Credit Union Strategy & Performance Interview: Cutting Costs, Holding onto Members

Financial Partners is making sacrifices, lowering rates, and raising some fees, but its service holds onto members.

Financial Partners CU began as the credit union for North American Aviation, which became part of Rockwell International. When the latter company merged with Boeing, the credit union renamed itself Financial Partners. It is state-chartered with a community charter encompassing most of Los Angeles County and all of Orange County; it also serves more than 300 SEGs. It has 13 branches and about 60,000 members.

From an accounting perspective, what have you done about the write-offs?

NM: We wrote down $3 million owing to our exposure in Wescorp. With respect to the other NCUA actions, we have held off making entry on our books until our CPAs have made a final ruling. We expect a ruling soon, however, now that President Obama signed into law S. 896, the housing bill that contains the provisions to mitigate the cost of NCUA’s corporate stabilization actions, we expect the result will be that we write down the corporate stabilization portion over seven years and the NCUSIF portion over eight years. Our total for both will be $5.6 million, or about 75 basis points.

How did you handle communications with your Board, staff, and members?

NM: We had lots of communication with the Board, both with the full Board and through their committee meetings. We discussed the problems with staff through our management meetings and through our all-staff monthly meetings, which are attended in person or via dial-in. We did not do much outreach to members, though we did make mention of the write-downs in our annual report for 2008, which went to press last month.

Did members make many calls to the credit union when the corporate troubles were discussed in the media?

NM: There was minimal media coverage regarding WesCorp in our market. I don’t think we received any calls from members during those times. But we received many calls when Indy Mac failed last July. We dealt with that effectively, but did not see a similar reaction during the corporate troubles.

How are the write-downs going to affect you?

NM: The amounts seem less of a problem than what I will call the timing. The effect of the NCUA action, being rocked by the WesCorp impairment, and then the impact of the current economic environment on loan losses all have made a kind of trifecta of trouble. The compressed timeline has proven a challenge.

What have you done on account of the write-downs?

NM: For one, we’ve had to cut costs. We’ve downsized 20 positions since December. We’ve decided to eliminate raises this year, and to eliminate profit-sharing bonuses. We are closing a branch this month that had been scheduled to close when its lease ran out next year; we’ve accelerated that and are closing it sooner.

We’ve also raised our fee schedules. And we’ve dropped our savings rates. We’re still competitive, but we are not the best in price today. The good news is though that we broke into the black last month for the first time in nine months.

Won’t that drive members away?

NM: We don’t think so. We’ve been working very hard over the last several years to improve the member experience and build loyalty. We are fortunate that these efforts are now bearing fruit. Our Net Promoter Score is over 70%. Our last two quarters have been the highest we’ve ever had. Much of our success comes from our internal service culture which we call APEX (Achieving Partner Excellence). In support of APEX we have training, an internal structure that stresses supporting a member or supporting an employee who is supporting a member, and recognition programs for performance and the like. We are trying to stay very focused on the member because it would be all too easy in this unsettled environment to lose sight of them in the shuffle.

How is staff morale holding up?

NM: Very well considering. No one likes to think about foregoing a bonus, but the staff understands we have a deep challenge before us. They can see the draconian measures taken at other credit unions and banks, and they feel that here they are being given a fair shake.

What was your capital position going into the trouble?

NM: Over the last twelve years our capital position has been below 9% because we have always given value back to the member in terms of pricing. In fact, last year we were rated #1 in Value to the Borrower and #3 in California for Overall Member Value by Callahan & Associates. When all of this started our capital was in the low 8s. It sank to the low 7s, but our recent merger with Pacific Coast and other stated measures has boosted it to mid-7s.

What are some of your plans?

NM: We are going to control our growth rate. One way to improve the capital ratio when you don’t expect an increase in earnings is to shrink the balance sheet. So we have been doing a number of things. Our mortgage lending has been very active, in fact, we have generated $93 million in the first quarter of 09 compared to only $74 million in all of 08, and we are selling nearly all of these mortgages on the secondary market. Doing so will boost earnings but not have an impact on the balance sheet. We think this will also position us well in the future. Credit unions that keep long-term mortgages written now on their books instead of selling them may regret it in a couple of years when interest rates rise. We are also promoting our investment advisory service, helping us with income, but again not increasing the balance sheet to the point of lowering the capital position. And we are trying to move some depository relationships to transactional ones to help control interest expense.

April 21, 2016

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