At your service in CEFCU’s campus branch are
(front) Brian Spritzer, manager, and Teresa Brown;
(back) Sandra Lawson, Leela Mokashi, Raquel Escobedo, and Veronica Ojeda.

A different kind of lending institution

The Caltech Employees Federal Credit Union, says Rich Harris, is different.

For one thing, points out its president and CEO, it’s not just what people commonly think of as “the little office with three desks in the basement of Spalding.” To the contrary, many don’t realize that the CEFCU is the 180th largest credit union in the country—out of more than 10,000—and that it recently reached a landmark $500 million in assets.

“We’re a professional, high-caliber financial institution,” Harris says with pride, “and members are beginning to perceive us that way.”

And in a number of ways, the CEFCU also is unlike banks, savings and loan institutions, and even other credit unions, according to Harris. “Our theme right now is ’We are different,’ and we’re hoping people will make that discovery.”

The difference begins with the contrast between for-profit institutions and credit unions. The latter are nontaxable, member-owned nonprofit cooperatives based on the premise that while some members save, others are able to borrow from the pooled resources. With a volunteer board of directors and no stockholders to answer to, credit unions exist solely for their members’ benefit. “Profit changes motives,” Harris points out. “But the credit union is truly a cooperative concept—people helping people. It makes a big difference.”

In that spirit, following passage of the 1934 Federal Credit Union Act, seven Caltech colleagues founded the CEFCU in 1950. More than five decades later, the credit union continues focusing solely on the Caltech-JPL community, including employees’ families, organizations with close ties such as the Huntington, and independent Caltech-JPL contractors—another way in which it stands out from the crowd, Harris notes. “Other credit unions have been pressured to branch out” in membership, “but we see our purpose as serving the distinct common bond of Caltech-JPL.”

Instead, the CEFCU focuses on providing high returns along with financial security and personal care. “Value and service are landmarks of what we do,” Harris says, “but safety and security are as well. People like our conservative approach to investing.” He explains that with credit union investments federally restricted to government-backed or insured securities, the CEFCU tends to attract “savers” (the average member has an account balance of $18,000), who seek high dividends while maintaining stability and liquidity. Particularly in the recent economic downturn, CEFCU has been able to offer a consistent savings rate higher than many certificates of deposit and other accounts affected by the market.

Thus, despite the exclusivity of its customer pool, last year the CEFCU saw its deposit base balloon from an average of 9 percent yearly to 21 percent, due to falling returns elsewhere. Its $500 million in assets puts it in the top 2 percent of credit unions nationwide, and it currently employs 54 staff at three branches, with nearly 28,000 accounts. Members include past as well as current Caltech-JPL affiliates—“once a member, always a member” is the motto.

Harris believes that selective service has also been a main key to success. “We’ve chosen a different path than other credit unions,” he explains. “We don’t want to be everything to everyone. For example, checking is a very costly program with a lot of losses. We probably can’t do it better than others, and we’re able to generate better returns by not doing it.” This prudence helps the CEFCU keep its operating expenses to just 1 percent of average assets—a third of the average credit union expenditure of more than 3 percent. Surveys have shown that members appreciate the merits of the niche-oriented approach and its resulting higher dividends and lower loan rates.

Still, Harris says, the credit union has to remain competitive and keep up with the times: “We realize we have to live within a changing world. We’re changing too, but trying to do it systematically and selectively.” So in 1989 the CEFCU began an ATM card program that has seen “phenomenal” growth, to almost 12,000 transactions each month; other services since added include a Visa card, online banking from home, and electronic monthly statements (eStatements).

With lending rates falling, the CEFCU has also increased its mortgage loan activity in recent months. One of the most popular is a five-year reprice, a very low-interest 30-year amortized loan on which the rate can change every five years. “This loan has been created to give our members superior terms and added value,” says Harris. Other products include a home equity line, vehicle loans, and low-interest share-secured loans, to name just a few. Harris prefers focusing on short-term reprice loans that stay in the CEFCU’s portfolio, as opposed to 30-year fixed loans, usually sold into the secondary market. “I would rather invest in members than in Fannie Mae,” he says.

Despite the record growth, Harris isn’t content to see the credit union rest on its laurels, and he hopes to spread even more widely the CEFCU’s message of “We are different.” A cooperative effort, after all, can only benefit from increased participation. “Our true success is our members,” he says. “It’s only through their confidence and cooperation that we can keep growing. They should be proud—it’s because of them that we’ve achieved all these things.”

For more information and branch locations, visit www.cefcu.org.
•