Lending Structured For Success

Waterbury CT Teachers relies on a small, highly-trained staff to cultivate loan growth while keeping overhead low.


Nestled on a winding road shaded by trees, Waterbury CT Teachers Federal Credit Union ($237.3M, Waterbury, CT) is designed like a one-room schoolhouse. The credit union was chartered in 1934 to serve teachers of the Waterbury public school system. Its field of membership and mission has changed little since then. The credit union still serves employees of the public school system in a 900 mile radius, reaching not only teachers but also administrators, people that work for the Board of Education, and their families.

Even with a restricted membership, the credit union continues to capture new members and grow its loan portfolio. George MacDonald, president and CEO of Waterbury CT Teachers, spoke to creditunions.com about the institution's current loan strategies and future goals. 

What are the needs of your membership? How has Waterbury CT Teachers FCU accommodated those needs and developed products based on them?

George MacDonald: When I first got here, I had just spent 20 years at an Air Force Base credit union that had mostly Sergeants and Airmen.  They tended to be very transaction-oriented instead of loan-oriented. At Waterbury CT Teachers FCU members are more loan-oriented. They want loans for education or large bill consolidation.  Members here are much more stable. They earn more so their savings balances are much higher.  We do more with each member and drive our profit up by requiring less staff.

How do you retain these members, especially with retirement and relocation concerns?

GM: We don’t offer cash services. We have ATMs, but we don’t have teller counters and drawers. We’re not transaction oriented, so most of our business is done through the mail. Now with online banking, it’s even easier for the member to keep their account when they leave the area. 

Because of this we have very low overhead. We’re able to keep the staff low and keep salaries low. In turn, we’re able to work on a thin net interest margin.

How has the loan portfolio at Waterbury CT Teachers grown over the past several years?

GM: Over the years, our biggest growth has been in real estate. This was primarily due to low fixed rate home equity loans in 2008 and 2009. We also began a program to refinance first mortgages to a shorter term – under 15 years. We were able to do it in-house without closing costs or points. The credit union had to stop running those short-term, no-fee mortgages because they represented 70% of our total loan portfolio, and we set a 75% limit.

We spend a lot of time trying to steal loans from other financial institutions by looking at members’ credit reports. Most of these loans are fixed rate loans, so when the concentration jumped in 2011, we discontinued the product, referred members to our mortgage CUSO, and began concentrating on other products.  

What products have you shifted the focus to?

GM: We focus on used cars, signature loans, and VISA. Our loan officers are now trying to package each car loan with a VISA card or other high rate product. We made strides in the used auto area, by stressing payment flexibility along with free life insurance. But these types of loans are for much smaller amounts, so the portfolio is not growing as quickly.

How is the credit union’s lending department structured for success?

GM: We have five employees working in the lending department. Because we have a small staff, we take the opportunity to train them every week. Not only do we do this with our lending department but also throughout the entire office. In these meetings, we review existing products and new products.  Although most of the training is done in-house, we have brought in the league and purchased videos on specific topics. Everyone hears the same message. Everyone knows the same thing and answers questions the same way, so we have a lot fewer member complaints.

Do you sell any loans to the secondary market?

GM: No. A few years ago, the board considered selling our VISA portfolio for a profit of $1 million, but turned it down because they didn’t want another company jacking up the interest rates on our member loans. This is the reason we’ve been so successful, because everything we do is for the member.

How is Waterbury CT Teachers underwriting its loans?

GM: With credit reports and scores. The score determines the interest rate. The report tells us how the member handled this type of loan previously.  If they had issues with the same type of loan before, they probably won’t qualify.  Plus we try to get adequate security

In 2002, we implemented Rex Johnson’s HYLIS program. We got to a point where we were very conservative with our lending. Lending peaked at about $50 million. Our total volume regressed a little bit so we brought Rex in. We got to a point where we were just too scared of charge-offs and members with bad debt.

With Rex, we got rid of debt ratios, which for teachers can be a real problem because they want to apply in their own names. When you calculate their debt ratio ─ taking in their mortgage payments and everything else with their household income ─ a lot of times they have other people helping pay that. If you just take their incomes and all the debt they have, they might have an 80% debt-to-income ratio, and you have to turn them down.

So now we just look at their past propensity to pay their bills. Then we price the loan based on their credit report.

How have the members reacted to the switch in lending standards?

GM: We were able to start getting paid for riskier loans. The members appreciated it a lot. Our delinquency ratio is less than half of 1%. So 99.5% of our members control their spending and understand how to stay out of trouble with their credit. Our members know what they can afford.

Even people with bad credit benefit, because we can still offer lower rates than the competition. The lower the credit score, the bigger the savings they can get. When you’re comparing rates for a person with A+ credit between us and the banks, you see a slight difference. With someone that has D quality paper, they may be able to get a 12% loan from here, but they’d pay 36% someplace else. The member is appreciative that we stepped up and helped them, so they’ll pay us back before they pay anyone else.

Waterbury CT Teachers continues to capture new members and its average member relationship is more than four times higher than its peer group. How are you cultivating these trends? 

GM: Our marketing assistant and branch manager visit schools almost every day. Teachers stop by for donuts and conversation. We visit about 96 schools throughout the school year. We only talk to teachers and members that approach us. We never approach them and therefore avoid a pushy sales approach. It is very friendly and informal. 

We also arrange meetings with school ambassadors. An ambassador is either a teacher or administrator from that school and a member in good standing who is familiar with the credit union. We send emails to the ambassador about our products, and the ambassador will forward those emails to other teachers. Sometimes we run specials only offered to members receiving emails from us.  

We are also included in the Waterbury school system's local area network. We can send emails to each Waterbury teacher directly. We don’t abuse this privilege. We were able to be in the local area network because of our chairman’s past relationship in the schools. He was the teacher’s union president and treated all the teachers as family. Plus, we get a lot of free advertising from teachers speaking positively about us to other school staff.

How does the credit union get the whole family onboard?

GM: Every year teachers retire and new ones are hired. We try to capture 100% of the new teachers coming in. We usually get a few different accounts from one teacher because the spouse becomes a joint member and then we try to open up accounts for kids.

Our Head Start account, for members 18 and under, pays 5% up to $1,000. And we hold a contest every year called Baby Bucks. For every new account we open for a child under 2, we put their name in a drawing for monetary prizes.

How do you market products in your area?

GM: We are drowning in money.  We put up posters telling members we have $50 million to lend.  We want to convince them we haven’t made it harder to borrow like many other financial institutions.

We mainly use post cards and email. Newspaper and television advertisements are too expensive and go to too many people that are not eligible for membership. The marketing has to emphasize the rate or our members don’t respond. 

What are your goals for the rest of 2012?

GM: We’d like to see 5% loan growth. It’s a two-part goal. We want to grow loans by 5% from our totals as of December 31 and we also want to grow VISA outstanding by 10%. It’s been tough trying to get the VISA up.

From the technology side, we are working on implementing secure email, vulnerability testing, penetration testing, and automating the account opening process. We want the computer to jump from one process to the next automatically and keep previously entered information so that we won’t skip steps in the new account process. We are also trying to add additional methods to make loan payments, such as PayPal.

Author Bailey Reutzel and multimedia producer Melissa Forsyth hit the road in August for a weeklong Cooperative Trek. They traveled from Washington, DC, to Portland, ME, stopping along the way at 11 credit unions and learning first-hand about successful strategies to share with our readers. Follow the 2012 Cooperative Trek on CreditUnions.com as we release stories from the road throughout the fall of 2012.