NORTH LIBERTY, Iowa—There are three reasons the University of Iowa Community CU says it has remained highly ranked when it comes to delivering value back to members—not to mention ROA of 1.6%.
They are the same three reasons UICCU has consistently finished among the leaders in Callahan & Associates’ Return of the Member rankings, according to its CEO: efficiency, consumer value and growth.
Those components of the CU’s “three-legged” business model have worked well together to lead the CU from $897 million in assets in 2009 to $3.3 billion today. The credit union made $30.7 million in 2013, $38.7 million the following year, and $47.2 million in 2015. ROA in the last five years has averaged about 1.6%, excluding a spike to 2.10% in 2012. Capital has intentionally hovered at 8.5% in that time. Operating expense to average assets was 1.85% last year.
“If you run more efficiently at the end of the day you will have more money left over in the coffers to take care of stakeholders—members, employees and your communities,” explained CEO Jeff Disterhoft addin that the other two legs are value—superior pricing—and growth. “That means if we stick to our knitting we should be able to offer best-in-market pricing, which we largely do, because our cost structure is much lower than most of our competitors.”
That allows UICCU to price aggressively when it enters a new market and when it needs to grow in an existing area. The credit union does not offer a year-end bonus dividend. Disterhoft stressed that the credit union competes mainly on price, stating that great service is table stakes anymore.
Back To Start
Jeff Disterhoft
Disterhoft said that providing value then leads to strong growth, which in turn delivers greater efficiency through increased scale.
“And we are back to where we started,” said Disterhoft about the circular business model.
Key to the CU’s efficiency, emphasized Disterhoft, is the credit union holding people accountable to efficiency standards via incentive plans and metrics.
“Senior team leaders, for example, are held accountable for the efficiency of their department, and primarily that means bodies,” said Disterhoft. “How are you running more efficiently today than a year ago. How are your outcomes growing more quickly than your compensation costs.”
Disterhoft said the credit union has staffing models for each department. That means that when a new branch is built, UICCU sets targets for the number of transactions per teller and the number of accounts for account executives, for instance, and for the number of bodies each department is allotted.
“It’s never quite comfortable for each department and it’s never quite comfortable for me,” said Disterhoft about operating to headcount ceilings. “But we still give great service.”
“But these staffing models have been established and really help us control costs,” said Disterhoft, who said the common tendency for departments is to want to add staff. “It also reiterates our message that efficiency is the cornerstone of what we do.”
Innovation Officer
The credit union recently added an innovation officer who is running Kaizen events to further streamline processes.
“If we can make incremental improvements to our processes we will make it easier for our departments to meet their staffing models,” he said.
Disterhoft said that management and staff are always looking for ways to increase efficiency, recently coming up with the idea that if one person leaves the credit union and the department decides it can operate without adding back that position, adjusting its staffing model down one position, that the money that would have been spent on that one employee will be split 50-50 with the department and the CU’s bottom line.
“The department can use its portion of the savings with their team however they see fit,” said Disterhoft. “The staff might be working a little harder but they will be making more money.”
In 2011 UICCU had less than $1.2 billion in assets and 130 full-time staff. After almost tripling its assets in five years, the credit union now has 366 full-time employees.
Having those department staffing ceilings in place has really made all the difference in the world for us,” said Disterhoft. “We look at the staffing model each month.”
The credit union, too, has gravitated toward business that meets departmental staffing levels and skills.
“For example, we have about a $650 million commercial lending portfolio and we don’t have a lot of bodies managing that,” said Disterhoft. “Reason is, as the years have gone by the department has shifted the focus to credit that fits their staffing model. That means we focus on higher-dollar, higher-quality, lower-rate real estate transactions. We don’t do a great deal of smaller credits. The department is extremely efficient by focusing on a market niche that fits them well.”
Disterhoft explained that over the years those types of situations have resulted in several departments that have identified niches they can serve extremely well and efficiently.
“We focus on things we can be really good at as opposed to being average at a lot of things,” said Disterhoft, stating that the CU places greater emphasis on mortgage lending than smaller-dollar consumer loans. “You have to get away from trying to be all things to all people.”
That same thinking is applied to the CU’s branching philosophy. The multi-billion-dollar credit union has only 15 locations.
“Branches by their nature are inefficient,” said Disterhoft. “A handful of our branches account for $300 million in assets each, which I think is an anomaly in this industry. You won’t find us in every grocery store or strip mall. We will have fewer offices, but they will be very large, full-service branches. Our experience in that consumers are willing to drive a little further if the price is right,” said Disterhoft, adding that the credit union offers a full suite of digital banking services.
UICCU offers auto loans as low as 1.99% APR, .75% money market account, 2.25% checking and a 1% six-month home equity special. The credit union will also beat any CD rate a consumer finds locally that is lower than what UICCU pays.
Just like the credit union pays above-market rates to members, it also provides generous compensation and benefits programs—but staff have to perform.
“A percentage of an employee’s compensation is at risk every year, through incentives plans that, according to the positon, are based on sales or efficiency, for example—we have a variety of metrics,” said Disterhoft. “It’s very much a pay-for-performance environment, and by and large people enjoy being part of that culture. If some people find that they don’t fit, they recognize that and self-select themselves out.”
Strong Internal Culture
The CU also believes in building a strong internal culture.
“That is really one of our biggest competitive differentiators,” added Disterhoft. “We survey employees every six months via Gallup, and in March we scored in the 99th percentile relative to all the companies Gallup works with.”
Last year, UICCU deemed it “The Year of The Employee,” and Disterhoft said the CU, in addition to benefits it always offers—like reimbursing employees for their student loan interest—“did 100 unique things for staff that you typically don’t see at most credit unions.”
“You can pay people well but, but you will only get a certain level of engagement through compensation,” explained Disterhoft, who said staff are trained to know the CU’s corporate values well. “If you really want people enthused about selling a product or running the credit union efficiently, you have to paint the whole picture in terms of engagement.”