Arizona State Credit Union originally served Arizona state employees. It now serves the employees of state universities and community colleges as well as a number of communities across the state. ASCU has 131,000 members and an asset base approaching$1.3 billion. At the end of 2009, its capital ratio was 8.2. Dave Doss has been president and CEO of Arizona State Credit Union since 2005. He has served as CEO of Columbia Credit Union in Washington and as CFO of North Island Federal Credit Unionin California. He is chairman of First Corporate Credit Union and is on the Board of PSCU Financial Services.
How have conditions been for Arizona State Credit Union lately?
DD: We could see trouble coming in 2008. We figured it was not going to be a blip, but rather an extended period of economic challenges. It was then we decided to beginsome serious belt-tightening.
How did things turn out in 2009?
DD: It was a tough environment, but we ended the year with a net income of almost $9 million. That’s not counting the $7.2 million NCUA returned on account of spreading out the corporate restructuringpayment made in 2008. So it was not a horrible year, but our losses are running three times our traditional rate. That is about what many institutions in the Sand States are seeing.
What sort of measures did you take beginning in late 2008 and through 2009?
DD: We engaged a consultant company to conduct a process engineering review. It identified $3-4 million in expense reductions or revenue enhancements andwe have begun implementing these changes. We have established staff models and benchmarks we never had before. In general, we are being more careful about managing growth for the long term with a sharp eye to staffing levels versus loan and transactionvolume.
We also froze hiring and began whittling down our FTEs through attrition. Our staff was once 425 but is now about 350. Much of this attrition came from an unusual source: We closed three on-site branches located on the American Express Campus. These wereavailable only to AMEX employees, and when American Express received its bank charter we saw we would be far less useful to the employees there. We closed those branches and opened a nearby location, which was convenient to both American Express membersand to those who live and work in nearby communities.
We saved about a million dollars by modifying our defined benefit plan. We awarded no incentive bonuses in 2008, and we gave no merit increases in 2009.
We had been experimenting with Saturday hours, but we stopped offering this convenience. We cut back on shared branching.
Although these steps were necessary, none were implemented without carefully evaluating both the impact and value to members.
In other ways, was 2009 a watershed year?
DD: Yes. The corporate restructuring issue made last year a game-changer for us. We now have to be very careful about accruing capital for NCUA assessments. We expect such assessments notjust for this year but for several years. And that’s just for the corporates. We also think there will be additional assessments caused by further depletion of the share insurance fund.
Were there other events of 2009 that defined how you are going forward?
DD: Alongside our belt-tightening, we are deploying more technology. We had been planning to do this anyway, but now it makes even more sense. And new convenienceshelp our member balance some of the cutbacks we had to make. We are committed to deploying about 10 full-service kiosks for each of the next three years. These will be able to cash checks and provide imaging as well as the normal ATM services. Ofcourse, they will be available 24/7, so that balances the cutbacks in the Saturday hours. We’ve expanded our remote deposit service to business deposits. And we’ve made it possible for persons to open accounts online.
All of this should make us more efficient. In fact, we improved our efficiency ratio last year, bringing it from 74 to 65. Our goal is to bring it to the low 50s within the next 12 to 24 months.
How about the income side of your balance sheet?
DD: We are working with an outside planner to help us identify market niche opportunities so we can grow our loan portfolio faster in accord with managed risk. We had dropped indirectlending in 2008-09, but now we are getting back in with our best dealers, the ones with whom we’d experienced the lowest delinquencies. Thus we are getting back in dealer by dealer.
Did the events of 2009 enhance or diminish the feeling your members have toward your credit union?
DD: Our members see us in a more favorable light. We demonstrated that we were good at helping people who had lost their jobs orwere furloughed or were having trouble with their mortgages. We modified about 150 loans. If we saw any dissatisfaction, it was because members did not like some new regulations, especially with credit cards. They mistakenly thought these modificationswere mandated by us when in fact they were mandated by legislature. Over all, we sustained our non-indirect lending member growth, about 2% per year. Mainly we are trying to increase existing member penetration and grow core deposits, especially onthe commercial side.
How are you approaching your capital situation?
DD: It’s going to be very difficult to grow capital soon. We have budgeted 30 basis points to NCUA assessments. We can’t build much capital, so we can’t be as aggressivegoing after new deposits as we would like. We are close to our cap for member business loans, so it would be nice to have the cap lifted. In addition, if we had access to alternative capital, we would be better able to take advantage of persons inour market dissatisfied with the big banks.