After what may have appeared to be an inauspicious start with its new CEO, Cherokee Strip CU has seen tremendous growth.
Just two days after Rick Menton became CEO of Cherokee Strip, all but one member of the loan department resigned. Yet just 18 months later, the $88 million CU boasts 100% loan growth, 10% membership growth and a positive ROA for the first time in five years at .88%.
One of his first challenges was to hire a loan department.
"The loan department was comprised of a senior loan officer, real estate loan officer and consumer loan officer when I came to Cherokee Strip Credit Union Nov. 18, 2013," Menton related. "The former CEO retired on Nov. 15, 2013, and two of the three loan officers gave their retirement notices for the same date. I was able to get the real estate loan officer (one of the two to give notice) to stay an extra month to clean up some outstanding mortgages. It was known that neither of these two loan officers wanted to be around for the sales program I was bringing in. The third loan officer left within four months."
Why? Because they knew the shape of things to come, according to Menton.
"I had been doing consulting for this credit union for 12 years, first while I was at the Oklahoma Credit Union League and after that as an independent consultant. In March of 2013 the credit union hired me to do sales training with the loan department. It was met with resistance. So, the answer to your question is yes, they knew what was coming."
Indeed, while it might look like a bad sign when an entire department ups and leaves when a new CEO arrives, it can really work to the new executive's — and the credit union's — advantage.
"Some would look at this as a burden or a misfortune to have your loan department resign. Rick looked at it as an opportunity to shape the credit union with the vision he had going forward," said credit union consultant Rory Rowland, who has identified top-performing credit unions for Credit Union Journal. "The first thing he set out to do was create a service and sales culture. Sometimes that is easiest to do with a clean slate."
The next step was to find a lending leader who could help the credit union create an indirect lending program. Menton found that in Jeff Dahlgren, SVP and chief lending officer.
"Jeff understood indirect lending, and he knows how to grow loans, and that is exactly the kind of lending leader we needed," Menton said. "We immediately got involved with the dealers in the area, and we captured a significant share of the indirect loans in our area. We grew indirect loans to 40% of our loan portfolio. Now that we have pulled back on our indirect program, the direct program has really picked up. The dealers love us so much they actually send us the loans direct."
That's right, he said the dealers send members back to the credit union, without going through an indirect process.
"We turned our indirect program down in December to just accept some weekend loans, yet loans continued to increase into 2015 at a very rapid rate. Dealers were now sending their customers to the credit union 'direct' and foregoing the dealer reserve and sale of their own MBI and GAP products. Our loan officers saw this opportunity and our sales in these products doubled in December, January, February and March. From January 2014 through March 2015 our loan-to-share ratio climbed from 35% to 86%. We are now slowing the growth down and putting more controls in place to shore up our programs. Our challenges for the future include attracting deposits to fund a slower, more controlled loan program and creating the space to house the staff needed to operate our credit union."
Cherokee Strip dramatically broadened its loan mix, adding credit cards and providing incentives to frontline staff and loan staff for selling credit cards. The credit union also started offering home equity lines of credit and hired a mortgage loan officer to push more mortgage loans out the door.
To get employees pumped about selling the new credit card program, Menton offered a new 54-inch smart Vizio TV to the employee with the most applications if the entire CU approved more than 25 credit card applications during the promotion. Each employee was also eligible for $10 for every credit card application.
When the TV was shown at the sales meeting, the receptionist told Menton, "I am going be going home with that TV." And true to her word, she won. Menton said she talked to everyone who came into the lobby about having a Cherokee Strip Credit Card.
Another key change: pricing. "Before Rick took over, the credit union was giving it away," Rowland said. "The pricing strategy: be the lowest price in town. It's very difficult to have a positive ROA if your pricing strategy is all wrong."
Cherokee Strip adopted a robust risk-based pricing strategy and dramatically improved the lending processes, Roland noted, which not only improved loan performance but also enhanced member service with faster turnaround times.
Lending isn't the only area the CU has seen significant growth — fee income has doubled.
"The sales program is the key to additional fee income. The sales of our products to all our members is very important. If a member gets a checking account we make sure they get our debit card and credit card," Menton said. "Interchange income is critical for our success. The additional items to offer your member are the insurance products."
Cherokee Strip made some big changes to boost its fee income as well.
For instance, the CU upgraded its data processing system to bring the debit card system live.
Previously, it was on a batch system updating every 24 hours.
"This allowed for increased income due to overdraft fees," Menton said. "It has quadrupled our fee income in this area. This also allowed for an increase in interchange fees."