MOUNT VERNON, Ohio (6/23/08)--Autonomous, small branch growth and focused indirect lending are two keys to 9.5% membership growth in the past year for CES CU, a $115 million asset, Mount Vernon, Ohio-based credit union.
The credit union experienced about 27% membership growth over the past five years, conducting business in very rural community in Knox County, Ohio. The county has a total population of about 57,000, CES President/CEO Kelly Schermerhorn told News Now
. This is the fifth installment of the News Now
Membership Growth weekly interviews with fast credit union growers. The series is as part of an initiative of the Credit Union National Association (CUNA) Membership Growth Task Force. The task force, chaired by Dick Ensweiler, president of the Texas Credit Union League, was convened at the request of CUNA's Immediate Past Board Chair Allan Kemp McMorris. Its purpose is to investigate, report on, and encourage credit unions to embrace opportunities, techniques and processes that will increase credit unions' membership retention and growth. “We have a strategy of core membership growth,” Schermerhorn said, referring to one facet of CES’ multi-pronged growth strategy. “We try to extend our reach by opening small branch offices with three, four or five employees. We opened one 18 months ago and are looking to open another in 30-45 days. We then will have five total branches. We’ll have a physical presence in four out of five counties that we operate in when we open the new branch.” Ohio has a very growth-friendly state charter in which a county can count as a select employee group, Schermerhorn explained. “Our strategy is, instead of waiting to grow $30 million to $50 million to open a big branch, we’re opening smaller branches to bring in business,” he added. Growth through branch expansion is a key part of CES’ growth strategy. “We have a decentralized style of management so the span-of-control issue is overcome, because the branches have a lot of autonomy,” Schermerhorn said. “We’re too small to be big, and we’re too big to be small,” he continued. “We don’t have the economies of scale of bigger credit unions, and we don’t have the extent of personal relationships that smaller credit unions have. We’re in the middle.” That middle point is where many credit unions spin out of control because they aren’t sure what to do, Schermerhorn said. “Our success with our growth strategy is because of the independence of our branches in setting their agenda,” he said. “We give them goals, but the branches decide how to accomplish them.” Indirect lending is the other key component of CES growth. “There is a national bias against indirect lending,” Schermerhorn said. “Most think of it as a monster.” “My advice is, if you’re trying to service 27 auto dealers, you’re going to be the No. 4 or No. 5 choice on their list,” he said. “We have five dealers that we have a close personal relationship with. My associate vice president of lending knows all of those dealers. He spends as much time in their office as he does in mine. So we’re the No. 1 choice on the lists of five dealers instead of being the No. 4 choice or less at 27 dealers.” This also results in a good span of control with indirect lending, Schermerhorn said. “We don’t care if we do business with any other dealers. We have a strong relationship with the finance and insurance officers at five dealers. That’s what sets us apart," he added. Still, Schermherhorn admits it can be hard to convert indirect members to active members. Although CES is "not very good yet at going after younger members," Schermerhorn, along with CES’ vice president of lending operations, and its director of marketing met with an area college president about placing an ATM on campus. "However, he wants us to put a branch on campus and have direct access to students,” Schermerhorn said. CES will pursue the opportunity, Schermerhorn added. “If you don’t get them by age 25 as members, you likely will never really have them,” he said. One idea that CES has put to use was derived from the Filene Research Institute’s i3 program, called “prize-based savings.” Every month, CES gives away $5,000 to a member in a random drawing. Every dollar a member has in savings at CES is a chance to win the drawing. CES’ certified public accounting firm has random selection software and documents the drawing. The first winner was a 12 year-old girl, Schermerhorn said. “We got great press coverage out of this in the local paper,” he said. “It’s like free advertising.” The $60,000 per year in prize giveaways has been more than offset by an increase in core savings of $1.7 million at CES in the first five months this year. “More people are saving, and although I can’t empirically link the increase directly to the monthly $5,000 giveaway, I knew that we are counter-cyclical--in that our core savings are going up rather than down.” Anyone who wants to contact the CUNA Membership Growth Task Force can e-mail the account established for this purpose at email@example.com