CEFCU (Citizens Equity Federal Credit Union) has become a fixture in Central Illinois with 15 offices and 630 employees. As the eleventh largest credit union in the United States with $1.5 billion in assets, it has a rather impressive national reputation as well. John T. Siefken, president and CEO or CEFCU for 25 years, has been with the credit union from the days when it operated like a subsidiary of Caterpillar, Inc.
Sifeken’s 40-year business career includes working at Caterpillar as an assistant finance manager and manager of Caterpillar Credit Corporation, in addition to working at CEFCU. His parents and many relatives were teachers. A graduate of North Dakota State University, his past and present community involvement include: Peoria Area Chamber of Commerce, Children’s Hospital of Illinois, Peoria Symphony, American Red Cross, Youth Farm, United Way, and Junior Achievement. He serves on the CEFCU and CEFCU Financial Services, Inc. boards. He is also a member of the Credit Union Executive Society and a founding member of Filene Research Institute.
Siefken, chosen by his peers as one of the top three CEOs nation wide at turning credit unions around, identifies two major events in CEFCU’s history which have been responsible for its success and rapid growth. The first was the inevitable separation from Cat. The second was the economic downturn Central Illinois experienced in the early 1980s, especially at Cat. The latter was a crisis that resulted in CEFCU restructuring internally and purring a quality plan into place, a plan that Siefken says allowed the company to thrive when observers expected it to go under. Siefken is especially proud that CEFCU was named Federal Credit Union of the Year in 1987 by the National Association at Federal Credit Unions for the results of their restructuring.
Give us just a brief history of CEFCU. How has the company evolved and become as large as it is today?
We started out in 1937 as Caterpillar Employees Credit Union and later had several name changes. The credit union was originally treated like a department of Cat, with business only conducted inside Cat plants by Cat employees.
It was difficult for Cat employee spouses to get into the plants to transact business, so in 1972, we opened a branch in the Pekin Mall. Later, we talked with Northwoods Mall about a branch.
The banks put a lot of pressure on Cat, saying they couldn’t go to the malls because Illinois was a unit bank state and banks could only branch out a short distance from their main offices.
Credit unions didn’t have that problem. Finally, Cat says is we wouldn’t leave the malls we would have to separate from Cat.
After surveying members about mall offices, the CEFCU board voted to stay in the malls – to Cat’s chagrin. We hammered out an agreement with Cat where we have up the Caterpillar name, become Construction Equipment Credit Union, in return for payroll deductions in perpetuity, among other things.
Were some people skeptical about the separation from Caterpillar?
Sure, we had bankers and Cat officials tell us that we wouldn’t be able to make it, that we couldn’t compete with the banks in areas they had dealt with for many years. They said, “You won’t be able to handle checking accounts and the other activities that would be necessary if you leave Cat.” My response was, “Watch us.” Fortunately, we had a lot of very bright people on our board and staff who did their work well. The board established some excellent policies and allowed staff plenty of latitude in carrying out those policies.
Today, CEFCU is the eleventh largest credit union in the nation, out of 12,000 credit unions. The larger ones are in metropolitan areas like Los Angeles and Washington, D.C., and several serve government employees.
Fortunately, our relationship with Cat is now very good.
The separation from Caterpillar was obviously a smart move, as history has shown. What else shaped the growth of CEFCU?
People are always asking, “How did you people do it? How did this happen in a relatively small metropolitan area?” There were several factors involved. One of them was the way we handled the economic downturn that hit the area in the early 1980s.
At that time, Cat was facing difficult times – during a three-year period they laid of 16,000 of their 36,000 local employees. CEFCU has a 96 percent membership penetration among those employees. We held most of their loans, and everyone – especially the bankers 00 was forecasting that it would be the end of our credit union. The bankers said we were going to be the first to go because we had all our eggs in the Cat basket.
Obviously, the percentage of loans we had with Cat workers was much higher than that of Commercial National Bank, Jefferson Bank, etc.
In the middle of economic crisis, I told the board that staff needed to do some new things in the area of quality improvement. Total Quality Management (TQM) wasn’t really in vogue at the time; I’m not even sure we were hearing the term back then. The board said, “Fine, they have more to lose than we do.” So even when we really had no business creating new jobs, staff established several quality circles with two full-time facilitator positions.
Outsiders were saying, “Cut back, slow down,” but we charged ahead with new services and programs that offset some of the loan losses we incurred.
We also assured employees that there would be no layoffs, even though Cat and other area business were laying off people left and right. My associates at all levels did a lot of things that I thought were impossible at the time. It’s amazing what people can do if they have control of their own destiny, including job survival. History has proven that we as a board were right in allowing employees to save their jobs by better serving members with increased services.
So you believe the quality efforts you made at CEFCU during the tough economic times were the reason CEFCU survived and thrived?
Yes – our quality efforts saw us through a terrible period at Cat. CEFCU ended up with hundreds of foreclosed homes and the biggest used car lot in town. When asked, “What in the world are we going to do?” the answer wasn’t in the board room, and it wasn’t in my office. The answer was right there on the firing line, among the employees.
They did an excellent job of serving members better than the competition because they were empowered to make it work. They also were very innovative, as reflected in the new products and services they suggested and, invariably, the board accepted.
We ended up getting into TQM by developing our own quality program which is still going strong today – we call it Quality Member Service (QMS). Now, we have several quality circles and quality teams under the QMS umbrella.
There is strong participation and ownership on the part of all CEFCU employees. Fortunately, the word’s out and we have a lot of people knocking on our doors wanting to work for us.
You seem to place a lot of emphasis on your flattened organization where employees are given more flexibility and responsibility than in many organizations. What was your rule as the CEO in an employee-friendly workplace atmosphere at a time in the history of financial institutions where downsizing and layoffs were common?
I came out of an autocratic situation at Caterpillar. Some of the things we started doing at CEFCU were not easy for me to accept – but my associates made me a believer after a little experimenting. My primary job was to keep the board informed and convinced we were on the right track. QMS is now a large part of our culture, and I believe it will remain that forever.
I don’t mind bragging that operationally my greatest strength has proven to be an ability to surround myself with extremely capable people. Much of that resulted from their desire for excellence through more knowledge.
We have 11 people with masters’ degrees, four CPAs, and over one-third of our 630 employees have other degrees, which is unheard of for a credit union. We pay a full ride for any employee who wants to take courses at Bradley University, Illinois Central College, or any other accredited school. Soon we will be starting CEFCU University for quality education.
This organization is not run out of my office. All CEFCU employees are “management” in my eyes, which is part of our empowerment process. They manage their jobs better than anyone, including their so-called bosses.
Maybe we should put everybody on the same payroll to make that point. Most of the things I’ve wanted to do in the area of treating all employees alike, I have been able to get done with an understanding board. Perhaps getting rid of different payrolls is next.
My peers aren’t going to like this, but the linchpin of our QMS process is that the management will not accept a bonus that is a larger percentage that the people in the trenches. Last year, that was 10 percent of annual salary. That’s putting our money where our mouths are. We don’t just talk, we walk the talk. We also have employees analyze and rate their supervisors with a Corporate Climate Survey.
Your growth has also included some acquisitions of other credit unions hasn’t it?
We acquired eight counties as the result of an emergency merger when the Mid-Central Credit Union went out of business in 1986. Then a couple years later we picked up Logan County when the Logan County Credit Union had problems, and the federal government asked us to help them our by taking it over. We now have nine contiguous counties in our field of membership. Of course, most of our members live right here in the Tri-County area.
The results are that 60 percent of the households in these nine counties belong to this credit union. I am not aware of any credit union in the nation that has better membership penetration. Those mergers also gave us the diversification we dreamed of – we are no longer very susceptible to Cat’s business cycles.
Who can be a member of CEFCU?
Anyone living in the nine contiguous Central Illinois counties can be a CEFCU member. Also, Caterpillar employees, Caterpillar dealers, and retirees, along with their families can join. There are a few other small groups that our regulator has authorized us to serve, but they represent less than two percent of total membership.
Some would say that the original purpose of credit unions becomes a little distorted when, in reality, anyone in a particular geographical area can join a credit union. There are currently some legal challenges. Your critics in the banking industry would argue that credit unions aren’t playing on a level playing field because credit unions have the advantage of not paying federal income taxes. And they would say that the “common bond” that was the historical basis for membership in a credit union (company employment, for example) no longer exists since nearly anyone can be a member today. How do you answer your critics?
Let ours be the level playing field. If they feel we have it so darn good, why don’t’ they convert to a credit union charter? They’re free to convert to a credit union charter anytime they want. That’s my answer. If it’s so good, join us!
Of course, the primary reason they’re not going to do so is that we are not allowed to offer stock options for a select few owners and officers. The bankers will never give up their options.
Credit unions will face more lawsuits from the bankers who don’t want competition. It will eventually get real ugly. I actually look forward to it. I look forward to the fight because we hold the high ground of serving member/owners of limited means as if they were millionaires.
I’ve been a long-time advocate of getting rid of fields of membership and serving people of limited means, not just serving the affluent of the world. Cat employees among our membership make twice as much as the non-Cat employees. If CEFCU had to dispense with serving anybody other than Cat people as the bankers propose, then we would be serving only affluent people. Congress will never buy that.
If the courts determine the Credit Union Act of 1934 is vague, then Congress will have to clarify it so we can continue serving people of limited means along with the affluent.
Banks are owned by shareholders and the profits go to the shareholders. How does that work for a credit union? What is your competitive situation with local banks?
Every credit union member is a shareholder or owner. We have 210,000 member/owners. Dividends are paid to members’ savings accounts. In general, credit unions pay higher rates on savings than banks. We offer better savings rates, better loan rates, and free checking – that’s how the member/owners get paid.
Our competitive situation today is better than ever. It was a lot harder to compete with Commercial National Bank than it is going against First of America. We love it that decisions have to be made is Kalamazoo. The more jobs and money they send to Kalamazoo and elsewhere, the easier it is for us to talk about the out-of-state “carpetbaggers.”
Fortunately, there are a lot of people around here who don’t like to do business with out-of-state organizations. Some of the old-time bank employees still have a following, but as they leave – and a lot of them have already been fired – it will make it even easier for us to compete. To expect customers to get on the phone and call Kalamazoo, Columbus, St. Louis, or Minneapolis to find out something about their account is unreasonable.
Most local institutions also sell mortgage servicing. Central Illinois people are tired of having their mortgage sold two or three times, making their payments to Chicago for awhile, then New York, then California. Finally they say, “I’ve had it!” We have people switching their first mortgages over to us when they really shouldn’t be refinancing. CEFCU has never sold any mortgage servicing. No wonder we finance far more homes in the Tri-County area than any other financial institution.
What about business loans? Can CEFCU handle the loan needs of area businesses?
Sure, but we’re just getting started in business lending. Credit unions have some restrictions, but we are getting there. We can handle a lot of the business loan needs of small- and medium-sized companies in this area.
We expect to be number one in business lending, as we are in most everything else we do. CEFCU plans to be number one in anything it offers. We are going to get the business as opposed to the carpetbaggers. Business people frequently say, “Hey, do your business locally.” And that certainly applied to business lending too.
If they tell us not to be running up to Chicago to shop for our furniture and supplies, should they be running to Kalamazoo for their banking? Of course not.
More and more business today is global business, and businesses want a bank that can offer a full range of services. Will CEFCU be able to compete in business banking by offering a full range of business banking services?
We don’t have a license to provide everything yet, but if I looked into the crystal ball I would probably say “yes.” We are really helping individuals, even when we make business loans. We like to get involved with endeavors that help the individual members who own CEFCU. Right now that’s 210,000 people.
Credit unions were started to serve people of limited means, making loans to members from the savings of other members. Consequently companies like Caterpillar were very much behind organizing credit unions to help their workers who couldn’t get loans at banks and were forced to go to small loan companies for payday loans.
As bankers saw that credit unions were doing very well serving this market, the banks wound up become the “Johnny-come-latelies.” Originally, the banks didn’t want this kind of business. I guess that’s why they are called commercial banks.
CEFCU is the largest financial institution in town. We lead in al primary product areas that we monitor, except for business loans.
The point I want to make is that for us to ignore business lending makes as much sense as for the banks to ignore personal lending.
So if a small business owner wants to do a $5 million expansion, CEFCU can give a business loan just like a bank?
Sure, with the proper collateral. We have several hundred business loans on our books. It doesn’t represent a large percentage of our total lending, but we are gaining in this area.
How large of a loan could you make to a business?
$17 million is our limit today. We haven’t done a loan that size, and I’m not saying that we would, but from a legal standpoint there would be no problem.
You have a subsidiary called CEFCU Financial Services. What is the focus of that company?
CEFCU Financial Services, Inc. (CFS) offers products and services now allowed by our credit union charter. For example, selling insurance and running a stock brokerage helps us provide one-stop shopping for all financial services. CFS is a wholly-owned subsidiary of CEFCU and we pay taxes on the profits.
How many of your Board of Directors today are Caterpillar employees?
There are 13 board members and six are Caterpillar employees. There area also some retired Cat employees on the board. It’s still pretty top-heavy Cat. There are several associate board members and supervisory committee members coming up who are not Cat employees. We are purposely trying to make sure others with strong educational and business backgrounds are well represented. These future board members are not learning the ropes.
How do you view the local economy, in general, today and in the next few years?
Let me preface this by saying the last few years have just been absolutely fabulous around here. Cat is doing well. After the last couple of recessions, the community became much more diversified with numerous industries represented. In fact, CEFCU expanded its field of membership so we would be more diversified.
But even at that, I think it’s just a matter of time before we have what I would call a mild recession. As far as this community is concerned, even though Cat represents a lesser percentage of the total than it did in the past, it is still a big influence.
Quite frankly, if the dollar keeps on getting stronger against the yen, I think Cat is going to have some problems. You don’t hear anybody talking about it that much, but there could be some problems selling equipment, especially in the Asian market. I know Cat has been trying to get something done on a national level.
The Clinton administration says, “Yes, we realize that a strong dollar hurts the exporters, but it does bring money into this country to fund our debt; and it has a dampening effect on inflation. And, exporters are more competitive now, so you should be able to weather that storm.”
I don’t think that storm will be anything like what we suffered around here in the 1980s. But I believe that we are going to see a mild recession locally, if not on a national basis, in the next couple of years. I would suspect it is going to be sometime late in 1997, and CEFCU is planning accordingly.
What are CEFCU’s plans for the future? Will it grow into other areas of the state and even outside the state of Illinois in the years ahead?
Our mission is “Provide quality service and products that meet members’ changing financial needs.” If we do that well, we will continue to dominate financial institutions in the areas we serve. We do not intend to expand into areas that are too remote to serve well. IBI