The $3.9 billion Patelco Credit Union experienced its most profitable year in the Pleasanton, Calif.-based institution’s 76-year history, with a $55.5 million net profit and 1.48% return on assets. In fact, last year’s earnings were more than the total of $37 million earned from 2005 to 2011 combined.
Given the almost nonexistent investment margin and a still sluggish California economy that continues to suppress loan activity, those numbers alone would be enough to name Executive Vice President and Chief Financial Officer Scott Waite the winner of Credit Union Times 2012 CFO Trailblazer Award.
However, Waite is more than just the successful CFO of one of the industry’s largest credit unions. He also put in time shaping the industry’s regulatory and financial landscape, consulting with the NCUA on the regulator’s troubled debt restructuring final rule and serving on the Financial Accounting Standards Board’s Small Business Advisory Council, a position he has held since 2002.
How does he find the time? Waite said his work outside Patelco usually requires short spurts of concentration, rather than a steady weekly commitment. The FASB council meets just twice a year for three days at a time, but he said between meetings he reads daily FASB emails and other materials, as well as participates in conference calls.
However, his work with FASB, assisting NCUA on new regulations and discussing issues with other CFOs isn’t mutually exclusive of his work at Patelco.
“As CFO, I have to stay on top of all accounting standards to do my job, so this all means I know more about the rules, why they were created and the cost-benefit associated with it,” he said. “And, I share that information with my finance team. It certainly helps with audits. We have stellar audits year after year, something we take great pride in. In fact, many times our audit partners will ask us what’s coming down the pike or ask our opinion about a new rule or accounting standard.”
Waite also advises fellow credit union CFOs through his role on CUNA’s CFO Council, and also fields calls from financial managers who want to bend his ear on various topics.
“I’ve received so many calls over the years, some of them late into the evening or on weekends, regarding a comment I made on an NCUA proposal or some accounting issue,” he said. “So I’ve gained that reputation as someone who is unselfish with his time, and once you’ve gained that respect, it’s hard to say no to anyone looking for help.”
Patelco’s financial reports, posted on the NCUA’s website, reveal Waite’s influence on the regulator as it crafted its final TDR rule had a direct effect on the credit union’s financials. Between the first and second quarters, Patelco’s delinquencies fell from 3.41% to 2.00%, much of it the result of the change in accounting for TDRs. The credit union further reduced its delinquencies to 1.47% by year-end, its lowest figure since 2007. Charge-offs also dropped from 2.31% in the first quarter to 1.79% as of Dec. 31.
Wait said Patelco’s focus on credit quality and its credit risk profile, as well as collections, has not only improved its loan portfolio credit quality, it also boosted net earnings by significantly reducing loan loss provisioning. At year-end 2012, provisions were $14.5 million, compared to $43 million as of year-end 2011.
Not only is the credit union’s loan quality better, the portfolio also grew during 2012, with a 6.79% annualized increase, an improvement over 2011’s -3.25% contraction. Loan originations topped $1.4 billion for the year, a noteworthy achievement even for a credit union with nearly $4 billion in assets.
“We set out with a tremendous focus on quality new loans,” he said. “After negative growth for the last four years, turning that corner was a very big, positive step.”
Like many credit unions, most of Patelco’s growth came in new and refinanced mortgages. And, also in keeping with industry trends, Patelco sold all of its 30-year fixed mortgages booked in 2012 to the secondary market, which not only protects the portfolio against interest rate risk, it provided $14 million in noninterest income to the bottom line.
Not only does Waite emphasize the importance of core earnings and margins at Patelco–fourth quarter’s net margin to average assets was 4.13%, slightly lower than peer averages–he said the credit union’s efficiency ratio is an equally important side of the profitability coin. Patelco ended the year with an efficiency ratio of 54.2%, much lower than the 65% peer average.
“A lot of folks look at the CFO as the guy who says no to spending, a bad reputation that we might deserve,” he said. “But if you’re going to spend, put that expense into areas that generate greater revenue. That’s not to say that everything has to generate revenue, but the bulk of where we spend is an investment in the company–service or savings initiatives that generate business from our members. The trick is to make sure revenue outpaces expense growth, and when you do that, it looks very good on the bottom line.”
Waite doesn’t take credit for Patelco’s efficiency, saying all operating units are responsible for their own operating budgets and are charged with making daily decisions to stick within them. In fact, the CFO requires each division manager to maintain his or her own profit and loss statement.
“So, if you’re running facilities, you’d want to spend money on office supplies that will give you the biggest bang for your buck,” he said. “What I try to instill in them is to see the big picture, but also the detail underneath it.”
Not only does Waite sit down with any Patelco manager who wants a private tutorial on the fiscal management or his or her business unit, he also holds court at monthly all-hands staff meetings in which he explains the credit union’s financial reports to all 541 employees.
“I break them down from my level of complexity to a simple dialogue even our front-line staff can understand,” he said. Financial communication not only helps garner better buy-in from staff when pursuing corporate goals, it makes annual budget and strategic planning processes easier.
Waite credits former CEO Andy Hunter–who retired from Patelco in 2009 only to re-emerge to take the reins at Silver State Schools Credit Union two years later–for being instrumental to his professional success. He also credited current CEO Ken Burns for assembling Patelco’s current management team, which played a big part in the credit union’s record setting year.
And if his financial prowess didn’t already put him head and shoulders above his peers, Waite is also pursuing his private pilot’s license. He said he flies every weekend, accumulating hours and completing ground school, and has logged more than 170 take offs and landings.