<p>WEST PALM BEACH, Fla. – Field of membership, location, policy, timing, a little luck, philosophy and many other factors play a role in credit unions winding up on the yearend statistical leader board in key financial categories. Every year Callahan's, Sheshunoff and others produce lists of the top CUs in certain performance categories, such as loan growth, Return on Assets and others. Some CUs that make the list tout their ranking, while others pay little attention, and still others say the numbers don't mean as much as some may think. CUNA Chief Economist Bill Hampel said some statistical categories will contain the same CUs year in and year out by virtue of who those CUs serve, while other categories will never look the same in any given year. "Certain credit unions are going to be near the top in things like average share balances just because of who they serve. If you look at the airline credit unions, they have very, very high average share balances. There's an underlying salary structure of the sponsor group that produces that," said Hampel. Looking at the Top 10 in average share balances as of yearend 2001 finds two airline CUs – American Airlines FCU and United Airlines Employees CU (see chart). Hampel also noted that credit unions serving unique, high-paying SEG's, such as Bank Fund Staff FCU (serving generally high-income employees of the International Monetary Fund and the World Bank), are going to consistently top the charts in share balance and loan balance. "Credit unions that have been around for a long time also tend to have a significant segment of their membership in the upper income levels," said Hampel. Bob Bream, president/CEO of United Airlines ECU, said United does have a high number of employees earning six-digit salaries, but there is also a large segment of lower income earners, and salary alone is not the sole reason for the CU leading in loan and share categories. "Our members don't have almost $19,000 per member in savings here just because we're United Airlines. They have it here because of our rates. We're consistently 200 to 300 basis points higher than the norm," said Bream. He said the reason the CU can offer such competitive rates is what it does operationally. "We don't pretend we're going to be all things to all people. We don't even try. We don't have lock boxes, don't have safety deposit boxes. You can't get a savings bond here. There are no drive-up tellers. The most obvious service we don't have here is cash. You can't deposit cash here or withdraw cash. If you want cash, go to the ATM." Lower operating expenses, give the CU more leeway on rates, he said. On the loan side, Bream said United doesn't have as credit-worthy a membership as outsiders may think. Bream said the CU commissioned a study to do a credit worthiness study on its 160,000 members, and the study found the CU's members are no better or worse than the public at large. "I was stunned. I myself had the impression that the credit worthiness of the average member at United Airlines was somewhat higher than the public at large, they're not. We have all groups represented and distributed virtually identical to the American public. That's not to say we don't have some well-paid people, we do," said Bream. United has an aggressive home equity and mortgage program that drives up the loan balances said Bream. The Return on Asset category, which many CUs put a lot of stock in, is going to be wide open from year to year based on luck, what a CU is doing strategically, and outside economic factors said Hampel. Arizona FCU ranked No. 4 last year with a 1.94% ROA. Cyndi Koan, vp of finance and support for the CU, said that number is driven by its variable rate loan portfolio, strong non-interest income from its large debit card portfolio, and a larger than average part-time staff. "Sixty-seven percent of all our car loans are variable rate. They adjust to market rates. We don't have to wait for loans to pay-off to be readjusted. That keeps overhead down," said Koan. The CU also has, according to Nielsen Ratings, the 66th largest debit card portfolio in the country. "That adds up to a good amount of interchange income," she said of the CU's 135,000 debit cardholders. "Another area we're a bit nontraditional is we have more part-time staff than most credit unions," she said. Of its 500 employees, 266 were part-time. The credit union also generates income from some building tenants. Koan emphasized however that even with its very high ROA, the CU did pay out a $2 million bonus dividend last year. Simply where a credit union is located can play a big part in a CU showing up as a statistical leader. Take Star One FCU in Sunnyvale, Calif. Star One is No. 1 in average share balance and No. 3 in average loan balance and loan growth (not to mention a few other categories, see charts on previous page). CEO Rick Heldebrandt said the primary reason for much of this can be summed up in two words – "Silicon Valley." "If you look at the average home price in Silicon Valley it's $400,000. Everyone is pushing to get a jumbo loan. We have good penetration on mortgages and it's been building up in the last couple of years," said Heldebrandt. Of course it's not as simple as just serving Silicon Valley residents, he said. The CU has worked hard in recent years to develop efficiencies into its mortgage process, such as offering Web-based mortgage applications that link to underwriting. Star One also launched an innovative new mortgage program that was especially timely with last year's refi boom. The CU essentially has a fast-track procedure for adjusting a member's loan rate down, without having to go through the long, costly refinancing process. "They'll go somewhere else if we don't cut the rate. For a small fee the member pays we reduce the rate. It's one of those things that saved us an incredible amount of time." Speaking of location, location, location, Bethpage FCU President/CEO Kirk Kordeleski said the strength of the Long Island, N.Y. economy helped the CU have a banner year and propel it to No. 2 in loan growth at a whopping 29.29%. "On a macro level the Long Island economy and housing market were both incredibly strong, much stronger than the national market. We adapted and did a lot of mortgage business, with an awful lot of home equity loans," said Kordeleski. He said the CU's risk-based pricing policies helped the CU be very competitive in the market on the rate side, but you can't argue with the role the CU's marketplace played. "There's three million people within a 110-mile wide by 20-mile long island. The economy here is bigger than 16 states and is one of the top 10 in the country," said Kordeleski. He concedes that the market the CU is in is favorable, but without an aggressive product line, members will go elsewhere. The CU also spent a lot of time building its new brand last year that Kordeleski feels made an impact. Hampel said often times the credit union leader board in certain statistical categories can be driven by where a CU is on its strategic path. That played a role in SpaceCoast CU showing up in the top 10 in ROA and loan growth last year. "We found that we were growing ourselves into oblivion by giving everything away. Over the last couple of years we worked on some fundamentals. We changed our pricing structure, utilizing profitability models," said Doug Samuels, president/CEO of Space Coast. Samuels said the CU now utilizes relationship pricing, or "participation" pricing as he likes to call it, that prices products based on a household's usage of CU products. "That really boosted profitability here," he said, which of course contributed to its high ROA. As for the CU's solid loan growth, Samuels said the CU just started getting into mortgages a few years ago. "We were a 50-year old organization that couldn't make mortgages. We never spent the money to do it. We looked at what we wanted to do and ponied up the money to build it and get the talent in here," he said. It paid off. With $153 million in mortgages last year, it was the No. 2 provider in its market. Going from $0 just a few years ago to $153 million jettisoned the CU to its lofty loan growth ranking. Rod Calvao, president/CEO of San Diego County CU, whose CU came in at No. 3 in ROA at 2.00%, said his CU's policies have been geared at keeping ROA strong because of its rapid asset growth. "It's important when you're really growing fast to keep that ROA high so capital is maintained. Our asset size is almost $2 billion. We've been growing at more than 20% a year. That's a huge increase. You're going to need additional administration, equipment to maintain it, so we need to make sure that we're getting an adequate return." Consequently, the CU's ALM policy, pricing policy and others are all geared at a healthy ROA. "There's no one, two or 10 different things I can point to with ROA. It's hundreds of things. We do a detailed analysis of every product we offer. What the product costs us and what the pricing is to our members compared to the competition. You don't want to be undercut by the competitors, but you don't want to be so far below either," he said. Pennsylvania State Employees CU is a good example of a statistical leader that is there because of its philosophy. Renowned as a high-tech, one-branch CU (which like United does not deal in cash at its branch), the CU ranks No. 9 in number of employees per member, with just one employee for every 614 members. Much of this ranking is based on the CU's reliance on technology, which in turn limits its personnel needs. "It's mainly the technology creating productivity and the branchlessness," said Smith. But technology by itself may not be enough without creativity. PSECU has launched a number of innovative tech initiatives that allow it to maintain service levels without the physical presence, such as a first-of-its kind mail-in deposit program, where the member can go online and post a deposit before the CU receives it. Is ROA the holy grail? Hampel said that a lot of CUs hold up ROA as one of the most important economic benchmarks, but an ROA level that works for one CU, may not for others. He said people shouldn't just look at how high or low ROA is to measure a CU's operational success. "Credit unions are not profit maximizers. Their job is not to get the highest possible ROA. A lot of credit unions are at the end of the ROA list, not because they're doing a bad job, but they don't happen to need ROA now," said Hampel. Capital levels may be a barometer for ROA policy. "If your net worth is well above your peers and you're not expected to grow fast, you don't need as big an ROA. Lower net worth at the beginning of the year, and the faster you're expected to grow, the more ROA you need." "Most credit unions have more ROA than they actually need. One percent is what it takes to be a Camel 1. Camel 2 is a nice safe and sound credit union with ROA around 80 basis points," said Hampel. He said it's worth noting that over the past 15 years, with all the factors affecting the CU industry, ROA has stayed remarkably steady at between 90 and 105 basis points. Calvao agrees with Hampel on ROA variables. "You can have two credit unions with the exact same ROA's. Both are operating efficiently, but one may have added branches while the other may have cut back on ATM's. To me it's about adding additional services, and still keeping that ROA," he said. There are also unexpected events that happen throughout the year that can affect certain statistics. Take The Golden 1 CU. Last year's sale of Star to Concorde EFS resulted in a $30 million windfall on a $135,000 investment the CU made six years ago. "Needless to say that is something we hadn't budgeted for. We had this great dilemma of what to do with the $30 million. The board voted to give $20 million to members in the form of a special dividend," said Jeanine Morse, EVP of The Golden 1. To illustrate the effect this had on ROA, the CU's ROA would have been 1.12 without the sale, but ballooned to 1.39 after the sale. Even 1.12 is a solid ROA which Morse attributes to solid management. "I think it's just part of who we are. We want to operate in a cost effective manner," she said. She also said unlike some larger CUs, The Golden 1 doesn't believe in palacial headquarters or fancy branch offices. Hampel said there's one measurement that is hard to measure, but is the most important factor CUs should be shooting for – member satisfaction. [email protected]</p>

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