Erie Federal Credit Union began as the credit union for school employees in Erie, PA, in the late 1930s. Now – 13 mergers and approximately 200 SEGs later – the community chartered credit union serving Erie and Crawford Counties has captured 36,000 members out of an eligible population hovering around 360,000 persons. It has an asset base of $310 million. In 2009, it grew 19% in assets, 22% in loans, and almost 10% in members. We interviewed its CEO, Norb Kaczmarek on 2009's performance and the opportunities in 2010.
How did the traumas of 2009 affect your credit union?
NK: Compared to many other credit unions, not much at all – thankfully. We had a good year, growing in assets, loans, and members. To this I can attribute two elements of good fortune: our location and our capital ratio. Per the first, obviously we are not part of a Sand State; our mortgage market held together better than troubled areas in Florida, Nevada, and California. Per the second, we've always tried to hold a capital position of 10-12%; at the end of 2008 our capital ratio was 11.75%.
We had another good piece of fortune. Our corporate, Mid-Atlantic, is based in our state capital of Harrisburg. It was conservative, did not invest in the CDOs and derivatives that others did, and did not suffer huge losses. In fact, its loss was confined to what it had in U. S. Central. We had to write down 23% of our capital in Mid-Atlantic, but that's the end of it.
How did you look out on 2010?
NK: At the end of 2008 we adopted a three-year strategic plan. We decided early on we did not have to nor should we change much about this plan but to continue with it through 2010. This includes opening two new branches. One will be in a Wal-Mart Supercenter – our first venture into a retailing venue – and the other will be built from scratch as a walk-in only. This second one will be in a residential neighborhood and paid for in part by closing a branch that was not doing as well. All the teller functions will be handled by Shared Branch kiosks; a few employees will handle loans, new accounts, and the like.
In terms of your performance, what surprised you most about 2009?
NK: We were the most surprised by our growth numbers. They were very strong. Most of this had to do with indirect lending. For example, we became the largest auto lender in Erie County. Our indirect lending boost came in large part from major lenders such as M&T and CitiFinancial cutting way back because they could no longer find a market for their bundled loans. This, of course, worked to our advantage. Dealers increasingly came to us. Our loan volume went up and so did our number of members. NCUA, of course, was interested in what we were doing but they found our quality was better in 2009 than in 2008. Indeed, our delinquency and charge-offs have remained exceptionally low.
So unlike many credit unions you had momentum going into 2010?
NK: Yes, and we are taking note of the increase in indirect auto lending to ramp up merchant lending. This is a new program for us. When we went to home improvement shows last year, we discovered vendors were complaining they found it hard to finance their products with customers – replacement windows, sun rooms, and the like – because the national lenders were pulling out of the market or tightening standards. Many vendors asked us to step in, and we have been doing so. We have signed up a dozen companies to finance home improvements, even finance hearing aids and orthodontist braces. Vendors at home shows are now asking if they can display banners saying they offer financing through Erie Federal CU. When we sign with a company we also set up discussions with the employees, who naturally find our credit union an exceptional value. So far we've actually done more business with the employees than with financing for these new companies' customers.
What are some other ways 2009 affected you?
NK: Happily, there has been positive national media exposure for credit unions. This has brightened our image in the community and brought us new people. Because other lenders are backing off, we see fresh opportunities in small business lending. We already are an approved SBA lender, so we are looking to write SBA loans as well as reach out to the small business community in general; for example, we meet regularly with a business incubator.
Owing to the stabilization and corporate problems, we are watching our interest rate spreads more than ever before. We can't be sure what the NCUA/NCUSIF assessment will be this year, but we are accruing as if it will be the highest number stated, that is, 40 basis points. We feel it could be as high again in 2011. We are also looking to boost our non-interest income, not from fees but rather from CUNA Mutual insurance products and possibly from CUSOs.
What about member or community perception of your credit union?
NK: The events of 2009 generally boosted both members' and non members' feelings toward our credit union. There were the national media positive stories, of course, but also here locally stepping up to do indirect lending, merchant lending, and small business lending has polished our luster. The only grumbling we hear is from seniors, who are unhappy about the CD rates, but we are still one of the highest around and seniors understand they really can't get better rates anywhere else.