Budget Cuts Should Begin With Efficiency Analysis
NEW ORLEANS -- After federal and state regulators told TruWest Credit Union to either reach positive ROA by June or budget using last year's expenses, TruWest Credit Union Senior Vice President Jason Scott made the difficult choice to eliminate 12 full-time positions.
But rather than just focus on cost savings in salaries and benefits, Scott told his fellow CUNA CFO Council members that he took the opportunity to improve efficiencies along the way. He was joined by co-presenter Jason Peach, chief financial officer at West Community Credit Union, for an interactive session regarding best practices to manage expenses.
In TruWest's training department, for example, employee efficiency ratios weren't as high as in other departments. Scott discovered eliminating one position would bring the department back into line with the rest of the institution and used that as basis to cut from training.
Benchmarks for staffing and efficiencies can be mined from other credit unions, he suggested. TruWest created a matrix comparing head counts against competing institutions and makes appropriate adjustments for asset size.
"It's tough when they're in your market. I wouldn't want to give up that information to my competitors either," he said. "But if you go outside your state or market, you'll find it's much easier."
Peach said rather than cut positions, WCCU improved teller efficiencies by transferring work from busy employees to tellers during slow branch hours and opened branches up to shared branching.
"That helped us utilize our resources more efficiently, plus we're earning income from those transactions," he said.
He also outsourced the call center, which resulted in expense savings, better coverage for members, and improved cross selling. Income from outsourced cross selling is figured into efficiency analysis.
"We're not the leanest shop but do well at making money," he said. "It's OK to be efficient, but you need to pay attention to revenue, too. Not just earnings but earnings over cost."
Staffing cuts aren't just occurring in the Sand States like Arizona. A show of hands revealed that approximately one-third of the breakout session audience had reduced staffing in the past year.
TruWest also closed some in-plant branches but found that member attrition didn't increase much, even though the nearest branch was 10 miles away. And ATM transactions at the location increased making it more profitable.
"Members will also go to other branches, and it could allow you to turn two underperforming branches into one profitable branch," he said.
One credit union competitor closed all of its Flagstaff, Ariz., branches but worked with remaining credit unions on shared branching networks to help members make the transition. Some shared branching locations even agreed to post giant banners on branch storefronts welcoming the retreating credit union's members.
Jill Hall, vice president of accounting and deposit operations for the $700 million Mid-Hudson Valley FCU, said from the audience that her credit union has installed video terminals that allow members to choose between waiting in a teller line or communicating via video with a remote employee who can process other transactions and work on projects during down time. Hall compared the concept to self check-out lanes at supermarkets.
Referred to internally as nano branches, two out of MHVFCU's nine locations offer video terminal service only, which can also serve as an ATM. Since rolling out the technology, Mid-Hudson Valley has added touch screens so members don't have to state their account number out loud and is developing check-printing capabilities that will allow the credit union to store blank check paper in kiosks, instead of pre-printed checks.
The nano-branch strategy has allowed the credit union to reduce teller staffing, and new branches will likely incorporate the concept.
Interestingly, though, Hall said her team thinks members will trend toward human touch rather than more automation.
"And, even though our youth are very tech savvy, they aren't very financially savvy, so they actually want more interaction," she said.