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Strategic Planning: CUs Dig Deep To Remain Competitive

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FORT WAYNE, Ind. — Don Cates is eyeing banks in the northeastern section of the Hoosier state more carefully these days.

The competitive pressure has increased, says the CEO of 3 Rivers FCU here, adding that local banks have regained much of the footing they lost in recent years.

"It may even be a little more so than we expected," said the chief executive of this $764 million CU. "The bank side is not nearly as accommodating as it was three or four years ago. Whether because of capital constraints or credit quality issues or trying to maximize customer profitability and pushing new members out to us, they're not nearly as accommodating in that respect as they were. So everybody and everything is kind of in play."

Cates noted he read an article recently noting that bank growth surpassed CU growth in the first part of 2014, which he said mirrors his own credit union's market.

Banks have "healed" themselves, according to Cates. "They don't have the growth constraints, they don't have the asset quality issues that they did. They've actually seen some growth in both the deposit and the loan sides, so they're a lot more relative competitor than what they have been," he said. "That's not a 2014 phenomenon; that was 2013 into 2014, but that's going to continue to be a concern."

What has driven much of that, Cates continued, is that "we've kind of gotten out of the free checking exodus [and] settled into where everybody's not too different on that side." As such, he said, checking and deposits aren't significant drivers of movement from FI to FI, meaning growth will have to come from loans. "And if loan demand is not there... that customer/member migration is not going to be as great. When you have the constraints that a credit union does [for membership] you just don't have the universe to draw on that a bank does."

Competition from retail banks is among the concerns credit union executives told CU Journal they're keeping top of mind when shaping their strategic plans.

Another is the potential for a shift away from what one chief executive called "an employer's market."

"We've just gone through a period of six years where it was an employer's market, and now that's beginning to change," said Lin Hodges, CEO at $1.3 billion Associated CU in Norcross, Ga. "During these six years... there was a lot of talent that was easier to find than had been the norm before. Now the challenge is going to be retaining that talent and making sure that we're an employer of choice."

For Associated Credit Union, that means continuing to offer competitive pay and benefits for all staff, along with an inviting work atmosphere, and providing training and opportunities to continually keep employees challenged. That has strategy has paid off, said Hodges. The credit union never stopped offering raises and bonuses during the recession, and 75% of the credit union's employees have been on the job for five years or more.

While Hodges hasn't seen any sort of employee exodus with the improving economy, he emphasized that it's important to be aware of what that climate means for potential employment opportunities that might result in the credit union losing high-quality staff.

"We try to identify our most talented staff members and make sure that we keep them challenged and that they don't feel like they're put on a shelf and not being thought of," he said. "That's just an ongoing thing, but I do think the economy certainly comes into play, because when it gets better, people have more choices."

That strategy not only helps the credit union continue to operate at a high level with competent staff, but means a lot to the members, too, said Hodges.

"The world is changing so dramatically so fast that it's disconcerting for people and comforting for someone who calls or comes in to deal with that same person and have a familiar voice," he said. "It's a bit of a strategy and you have to be flexible. Your strategy may change at some point, but I believe those are things that give us a competitive advantage."

At Partner Colorado CU in Arvada, Col., CEO Sundie Seefried said that her $280 million credit union has spent the past decade working to establish a culture that can help retain the strongest employees and reduce turnover, including executive benefits for senior management, competitive retirement plans and more. She said that the improving economy is a concern in that regard, but feels that Partner Colorado has largely done what it can to prevent that kind of attrition.

"It doesn't mean our turnover isn't increasing because the job market is getting competitive, but the best of our employees still want to stay with us," she said.

One thing that many credit union CEOs interviewed for this story downplayed was the impact of NCUA's proposed risk-based capital rule.

"The RBC rule isn't significantly impacting the planning because we have the high capital levels and also expect the RBC rule to be modified significantly," Michael Poulos, CEO at $695 million Michigan First CU in Lathrup Village, Mich. wrote in an e-mail. "The CFPB, unfortunately, continues to have nothing but a negative effect on our business. We continually adjust to the demands and expected changes, but unfortunately it ends up costing our members in the end."

Similarly, Partner Colorado's Sundie Seefried said her biggest concern isn't RBC but the CFPB. "I watch everything they're putting on the table for proposal or comment, because regardless of if they say $10 billion or not, we're all getting hit with whatever they put on the table." Seefried is the legislative chairman for the Mountain West CU Association and said that she plans to lead a delegation to Washington in September to sit down with the CFPB and NCUA to "talk about these regulations and how it impacts our ability to serve our members in the same way we've done in the past."

Associated CU's Lin Hodges observed that "the RBC stuff that's out there is unnecessary... but it really doesn't impact our plans. Maybe long-term it might have some implications, but in the foreseeable future... I don't' see it having an impact."

Janet Mount, CEO at $16 million Vermillion FCU in Vermillion, S.D., said that because her CU is so far below the $50 million threshold, she hasn't given the rule much attention. But she echoed the sentiments of many of her colleagues at much larger CUs when she said, "I do sometimes wonder why something that isn't really broken needs to be changed."

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