IOWA CITY, Iowa-One credit union sees no need in 2013 to alter a business model that led to 24% loan growth last year, boosted earnings 59% year over year, and has ROA above 2%.
Jeff Disterhoft, CEO of the $1.8-billion University of Iowa Community CU, explained the CU's three-legged business model continues to be the right growth roadmap. "It has worked very well for us, particularly during this economy."
That business model allows UICCU to price competitively with any institution, big bank or not, said Disterhoft, which leads to growth. "Consumers are very price conscious today. If we give better than market pricing, we grow."
At press time a 13-month CD paid 1.15% APY, and a seven-month .85%. Rewards Checking delivered 3% on balances up to $25,000. A 30-year, fixed home loan was 3.28% APR, and new car loans were 3.14% for the best credit up to 66 months.
But to price well the credit union must be efficient, and efficiency is the first leg of UICCU's business model, explained Disterhoft, who said the credit union is running lean with a 48% efficiency ratio.
Pricing is the second leg. "We are focused on creating value for members and employees. We try to be above market in both product pricing and employee salaries and benefits," said Disterhoft, who added that satisfied employees lead to higher staff performance, better member service, and more sales of services members need.
Disterhoft said employees have performance incentives, and having attractively priced products helps them reach their incentive goals. "They appreciate that our products are not hard to sell."
Disterhoft reminded that the first two legs of the business model have to work well to achieve growth, which is the third leg of the business model. "And the third leg takes us back to the first-the more you grow the greater your economies of scale, which then leads to better pricing and then to more growth. It's a cycle."
Providing Tactical Support
Tactics that support the business model include standing efficiency teams that have pulled hundreds of ideas from employees on ways to trim costs and improve processes. UICCU has company incentives tied to efficiency goals, has centralized underwriting primarily on the retail side, and is looking to develop market-based pricing.
"We serve seven distinct geographic regions in this state," explained Disterhoft. "Market-based pricing allows us more latitude to be best in market."
Disterhoft believes, too, strong corporate values contribute to the CU's success. "We try to aspire to them daily, providing the framework for how we interact with members and with each other."
If the business model seems simple in design, it is, said Disterhoft, pointing out, however, it is not easy to pull off.
"We make a lot of hard decisions every day that sometimes people don't like. For example, we are ranked highly by members for service, but we have decided we can't have a branch on every corner. We may not be able to afford that next great mobile app or even have the best carpet in our branches. We don't have 80 people working in a call center, and have small marketing and IT departments. We run a very lean staffing model. You can't just wake up one day and say we will run efficiently. You have to make some difficult decisions along the way."
The only real potential obstacle to the business model Disterhoft sees in the near term is CU taxation.
"There is a big push now by the Iowa Bankers Association and they are trying to get push at the federal level. Barring taxation, we will be growing well staying with our business model."