Credit Union Strategy & Performance Interview: More Attention to the Capital Position

The fundamentals remain good, but Meritrust CU is keeping a sharper eye on the financials.

Meritrust is the largest credit union in Kansas. It traces its roots first to the Stearman Aircraft company in Wichita, then the Boeing company and until recently was known as the Boeing Wichita Employees Credit Union. Headquartered in Wichita, it now holds a community charter that covers 22 counties in central Kansas, including Lawrence. It has 16, soon to be 18, branches and 55,000 members. Recently its loan-to-share ratio was 92% and its capital ratio after the Corporate Stabilization write-downs 9.10%.

What were some of your first reactions to the NCUA order in January?

BC: In an accounting sense, we have been very conservative, and we fully accounted for the impairment and the premium assessment. We fully informed our staff and Board, maybe overly communicating with them considering how the situation has been so fluid. We held meetings with management and supervisors and notified staff by email directing them to information on our intranet. We told them all what sort of impact we thought there would be on the credit union. We also posted questions we expected members to ask staff and suggestions for answering these questions. Employees are eligible for a year-end bonus based on credit union performance, so we also wanted to notify staff that the effects of these actions might have a negative impact on our ability to pay year-end bonuses. We can’t be sure of that yet, of course, but we did want to set the stage for this eventuality. We made a full disclosure to our members by means of an announcement on our website. A primary purpose was to tell members exactly what was going on, because the national and local media were carrying stories about the corporate troubles. We also wanted to make clear to members that the losses they were reading about in the media did not result from the actions of their own credit union, its Board, management, or staff but that being part of a cooperative system we were being called upon to help out and live up to our responsibilities.

What sort of response did you get from members?

BC: There was little response, comment, or complaint. It seemed as if people had become immune to bad economic news. So when the conservatorship was announced in March, we responded by again fully informing our staff and Board but this time did not make a separate formal announcement to the members. And, in fact, we did not receive a single comment or question about the March development from any of our members.

Have you reduced operating expenses or capital outlay?

BC: We have not lowered any salaries, but we did reduce what we had budgeted for salary increases this year. Of course we are also taking closer looks at travel expenses. And we have delayed the construction of a branch. We went ahead and bought the property, because it was well along in the purchase process and because we believe it will be to the long-term advantage of the credit union, but we have delayed building it for the time being.

Have you modified services?

BC: This is a bit harder to quantify. We are still lending at our normal rate, and deposits are coming in at a normal rate. But we are probably more conscious than before of our margins because we have to assure that our yields and our spreads are going to maintain in fact, probably replenish our capital position. You might be able to make the case that now our rates are slightly higher on loans and slightly lower on savings than if we had not had this extraordinary expense.

What has the media been like in your area?

BC: The local media ran a story in January; they included us in their interviews. They ran a follow-up story in March. I think they did a fairly good job considering the complexity of the issue. But I think the other economic news about the banks, TARP and of layoffs in the local aeronautics industry has kept peoples minds from focusing on credit union troubles.

How is loan demand?

BC: It has been pretty strong. We are very active in indirect lending, and that has continued to do well. We are getting a bigger share of a smaller pie as local indirect lending options shrink. Our real estate lending has been very active, about half in purchases and half in refinancings.

Do you have members coming in asking for adjustments to existing loans?

BC: No, but we think this may lie ahead for us due to recent layoffs in our community. We are trying to anticipate this and be prepared for it. We’re positioning ourselves to assist members with budgeting and anticipate we will need to be very flexible in restructuring loans to help members with cash flow issues. In this respect, we consider our capital position as more important than we did a couple of years ago. Back then we focused more on member growth and expansion; now we have to keep a sharper eye on our capital position and ROA so we can have the kind of cushion we want in order to be flexible for members. We also want to be prepared for when rates increase owing to inflationary pressures. We want positions now that would allow us to deal with increasing rates and still be competitive in the marketplace.

April 21, 2016

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