Asking Members What They Want, Not Racing to Beat Competition, Key to Arkansas FCU's Membership Growth

JACKSONVILLE, Ark. -- When a member has informed Arkansas Federal Credit Union that it will be moving his or her accounts, the financial institution does all it can to find out why.

That attentive inquiry is probably one of the reasons the $476.6 million credit union's membership grew by 5,010 in 2006, going from 60,318 to 65,328. Members who are contemplating leaving are asked to fill out a brief survey, said Larry Biernacki, president/CEO. The key is to catch them before they leave, he emphasized, not after they've already made the switch. "We're not trying to out-produce competitors," he said. "Our focus is on what members are asking for. We've started looking at opportunities to stop them from leaving and we're drilling down to find out why they're leaving."

Arkansas' largest credit union has become a financial mainstay in the state, but Biernacki discovered when he came to the helm in June 2005 that more long-term relationships could be cemented if the product and service delivery channels were tailored to what members were asking for. The first addition was a relationship pricing model to reward members to use more services and products through higher deposit rates and lower loan rates. The tiered system is paying off: for new members over the age of 18, usage increased 1.27% in 2005 to 1.42% in 2006. Deposit accounts from existing members moved 1.59% to 1.69% for the same period. While the numbers aren't earth shattering, Biernacki acknowledged, he believes good news travels far.

"When we ask new members how did they hear about us, they'll say a neighbor told them," Biernacki said. "It breeds--word of mouth has been very good for us."

The CU was one of many that jumped on the indirect lending bandwagon a few years ago. Those loans brought in 1,000 new members and $35 million, Biernacki said. What some credit unions soon discovered were the difficulties in developing long-term relationships with members who came in through this route. Biernacki said AFCU continues to follow up with "specific" deals tailored for these members on information obtained from their credit reports. The CU also isolates members geographically to see how close they are to AFCU's branches. It would be a waste of time to contact members if they don't have the convenience of a branch nearby, Biernacki pointed out. AFCU built two branches over the past two years and is scheduled to open its 10th branch location in October.

"If you're not convenient or relevant, they're going to tell you no. I've heard credit unions say 'we're just having a hard time converting.' You have to be proactive and have something to offer."

So far, the CU has only experienced one indirect loan loss and the average FICO score is 754.

"At the end of the day, you have to work it," Biernacki said. "We actively contact members via telephone calls. You can not just mail them a letter, thank them for their business and ask them to come in and open a checking account." Over the last two years, AFCU has introduced reward-based credit and debit cards, a bonus rate checking account, and restructured its money market account using a tiered model. This year, the CU rolled out its Ultimate Choice certificate of deposit, which allows members to bump up the rate if rates go up or down. For the first in a long time, the CU is also actively pursuing growing deposits, Biernacki said.

At one point AFCU would only seek out relationships with companies that had a minimum of 50 employees. Now, select employee groups are welcomed regardless of the number of employees. In 2006, the CU added 63 for a total of more than 300. Much of the latitude the CU has experienced is due to a progressive board of directors, Biernacki said. In 2005, their vision included doubling AFCU's growth in five years while maintaining safety and soundness without shrinking capital to under 9%--aptly named the "big, hairy audacious goal." In 2006, the CU grew its assets 16% and capital is just under 13% without the "constrain of [return on assets]."

"My board has been absolutely phenomenal. They deserve a lot of credit for having the vision and direction of understanding that if we're not growing, we're going backwards," Biernacki said.

One pressing area of concern for AFCU and many other CUs is that existing members are getting older. Some industry estimates suggest the average CU member is about 45 years old. He believes bringing in not only younger, but also new members helps bring a different perspective to what is considered relevant. To begin to build those relationships, the CU is set to debut in the third quarter a new checking program designed just for students.

"How can the credit union attract young blood into the membership--it's one of our biggest challenges," Biernacki said.

When Biernacki came aboard, he set out on educating members about what a cooperative is and how they benefit from their use of it through a series of newsletter articles.

"The biggest thing is we want to be relevant to our members. We've asked the members about the kinds of things they want," he explained. "Not what they already have, but what they want. We can come up with a [product or service] to fit their needs." --msamaad@cutimes.com