Caterpillar Employees Credit Union was founded in 1937 by Caterpillar employees at their plant in East Peoria, Illinois. The story is a familiar one: the first savings were placed in a cigar box. Over the years, the credit union grew, helping its sponsor employee members. By 1979, the credit union had about $250 million in assets and served Caterpillar plants in the Peoria area, family members of members, and employees of 20 to 30 Caterpillar dealerships. Caterpillar Employees CU had about 84,000 members. Then the bottom fell out.
How did the crisis begin?
SA: In 1979, the Caterpillar employees walked out on a three-month strike. It put a strain on the credit union, obviously. We had a policy of not collecting loan payments from strikers. Pretty soon we were borrowing from the Central Liquidity Fund; I think we were the first or among the first to do so.
But this was just the beginning?
SA: Yes. You may recall that the economy was beginning to soften then, getting ready for the early-'80s recession. But that was in the future. In 1979, in addition to the strike, we opened our first office outside a Caterpillar office or plant; we placed it in a shopping mall. Two years later, in 1981, Caterpillar decided that owing to this off-site location we were not really a close credit union they could control as they would like and insisted we change our name. We did so, to Construction Equipment Credit Union. Caterpillar asked us to move all our offices off-site. We did so by 1982, but our membership did not change.
Then the economy started to go bad on you?
SA: Yes. In 1982, we were barely in the black. Our loan portfolio declined January to December from $228 million to $211 million. We could see that we needed to diversify. As a start in this direction, we began merger discussions with a Caterpillar credit union in Iowa but regulations prohibited cross-state line mergers at the time. We decided to get a federal charter in order to make cross-state mergers. We did get a federal charter that year.
But the recession was hitting. In 1983, Caterpillar reported its first loss since the Depression. Within a two-and-a-half year period it cut its local workforce in half, from 32,000 to 16,000. In one year, 12,000 good jobs were eliminated.
This hit our members very hard. People walked into our offices with the keys to their cars and homes and turned them over to us, saying they could no longer afford the payments. In April of '85, our tri-county area had unemployment of 12%. Peoria's county had the largest population loss in the state. By the mid-'80s we had about a hundred REO homes; we sold 31 homes in 1985, 65 in '86 and 49 in '87. Our installment loan delinquency (mainly cars) in December of '85 was 9%. In 1983, we sold 486 cars; in 1985 we had about 300 repossessed cars on our car lot. We couldn't really say we'd been making mistakes. In 1985, we made a study of our charge-offs; we found that 71% owed to Caterpillar layoffs and not underwriting sloppiness.
What kinds of measures did you take?
SA: Following Caterpillar's lead, we eliminated a Cost of Living Allowance for managers in late 1984, and for all employees in 1985. Later we imposed a 3% pay cut. We drastically reduced overtime, and virtually stopped moving employees from part-time to full-time positions. But we did not layoff anyone. For members, we deferred lots of loan payments, sold REOs at very attractive rates with no points, and counseled people individually. As best we could, we stayed a compassionate credit union.
How did you start to dig out?
SA: When we got our federal charter in 1982, we of course also got NCUA examinations and regulations. You remember these years: high interest rates, usury regulations, and, of course, strict NCUA oversight. NCUA wanted us to solve our problems with the tools at hand, that is, not to merge or diversify our membership, but to work with what we had. Our ROA was just under 0.25%. Mid-way through 1985, our Board and NCUA set a goal of an ROA in '85 of 0.25%, escalating 0.25% each year until reaching an ROA of 1% in 1988. This was ambitious, but NCUA allowed us to calculate the ROA before setting aside for REO loan losses, which in 1988 was $800,000. Looking back, I'd say NCUA was tough, but fair; we worked with them as if in a partnership.
So 1985 was a critical year?
SA: It really was. We were really looking big trouble in the face; our delinquency rate was three times that of our peers. But it was also a turn-around year. A $25 million credit union called Mid Central was in trouble and approached us about a merger. NCUA in October changed our CAMEL from 3 to 2. Mid Central had about 120 SEGs; our NCUA examiner recommended to the regional director that we be allowed to merge. With the merger we picked up all sorts of new companies: breweries, hospitals, restaurants. We got the kind of diversity we needed. We also picked up counties across the middle of the state, and we have picked up more since.
Did you meet NCUA's ROA goals?
SA: We did, every one of them. And we paid a 4% cash bonus to our employees in 1989 in reward for their hard work, plus an extra 1% contribution to their 401(k)s.
What is Citizens Equity First CU like now?
SA: We have $3.6 billion in assets, $2.8 billion in loans, 234,000 members, a capital ratio of 10.5% ($379 million) up from about 3.5% during our troubled times, an overall delinquency rate of 0.58% and an ROA of 1.18% as of August of this year. We have written $971 million in loans since the beginning of this year. Actually, one of our biggest challenges is loan demand. We have the money to lend, but though our mortgage and business lending is good, our consumer demand is not as strong as we’d like. Of course this is reflective of the overall sluggish economy and anemic auto sales. By the way, we reverted to an Illinois state charter again in 2000.
So it's possible to come through quite a dislocation such as the one the nation is currently facing?
SA: Well, the storm we faced was pretty bad, but we got through. Persistence and patience were key. I hope the credit unions that are experiencing tough times owing to the current economy get a break soon. My advice would be to continue serving your members as you always have while you look for opportunities to serve others beyond your core membership and always take good care of your staff. Hard times are definitely hard, often very hard, but there is a tomorrow. We've lived it.