Credit Union Strategy & Performance Interview: Serious Concerns but Not Reason for Panic

Listerhill Credit Union does not miss a beat in getting back to serving members.

Listerhill CU traces its roots to the credit union for the employees of Reynolds Metals in northwestern Alabama. In the mid-1980s, Reynolds downsized, so the credit union expanded to include the employees of additional aluminum companies. Later the credit union expanded again to include other manufacturers. In the late 90s, it applied for and received a community charter for Alabama’s northwestern counties. Listerhill has 14 branches, with two more to open before winter. Its loan-to-share ratio is .75 and its recent YTD loan growth is 15%.

How did Listerhill Credit Union react to the NCUA actions of January and March?

BG:In January we recognized all of the impairment right away. We did so again in March.

What did you do subsequent?

BG:As soon as we learned about the impairments we told our Board. Then we began to work out a strategy for dealing with the loss of capital. Basically we took the approach that we should recognize that these were serious times and serious concerns but by no means reason for panic. We told our Board that generally we would be doing what we had already been doing, growing slowly and serving our members borrowing needs.

What did you tell the staff?

BG:We told the staff exactly what was going on. We fully disclosed the impairment amounts to them. We prepared them for questions from members. But as it turned out this was really not necessary. The corporate troubles made local and national news here but there was little discussion of cost to natural person credit unions. The public did not latch onto the write-offs as big news. It seems the announcements concerning credit unions got lost in the news about other and larger bank failures and economic troubles. I think persons were desensitized to the point where they really didn’t care to examine what the corporate credit union trouble was going to cost.

What did you tell your members?

BG:We have not made a particular point of telling the members about the impairments. They, of course, have access to the public record as compiled on the Call Reports.

Have you changed operations?

BG: Not really. We are fortunate here in that although the unemployment rate is 9%, real estate has held up pretty well. The economy is holding. Of our 64,000 members, we’ve only had three to five foreclosures recently. What we’ve decided to do is control the degree and composition of our growth. We do not want to grow too fast or grow in the wrong ways. We want to grow membership and core deposits. We don’t want to chase deposits that have a high cost of funds. We only want to grow deposits as fast as we believe there will be loan growth to deal with them. So far, this has been working well; loan demand has been steady.

What about expenses?

BG: We told our Board we would maintain revenue by being very loan conscious and supporting the borrowing needs of our members. We have remained very involved in our local area indirect loan programs. Loan demand here for cars and boats has been good for us. The loan quality has remained high.

When the trouble hit, we had two branches under construction. We decided to keep them on schedule for opening in the summer and fall. We feel doing so will not only serve our members but also sends the right message, whereas suspending construction would certainly have sent the wrong message. We have postponed some spending, but we are trying to be smart, spending where it helps us to make money and thinking twice about spending that does not provide an immediate return.

What about salaries?

BG: We haven’t tried to cut salaries or benefits. Quite the opposite. We increased staff pay. We felt that existing staff was very important in seeing us through this difficult time and we did not want anything damaging morale when we needed these people the most. So we invested in our staff. You can imagine this astonished some and delighted just about everyone. And I must say, the staff has been great, and they are ready to be energized for any eventuality.

Has the impairment affected your capacity to make loans?

BG:In most categories, no, because capacity has more to do with liquidity than loans-to-capital. But about 10% of our $300 million loan portfolio is in commercial lending. Here regulatory rules have dampened somewhat our ability to make commercial loans.

You said you were not chasing CD deposits. Have you been losing members on account of this?

BG: Lots of people shop rates. But we think attracting deposits with high cost of funds would not be the right direction for us. When we see a member who has a long relationship with us shopping rates, we’ll try to work with that person to hang onto the relationship.

Have you made any changes to how you help with or deal with members?

BG: We made a decision last summer that we should focus on credit union basics. So when the storm hit in the fall and over the winter we were well positioned to do what we think credit unions do best: helping people through their troubled times. We’ve make adjustments to loans, mainly by granting extensions. We’ve been restructuring loans and consolidating loans. In extreme cases we’ll alter rates.

April 21, 2016

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