Collaboration Offsets Industry Flux in California
Hockey icon Wayne Gretzky had the right strategy when it came to outwitting his opponents on the ice.
Gregg Stockdale, president/CEO of 1st Valley Credit Union in San Bernardino, Calif., pointed to Gretzky as he took a long, hard look at what solutions were percolating that would keep the $30 million CU up to speed.
“A lot of guys chase the puck,” Stockdale explained. “Gretzky tried to figure out where the puck was going to go. Why not make a beeline and wait for where the puck is going to hit?”
Stockdale decided to get out in front. One of the trends he spotted among smaller credit unions was building more collaborations with peers and CUSOs.
In June 2010, 1st Valley underwent a data processor conversion. Stockdale said after looking at 13 potential vendors, CU*NorthWest, a Liberty Lake, Wash.-based provider of core data processing services, was able to offer a lineup that was cheaper than what a former data processor offered.
1st Valley is using the CUSO’s CU*Base that includes home banking, audio response, mobile phone banking and imaging solutions.
CU*NorthWest said at the time, 1st Valley was the first credit union it had signed in California. The CUSO has since signed on several more in the Golden State. Stockdale said he is now collaborating with others in Washington and Oregon through the CUSO.
“Our business model and commitment to integrating strategies for collaboration and cooperation between credit unions is resonating in California,” said Greg Smith, CEO of CU*NorthWest, at the time.
With 13 employees who often wear several hats serving more than 4,000 members, Stockdale said it was critical to have a data processing system that was accessible to everyone. He said operating expenses are $50,000 less than they were last year.
That efficiency is important to smaller credit unions, Stockdale emphasized. On a recent visit to a billion-dollar credit union in California, he noticed that it had fewer loan officers than 1st Valley. The larger cooperative had consolidated its underwriting and as a result, shared greater consistency among its many branches, he learned.
“As a small credit union, we don’t have efficiency like that. Our loan officers are loan interviewers, credit report generators, they open new accounts and if the teller line gets backed up, they’re the ones that will jump in and [assist],” Stockdale said.
Because of this juggling of responsibilities, the types of alliances that 1st Valley seeks are those that will free up time for staffers to focus on other areas, he noted. Stockdale said when he looked at a June report of California credit unions in the $5 million to $49 million range, the efficiency ratio was roughly 105%. To be profitable that percentage should be under 100%, he added.
To get there, the industry has had to control loan losses or increase income, Stockdale noticed. At 1st Valley, staff was cut to the minimum, then cut in half and even then, harder decisions were considered. But for smaller credit unions, if staff are let go, some things eventually fall by the wayside.
“Luckily, we’re sustainable, we’re moving on and we’re not in the danger of running ourselves in the ground,” Stockdale said.
Part of that sustainability was built during the heydays of loan proliferation, he pointed out. A few years back, while some credit unions were giving out loans hand over fist, 1st Valley didn’t jump on the bandwagon. Stockdale said some lenders only looked at a person’s credit score for loan approval, but 1st Valley required employment and wanted to know the amount of bills being paid each month.
“Quite frankly, margins have never been thinner, regulations have never been greater and the economy has never been worse,” Stockdale said. “You’re not going to make up in any of that in loans.”
There once was a time when credit unions would use loans to subsidize everything, Stockdale recalled. Now, consumers, especially younger people, are shopping around for who has the lowest rate. Stockdale said older members tend to be more comfortable with having all of their accounts at one financial institution. Many young members have not bought into that yet–they are content with having multiple accounts scattered around.
As with the data processor conversion, collaboration can play a role in wooing new generations, Stockdale said. The credit union has signed on to a program offered by the National Federation of Community Development Credit Unions that brings the underserved into the financial services mainstream. By offering check cashing, debit cards and money transfers now, Stockdale is convinced he is planting seeds for other products and services later.
In addition to expanding its field of membership to all of San Bernardino County, 1st Valley is in the process of securing other alliances–opportunities it may not have considered in the past. For many credit unions, the change in thinking continues to be led by soft loan demand.
“Nothing is off the counter. It seems everyone is saying ‘what we’re doing isn’t working.’ Especially with marketing,” Stockdale said. “It goes out the door a foot and a half and crashes to the floor.”
Stockdale said he was one of the more than 140 persons who wrote to the NCUA opposing its CUSO rule amendment proposal. Critics argue that the changes could all but extinguish collaboration channels.
“Quite frankly, the NCUA is not interested in managing risk but eliminating risk. They’re more in shutting it down mode. But you can’t come in with a one size fits all model.”