First Quarter 2008

Get Your Portfolio Buzzing

Rodney May, Senior Vice President, Member Services
Mid-Atlantic Corporate Federal Credit Union

With current economic conditions, investing and building a sound investment portfolio has become forefront in the minds of credit unions. We know that to structure a diversified portfolio takes expertise and a good investment strategy. Mid-Atlantic Corporate, your friend in the business, has the expertise and investment options available to get your portfolio buzzing. These programs include Mid-Atlantic Corporate term and structured certificates, SimpliCD jumbo certificates, and brokered investments via CU Investment Solutions, Inc.

What makes Mid-Atlantic Corporate’s investment strategy different? We give our members the time and attention they deserve to meet their unique and individual investment needs. Mid-Atlantic has experienced record growth in term and structured certificates purchased by our members. “Mid-Atlantic helps us keep a good short-term ladder with excellent rates,” said Malia Dierken, CFO, Har-Co MD FCU.

Earlier in the year, we increased the number of structured investment product offerings available to credit unions, which has made diversifying a portfolio more efficient for credit unions. “We have been investing more with Mid-Atlantic instead of our brokers,” stated Fred Tonty, CFO of Erie FCU. Tonty continues by saying, “We buy structured callables from 1 to 5 years in maturity. Comparable bonds offered by the brokers are usually anywhere from a few to 25 basis points lower than what’s available at Mid-Atlantic.”

Our investment offerings also include government securities. These provide additional investment opportunities, which are backed by the U.S. Government. If credit unions choose to diversify their investment portfolio with these types of securities, they can do so through Mid-Atlantic as well. 

Another way to diversify through Mid-Atlantic is with our SimpliCD program. Through SimpliCD, our members purchase jumbo certificates without the hassle of dealing with each institution individually. In addition, procedures are in place to eliminate the risk of your credit union exceeding the insurance limitation in any one institution. “It is so easy,” said Diane Delooff, CEO of Research 1166 FCU. She continued, “The statement comes in, we book the income and it’s done.”

Mid-Atlantic Corporate has a staff of certified investment professionals who are ready to help a credit union realize its full investment potential. “When I am looking for investments on any given day, I simply email my account manager for the current day quotes, which are sent to me quickly. Then I email my account manager with the investments I want to purchase,” added Tonty.

Mid-Atlantic Corporate’s investment program is second to none. When it comes to investing, we share your vision and work to help you open the door to new opportunities. We take pride in offering a quality program, but don’t just take our word for it. Here is what our members have said when asked about Mid-Atlantic’s investment program. “Mid-Atlantic Corporate offers Freedom Credit Union a wide variety of investment products that provide flexibility and which are competively-priced. The people at Mid-Atlantic Corporate respond quickly and are always attentive and courteous,” commented Ray Kilgaris, CFO, Freedom CU.

If you have benefited from Mid-Atlantic Corporate’s investment options, we thank you for your business.  If not, we challenge you to find out what it’s like to work with a Corporate that treats you like a trusted friend and focuses on your needs.  Contact a Corporate Account Manager today, to begin taking advantage of what we have to offer your credit union.

CUNA Mutual Focuses on
Small and Midsize Credit Union Needs

     CUNA Mutual Group introduced its new business model for serving small and midsize credit unions in October 2006. For more than 2,900 credit unions, that meant moving from a Sales Executive who visited the credit union to one who provided service via phone and e-mail.
     One year into the transition, Robert Trunzo, EVP - Chief Sales Officer at CUNA Mutual, provides an update on the changes and their effects.
     “At this time last year, many credit unions were understandably apprehensive about the change to a virtual service model, but the majority of them have now seen positives,” Trunzo says. “Our feedback indicates that what they value most is the value-added information—White Papers, Webinars, and best practices—that we provide to help them with business issues, and the increased accessibility of their sales teams. With the new model, instead of waiting for their Sales Exec to check e-mail or voicemail at the end of a travel day, credit unions can get an immediate response to their question.”
      Trunzo explains that the virtual service model was built on four service criteria that credit unions said they needed from CUNA Mutual: be accessible; proactively contact us; understand our business; and be knowledgeable about CUNA Mutual products and industry issues.
      “We know that the environment for small and midsize credit unions is challenging, and we’ve focused our efforts on providing value-added information to help them solve business problems,” Trunzo explains.
      CUNA Mutual has a group of 80 professionals, including some former credit union CEOs and Lending VPs, focused exclusively on small and midsize credit unions. They strive to proactively contact each credit union at least monthly to provide timely information, such as a White Paper on how to write a disaster recovery plan, a Webinar on proposed changes to Regulation Z, or an industry article on “phishing” fraud schemes. In August, CUNA Mutual partnered with the Filene Research Institute to bring credit unions a complimentary copy of Filene’s White Paper, Thriving Midsize and Small Credit Unions.
      “We’re looking at new ways to use virtual channels to help credit unions thrive,” Trunzo explains. “Feedback has been very good on our expanded Webinar product training, and we’ve recently launched an online resource called Marketplace Insights that provides presentations on industry issues by CUNA Mutual experts. We welcome credit union feedback on these new efforts so that we can make sure they are aligned with credit union needs.”

Balance Transfers, Platinum and Risk-Based Pricing Keys to Credit Card Success
Compelling balance transfer promotions touting attractive offers—such as a competitively priced Platinum card with rewards points—will help bring your members back from the banks.

by Konnie M. Werner, president and CEO, Team One Credit Union, and board vice chair, Credit Union Card Services (CSCU)

When you open your mailbox each day, how many credit card solicitations do you find? Chances are, most days you get at least one—and so do your members. That’s why it’s vitally important that your members also receive mailings from you, reminding them that their credit union’s card is the best deal around, and that your card has the flexibility and features they want.

Big banks want your members’ credit card accounts, and it takes attention and effort on your part to keep those accounts. With the right attention and effort, you won’t just retain and grow current balances; you’ll lure accounts from your competitors.

Your credit card program’s return-on-assets (ROA) can far outstrip your other loans’ returns. That is, if you treat cards like a core product. By this I mean developing and actively managing the product’s strategic plan, dedicating experienced staff to its operations, monitoring and controlling losses, ensuring your product is competitive, and—especially—marketing year-round.

While all of my credit union’s loan products perform satisfactorily, our card portfolio—even with some losses—earns an ROA of 6.75%. It’s nearly equal to our home equity portfolio’s ROA of 7%, and that portfolio hasn’t seen any losses. Credit cards represent just 9% of our total loans, but account for 12% of total loan income.

Balance transfer promotions, Platinum cards and risk-based lending have helped push our card portfolio to these levels, and my credit union is not unique in this regard. I talked recently with three credit union colleagues who have seen dramatic increases in portfolio profitability through similar strategies.

Significant results immediately
With $111 million in assets and 21,000 members, Glass City Federal Credit Union, Maumee, Ohio, has over 5,600 active credit card accounts, nearly 200 of them new in the last year. In November of 2005, after consulting with its processor, the credit union revamped its card products and then launched a balance transfer promotion. “We saw significant results immediately,” reports Melanie Ogrodowski, marketing director.

“Our goals were to increase penetration and usage among our existing membership, and to attract new accounts,” she continues. “Increased usage was probably our biggest goal. A lot of members had cards they weren’t using - or they weren’t carrying balances - probably because our rates were too high.”

The credit union began by converting all existing cards to Platinum. “Platinum carries prestige, and research shows Platinum cards are more likely to be at the top of your wallet,” says Ogrodowski.

Glass City Federal also implemented risk-based pricing based on credit score. “In the past we set credit limits and interest rates according to the type of card a member had - Classic, Gold or Platinum - regardless of credit score,” explains Ogrodowski. “We had members with 800-plus scores paying 14.88% because they had Classic cards. It didn’t make sense and it wasn’t fair.” The credit union lowered rates for these cardholders to 8.49% and ran credit reviews upon request for members with lower scores.

All existing accounts included a bonus-points rewards program. The credit union created a second card product without rewards that charged slightly lower risk-based interest rates, and allowed cardholders to request this product if they liked.

To attract new cardholders, Glass City Federal set a six-month introductory rate of 3.99% and solicited balance transfers via direct mail, lobby signage, on its Web site, in its newsletter, and in card carriers and statement stuffers. “Our frontline staff was our number-one marketing tool,” says Ogrodowski.

The campaign cost $20,000, and by June 2006, outstanding card balances had increased by $872,000, or 13% over the previous June. “That alone more than paid for the program, without even considering increased usage,” says Ogrodowski. Usage was up too - Interchange (per-transaction) income had increased by $37,000, 15% over the previous year.

“Now that we have a program we can promote, we always have a campaign going, in addition to our standard 3.99% introductory-rate offer,” Ogrodowski says.

Credit line increases across the board
University Federal Credit Union, Austin, Texas, $700 million in assets, 101,000 members, wanted to increase its outstanding credit card balances by $3 million in 2005. “Our balance transfer goal for the year was $2 million,” notes Lee Thorsness, credit card product manager.

“Aside from our existing cardholders, we knew the majority of members had around $2,000 to $4,000 in credit card balances with other companies,” she says. “We might as well have their balances with us.” The credit union evaluated results from previous marketing campaigns. “We found that our members were happy with our credit card program, but were - of course - interested in rate reductions.”

First, University Federal offered credit-line increases to members across the board so they’d have available credit. Then, says Thorsness, “We offered balance transfer promotions to all of our members in good standing.”

The credit union’s direct mail solicitation garnered a response rate of 2.1%, 1.1% above industry standards, and University Federal promoted the balance transfer offer on its Web site, in branches, and in its newsletter. “We also marketed at credit card fairs and promoted our bonus-points rewards program, among other things. I make sure to run concurrent promotions - that’s how you grow a portfolio,” Thorsness says.

“We were mostly targeting new cardholders, but the majority of people that did balance transfers already had cards with us,” she says. For existing cardholders, the credit union offered a six-month promotional rate at 3% lower than their current University Federal card’s rate.

The multi-pronged effort paid off. “We spent about $100 for some reports from our processor, and used 85 staff hours to process balance transfers - and our finance charge income increased about $100,000 per month over the previous year,” says Thorsness.

The credit union’s outstanding card balances increased by $10,742,321 in 2005, 19% over 2004 levels, and average monthly sales exceeded $11,464,157. The bonus-points promotion netted an additional $30,000 in usage over two months.

“Because of the balance-transfer promotion’s success we elected to run it again this year,” says Thorsness. “From January 1 to June 30 we processed $2,024,787 in balance transfers, and we’ve already started another go-round.”

Platinum with rewards
Alliant Credit Union, Chicago, Ill., $4.3 billion, 200,000 members, launched a Platinum card program with bonus-points rewards in 2004. “One of our strategies was to upgrade non-rewards accounts to Platinum rewards cards, with risk-based pricing based on credit scores. We also wanted to attract new members to the program, increase total balances and increase product usage,” says Jennifer Divelbiss, director of marketing and communications.

“Our research showed that the net income from members with our rewards card is five times that of members without the card,” she says. “The net income, deposits, and loan balances grew five times higher than when they didn’t have rewards cards. I’m not sure if that’s entirely due to the rewards card, but it’s at least a component.”

For existing cardholders, the credit union included a preapproved balance transfer offer as a statement insert. A statement message alerted cardholders to the promotion, which offered free bonus points, tiered according to the balance transfer amounts. “It’s relationship pricing - the more business you bring us, the higher the rewards,” says Divelbiss.

“We also targeted 45,000 non-cardholder members that had active relationships with us,” she adds. “They weren’t dormant accounts; we already knew they were interested in doing business with us.”

Alliant used direct mail for this promotion. “We’ve always seen a very strong response,” Divelbiss says. “Since our membership base is nationwide, we need to leverage automated channels or direct mail - less than 30% of our membership uses our branches.”

The credit union spent $27,800 for printing and $7,800 for mailing the solicitations, and averaged a 4% response rate for the two promotions. Alliant gained 322 balance transfers totaling $1.2 million, and outstanding balances increased by $7 million. Divelbiss credits a combination of factors for the promotion’s success - the research her credit union did before structuring the offer, the overall pricing and positioning of the product, and the creative design of the promotional materials.

“We plan to do another rewards campaign in the next month or so,” says Divelbiss. “We’ll offer balance transfers that honor the promotional rate until the balance is paid off. In the other campaign the rate lasted six months before converting to the lowest standard rate the member could qualify for.”

Impressive portfolio gains
These credit unions of varying sizes, membership bases and geographic locations all achieved impressive card portfolio gains in a year’s time. Their examples illustrate the power of Platinum, risk-based pricing and balance transfers in battling the big banks that want your credit-worthy cardholders.

About Team One Credit Union
Team One Credit Union, Saginaw, Mich., has $253 million in assets and over 37,000 members. The credit union has 7,844 active credit card accounts.

About CSCU
Card Services for Credit Unions (CSCU) was founded in 1989 when 455 credit unions, with just over 1.3 million accounts, united to establish a card processing association dedicated to meeting the growing and unique needs of credit unions. Today, with over 3,400 member credit unions representing over 12 million Visa and MasterCard accounts, CSCU is the nation’s largest credit and debit card processing association exclusively for credit unions.

Be sure to visit the booths of your favorite league business members and the other companies exhibiting at our 50th Annual Meeting & Trade Show next month at The Dover Downs Hotel & Casino.  For updated convention information, visit our website at www.dcul.org. 

Exhibitors registered to date are:
(click on the company name to link to their website)

CUMAnet LLC Sponsor
CUNA Mutual Group Sponsor
Dahlink Financial Corporation Sponsor
GMAC Mortgage, LLC Sponsor
Mid-Atlantic Corporate Federal Credit Union Sponsor
PaCUSC (Pennsylvania Credit Union Service Center) Sponsor
Visions, Ink. Sponsor
Academy Mortgage LLC
A.G. Edwards/Wachovia Securities
BSC America/Bel Air Auto Auction
CCCS of MD & DE
Diebold
Experian
FSCC Shared Branching Network
GG&A/Vtech
Innovative Strategic Solutions
Kelly Benefit Strategies
Kriebel Security, Inc.
Lighthouse Computer Services
MVCP
National Credit Union Administration (NCUA)
Overton & Associates
PFP Services
Progressive Financial Services, Inc.
PW Campbell Contracting Company
Shields Business Solutions

Thank you for reading Service Issues!
Jane Bailey, Editor
Delaware Credit Union League
jane@dcul.org