FRANKLIN, N.Y. — For credit unions everywhere market conditions and a recession have made the CEO's job even tougher‹and that's especially true at one small CU here that wishes to remain independent and isn't seeing to merge.
Chen-Del-O FCU is feeling the pinch from a lending slowdown‹hitting negative numbers in 2009. That, combined with NCUA assessments, makes turning a positive ROA challenging. CEO Sue Giudice outlined those issues, and her expectations for the future, in a recent interview with Credit Union Journal.
Credit Union Journal: Describe your credit union.
Sue Giudice: When we were charted in 1954, we served only school teachers here in Delaware county. We have expanded to serve all public and private and parochial schools in three counties, and support a couple local colleges and hospitals. We are also expanding to serve some highway departments.
About three quarters of our business is handled over the phone, through mail, payroll deduction and direct deposit, and home banking. We don't have an ATM, and little walk-in traffic, which means we're basically non-cash.
Our one location is a two-story house, which we own. We have not renovated it a great deal to look like a financial. But last year we put in a teller lobby and changed the entry for security purposes. I have been here 19 years as CEO, with a staff of seven including myself: a COO, a member services supervisor, an electronics payments and payroll specialist, two loan officers with one doubling as collections, and a member service representative.
CUJ: What is the Franklin, N.Y. market like?
Giudice: It's a small, rural town‹a very poor area, so property values are not much. There's a lot of farming, and the farmers are not doing well. We have a large credit union, Sidney Federal, almost at our back door. We know that we cannot compete with them, and we don't try to. But our rates and personal service are better.
CUJ: How is your CU doing and what are the key issues you are facing‹and your strengths?
Giudice: We had been doing well, but the corporate stabilization hit us really hard. Because of it we lost money last year. And with loans slow, we had negative loan growth in 2009, so income does not come easy. Deposits are higher than usual. Like many credit unions, I am sitting on a lot of money that I have no choice but to invest. We are lucky to get 2%.
The problems with the corporates offer more issues than just the assessments. We need the corporates. They provide a lot of our payment services and check clearing. We lose the corporates and there is no easy fix. It would be costly to us and a headache for members to change over to a new payment provider.
Staff is an issue when it comes to keeping up with compliance and all the new regulations. One of the reasons we do not do first mortgages is because we cannot afford a full-time person to stay on top of changing regulations.
For home equity, our attorney takes care of the bulk of the paperwork there.
I recently hired a mid-management person to help me stay on top of growing regulation and compliance.
Physical space in our credit union is a growing concern. We have a lot of paper files and they continue to take up more area. Little by little we are working on transferring paper to electronic files.
Our biggest advantage is that we know our members, most by name, and still work with them on an individual basis to really help them. They are not being bounced from person to person and don't feel like a number.
CUJ: How does your field of membership help or hurt the CU?
Giudice: Having teachers as a big part of our membership offers some stability in today's economy.
CUJ: What is the CU's brand?
Giudice: We use branding provided by the CU Association of New York‹America's credit unions, where people are worth more than money.
CUJ: How are you supporting your brand?
Giudice: Just by our actions on a daily basis. We treat people how we would like to be treated. I think that also comes across in our policies. We do not credit price loans, which I think makes members feel better about coming to us and talking about a loan.
CUJ: How are you handling marketing?
Giudice: Much of our marketing is word of mouth. We do statement stuffers, but our marketing is minimal compared with big credit unions that are all over the TV and radio here. Our annual budget is $15,000. I do a little radio advertising on a local station, but not in the bigger towns. That is too expensive. When I advertise it is generally about rate.
CUJ: What is the shape of your loan and product portfolios?
Giudice: Despite negative loan growth last year, they are in good shape. I am very pleased with the performance of our MasterCard program, we have only two members out of 700 in the portfolio who are delinquent beyond 60 days.
We offer pretty much the same products as the larger credit unions, except IRAs and first mortgages. But I think not offering mortgages has helped us in this economy.
CUJ: What is your pricing strategy?
Giudice: We review the local area and price products as best as we can.
Spread is not really an issue‹we can do loans at 5% and still have a pretty good spread when our savings accounts are at .75%. Often we do loan specials during the year, but always during the summer because many members are teachers and they are not working then and need the help.
CUJ: What are the perceived obstacles to growth?
Giudice: Lending, clearly. Shares grew 17.06% in 2009, but we had negative loan growth (-1.2%). Membership was down, too, by .81%. Years ago it used to be that for the schools we were the only credit union working with them, and the payroll clerks used to really plug us. But now they tell us that they cannot promote us over others, so we are having a tougher time at the schools. We need to get out to the schools more, but do not have the time and employees to do the face-to-face that's needed.
The NCUA assessments are challenging, as well. Last year between the corporate assessment and what NCUA asked for the Share Insurance Fund, we paid $200,000. That's a lot for a small credit union and we showed a net income loss of more than $22,699 as a result. Lucky for us we are in a good capital position. But an awful lot of small credit unions may have fallen below 7% capital.
CUJ: What are the best opportunities for growth?
Giudice: We took in new SEGs, like some town highway departments. We need to get to them and market more. I think we may be able to do that since I hired a middle management person.
CUJ: How do you look at the future of your credit union and what do the next five years hold for you?
Giudice: How many more years of assessments can we take? I'm not sure. A lot will depend on the economy. Income is a concern, especially since loans continue to be slow and the money I am sitting on is getting half of what I got two year ago. Small credit unions, though, are used to working on a shoestring and operate as efficiently as we can. But some things, like the assessments and the economy, are out of our control. So I don't know at what point NCUA is going to come in here and say you have shown a loss for the last three years and too bad for you. I don't like merger as an option because I believe small credit unions are viable. I think in a lot of ways we are in better shape than the some of the big credit unions, because we are more conservative and stay within our means. If I absolutely had to merge, I guess I would. But until that time comes I am going to stick it out and work as hard as I can to keep the credit union going. But I hope for the best, and I think that five years down the road we will be working hard serving our members.
Chen-Del-O CU By The Numbers
Assets: $21 million
Chartered: 1954
Members: 4,042
Employees: 7
Branches: one
IT system: CompuSource in-house
Capital ratio: 11.26%
ROA: -0.12 (1% before stabilization charges)
Net operating expense ratio: 4.1%
Total loans: $10.8 million
Loan growth ('09): -1.2%
Loan rates (March 16): unsecured: 60 months 10.75% APR, 48 months 9.75%, 36 months 8.75%, 24 months 8.5%; auto: 72 months 6%, 60 months 5.8%, 48 months 5.6%, 36 months 5.5%, 24 months 5.25%; home equity 5% (variable); share and certificate covered 3.5%; overdraft 11.9%; Classic MasterCard 11.9%, Platinum MasterCard 9.9%
Total deposits: $18.4 million
Deposit growth ('09): $3 million
Deposit rates (March 16): share account .50% APY; club account 1.26%; checking-free, no interest; CDs: 6-month1%, 1 year %, 18 months 1.26%, 2 year 1.51%, 3-year 1.51%;
Delinquent loans: 1.63%
Charge-offs: 1.09%
Allowance for loan loss reserves: $119,000
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