Juli Anne Callis, CEO, NIH Federal Credit Union responds to the 1Q 2012 CUSP Theoretical Case Study: Exploring A Different Charter.
KAREN, I ORIGINALLY THOUGHT A COMMUNITY CHARTER might work for you, but some research revealed that Minnesota is well covered by community banks as well as community or community-like credit unions. Moreover, a community credit union requires a good deal of brick-and-mortar locations, and Blue Lakes does not have the asset level to compete well enough with the competition in the brick-and-mortar market.
Accordingly, I think the best option for you is to take Blue Lakes to a TIP (Trade, Industry, Profession) charter and thus move away from all SEGs. We did this at NIH FCU two years ago and it has been a good move for us. Retain your federal charter, as we did, because there is no good reason to change and a conversion process is painful.
I suggest you concentrate your new TIP charter on educators. You will leave government workers behind, but the education sector can be very broad; it is growing and it contains a mass of highly educated, highly motivated people with steady and substantial incomes.
In your charter, ask for the broadest possible interpretation of “educator.” You might have to negotiate a little, but initially ask for as much as you can. As a base, educators are teachers pre-school through graduate school and into adult life. Ask for anyone with a certificate to teach. This would include persons who teach at cosmetics schools, for-profit colleges, flight schools, schools that teach English as a second language, and so forth – in other words trainers of all types. Ask for the contract employees as well as the regular employees – you want anyone who functionally does the work of educating to be eligible for membership in your newly constituted credit union. Ask for more than one state. Again, you might have to negotiate but ask for as much as you can. So what kind of members would you get in this TIP? Pre-school educators are typically young people, which are good to have. Others range in age, so you have a good mix available to you. You’ll also have borrowers as well as savers.
In your charter, ask for the broadest possible interpretation of 'educator.' You might have to negotiate a little, but initially ask for as much as you can.
How should you arrange your product mix? First, stay away from the products and services that are labor intensive; you are not going to have the retail model to support it. I suggest you make a real estate product the core relationship product with your educator members. For the young, it can be their first home; for the middle-agers, it can be a home equity loan to fix up their home; and for the older members it can be a “good-bye mortgage” so they can pay off their home before they retire. Put in the work to sign up the mortgages. Then you can sell them, but retain the servicing to hold onto the relationship.
Another product to consider is small business loans to fund the likes of small schooling operations, such as Sylvan Learning Centers and flight schools. Price these and your real estate products properly and you will pick up deposits. You don’t have to be fancy about it. It doesn’t sound like you have the size to launch an MBL program on your own, though, so I suggest partnering with a stable MBL CUSO. You’ll need to rearrange your resources in order to hire the necessary staff for member business lending, so consider selling some of your embedded branches.
To compete in real estate loans and MBLs, offer products with no origination costs. Also, think about offering a no closing costs option. You could offer real estate loans so persons would never have to visit a branch and could; do it all over the Internet. You want to get the message out that you are absolutely serious about being the No. 1 leader in products for educators.
For auto, I’d concentrate on recapture and avoid indirect lending. I say this in keeping with the notion of staying away from a large investment in branches. Tend toward the Internet. This has worked well here for us at NIH since switching from a SEG-based to a TIP charter. Keep your operations in the cloud or use an automated service provider that could be scaled to your asset size. CUNA has a good recapture program you could work with.
Here’s one more thing you can try. Any member/educator that establishes a direct deposit, or a specified level of direct deposit, is eligible to forego payments during the loan’s first 90 days and is also guaranteed one loan vacation per year thereafter as long as the loan is in good standing. Educators really like those kinds of deals; they work well with educators’ pay schedules. This will stimulate educators to leave their established institutions and come to you.
A new name for the credit union might be Educators’ Advantage, because it is striving to give the best possible services and loans to persons who educate others. If you end up only serving members in Minnesota, then it could be Minnesota Educators’ Advantage. If your geography is broader, then something like Mid-America Educators’ Advantage will work.
TIP and educators are your key to the future. Go seize it.