When core values drive a credit union's competitive positioning, both the institution and its members profit. Rudy Pereira, president/CEO of Royal Credit Union in Eau Claire, Wis., may know that better than just about anyone.

Pereira, who has led the $1.6 billion community credit union since Jan. 1, 2012, arrived at a time when both operating expenses and market saturation for the credit union had peaked. Service fees also had reached record levels, causing a growing number of its once-loyal northwestern Wisconsin members to close their accounts and move to other financial institutions.

Pereira knew conditions needed to improve to support continued growth for the credit union, formed in 1964 to serve employees of Eau Claire's Uniroyal tire plant that eventually closed in 1991. What may have seemed at the time like a mountain of obstacles led Pereira and his team to a monumental idea.

“We came up with the Pike's Peak Peer Group as a replacement for what others have called 'big, hairy audacious goals,'” Pereira, the former senior vice president of operations and technology at $8 billion Alliant Credit Union in Chicago, Ill., said. “I am not a fan of benchmarking, but in this case we needed something against which to measure our progress.”

Launched Jan. 1, 2013, the PPPG compares Royal CU's financial and performance capabilities against 12 other similar credit unions from Wisconsin, Illinois, Minnesota and Texas, all located in the same NCUA region. The special group was necessary because, despite the credit union's success to date, many of the criteria from Royal's NCUA peer group did not match the characteristics of the credit union's members, Pereira said.

Royal CU had a 28-branch organizational structure, a loan-to-deposit ratio of more than 85% and a checking account penetration of 60%. Yet its largely rural membership base of 160,000 maintained a deposit average of $8,415, compared to the credit union's NCUA peer group deposit average of $11,705.

“Only 6% of our members qualify as affluent according to Raddon [Financial Group],” Pereira said. “We really do have a lot of WalMart-level members.”

Many of those members were being hit with service fees, many of which Pereira considered punitive. Despite the economic imbalance, the credit union was 100% loaned out and operating fees were through the roof, the executive said.

The goal of Royal CU's PPPG participation was to grow membership, increase deposit and lending activity and cut punitive service fees ultimately to 0%, Pereira said. And the credit union was going back to the basics in order to do it.

“We knew we had to start with Royal's core values and core purpose,” Pereira said. “And I am a strong believer that members should not have to spend money just to use what already is their money.”

The core purpose of the PPPG, the executive explained, was to create a positive impact on the lives touched by the credit union. To do that, the program outlined broad basic goals directing staff to provide exceptional service and do the right thing on behalf of members.

From an operational standpoint, those guidelines required Royal CU to become as competitive as possible with rates and reduce fees as quickly as possible with the ultimate goal of eliminating them altogether. Now, just halfway through the five-year PPPG process, positive results already have begun to surface, Pereira said.

Read more: The program kept costs scalable and in line with expenses …

“We formerly had earned up to $4 million a year in fees, but we've managed to cut $3 million from that amount over the past two years,” Pereira said. “Despite that three-quarters drop in fees, we've increased assets by $400 million, improved our net worth to 11.5% from 8.5%, and significantly reduced our operating expenses. We're in much better shape today than we were before the program started.”

Operating more efficiently was critical, and the program uncovered ways to keep operating costs scalable and in line with expenses.

“It puts the onus on us to drive much greater efficiencies,” Pereira said. “It also enables us to create an organizational DNA that helps us more effectively approach projects, bring teams together and work cooperatively toward greater solutions.”

Pereira admits that when Royal started the PPPG program, its operating efficiency was in the first percentile – the very worst it could be compared to its peer group. Since the program began, the credit union has jumped to the 45th percentile, but the executive said there is still much work to be done.

Royal CU has targeted six new goals specifically aimed at competing effectively on the emerging nontraditional financial services environment. Those goals are: More effective talent acquisition to address emerging strategies; a more strategic marketing approach that does a better job of telling Royal CU's story; an integrated technology architecture that makes service solutions seamless for members; capabilities to provide members with an integrated experience when interacting with Royal CU through various technologies; better use of predictive analytics to identify and serve member needs; and a more automated workflow, which Pereira said is “not sexy, but extremely necessary for improving member service.”

At Royal's July planning session, Pereira plans to scrap the PPPG program, not because its failed but because after only two and a half years it has already exceeded the majority of its goals and the credit union is ready to take the next step.

“From the efficiency side, we haven't yet hit our goal of the 75th percentile, but we plan to increase that to either 80% or 90%,” Pereira said. “We're just a few fees away from total punitive fee reduction, and now we're going to shoot for 100% fee elimination.”

Metaphorically speaking, Royal Credit Union is ready to climb its next mountain, Pereira said, even though he doesn't yet know which peak he's going to name the new program after. The 90% buy-in to the current program by staff will go a long way to maintaining and improving the credit union's continued scalability, both of its operational efficiencies and its goals.

“We want to be special, and that's something that will be defined by our members and not ourselves,” Pereira said. “We're just a means to an end, and we mean to make that end as easy as possible for our members.”

Instant Insights /

Peer Group Analysis Monumental for Royal Credit Union

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