presents itself. We took advantage of the fact that a large national bank closed their 3M branch in March and highlighted that we are still here to serve 3M on a daily basis like we have been for 57 years, Mukomela says.

Loans In The Limelight

The credit union has experienced a substantial turnaround in much of the loan portfolio, from -2.93% loan growth in 4Q10 to an impressive 7.42% in 4Q11.

Loan Growth
Data as of December 31, 2011
Source:Callahan & Associates’ FirstLook.

Strategically, we identified four key loan products that we wanted to concentrate on in 2011 ? mortgages, Visa, private student loans, and auto,says Mukomela. We saw strong growth in all four.

The credit union experienced an uptick in loan servicing costs as a result of these increased efforts, primarily in relation to their private student loans and indirect auto programs, but these investments are paying off, Mukomela says. Employees have also become more effective at loan generation, increasing originations per individualby more than $200,000 annually.

Loan Breakdown
Data as of December 31, 2011
Source: Callahan & Associates’ FirstLook.

Jumpstarting Auto Demand

On April 1, we lowered our rate to 2.99% for all new and used vehicles, says Mukomela. The credit union spent only $5,000 for a batch of ads and posters, two targeted direct mail campaigns, and email/websiteadvertising, yet the campaign resulted in roughly $6M in new <loans by August alone.

The credit union attributes this performance, in part, to a changing economic situation for consumers, releasing a backlog of pent-up demand from the recession. But low ratewas still the main driver in the marketplace, says Mukomela.

Mid-year the institution raised the rate for used autos years 2008 and older to 3.99%, but still managed to increase used auto balances by roughly $500,000 from summer to year-end.

We highlighted an easy pre-approval process and started to concentrate on building some in-direct relationships in our Hutchinson market, says Mukomela. In total, auto balances have increased 35.1% annually as of 4Q11.

Auto Loan Growth
Data as of December 31, 2011
Source: Callahan & Associates’ FirstLook.

Homeward Bound

First mortgages make up roughly a quarter of Novation’s loan portfolio and the credit union gained momentum at year’s end, building on a beneficial rate environment, supportivenews coverage, and word-of-mouth marketing to promote the application process.

In the first half of the year, performance for firsts was slower then anticipated but we did see a nice turnaround for the last six months, Mukomela says. We would like to see that upward trend carry on into 2012 and have budgetedaccordingly.

Asset Quality

Total delinquency dropped 74 basis points annually as of 4Q11 and net charge-offs were down 49 basis points. While the credit union has made some small changes to its underwriting guidelines,primarily in response to the decline in housing values, much remains the same as it was five years ago.

It’s important to point out that our delinquency and charge-off situation, even at its highest level, was never unmanageable, Mukomela says. Our staff that workscollections does an awesome job. They are not even dedicated solely to collections, which is fairly amazing.

Novation has so few repossessed assets that it is easy to keep track of them and stay on top of liquidation. We basically retail collateral forabout 30 days, also using some wholesale outlets we have, Mukomela says. Then if the vehicles aren’t sold, we take them to auction. We have a policy to liquidate collateral within 90 days.

Planning For The Year Ahead

The economy still presents some uncertainty, but Mukomela believes Novation has made it through the hardest years and properly positioned itself for success in the decadeahead.

With a 51 basis point return on assets in 4Q11 and net income up 106.4%% annually from 2010 levels, the credit union has the opportunity to better enhance its staffing, operations, andofferings. We do see the need and have planned for large investments in 2012 and beyond, says Mukomela.

For example, Novation is hiring a full-time business development representative who will take the gains of 2011 and help continue this success in 2012. Other projects include reopening a state-of-the-art branch at 3Ms Headquarters and remodeling a branchin Hutchinson, MN, integrating a new telephone system, undergoing a website redesign, adding a reward based systems to their debit product, and streamlining their Visa offerings.

We are constantly looking at new technology or offerings that we feel would hold a broad appeal to 3M employees and their innovative culture, says Mukomela.

May 23, 2014

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