How First Tech Has Kept Performance First-Rate
BEAVERTON, Ore.-As First Tech Credit Union awaits regulatory approval for its proposed merger with California-based Addison Avenue FCU, what may turn out to be its final year of operations is being marked solid numbers in a very difficult economy.
In 2009 $2.2-billion First Tech CU, which serves employees in the high tech, telecom, education, and government sectors through a 17-branch network in Oregon and Washington, reported $23 million in net income and an ROA of almost 1.1%. Hank Sigmon, VP and chief financial officer, told Credit Union Journal First Tech had $18 million in "true income," plus about $5 million net of several factors that interim CEO Brooke Van Vleet said caused "noise in the numbers."
"In 2008 NCUA said the share insurance fund was impaired and our share was $9 million, which we took in 2008," Sigmon explained. "But then in 2009, arrangements were made with the Treasury to spread out the payments and we were able to recapture that $9 million. However, part of it was offset by capital writedowns with both WesCorp and Southwest Corporate, and the 15 basis point NCUA share insurance premium."
Much of First Tech's success last year was due to a significant ramp-up of its mortgage lending, Sigmon continued. While First Tech had a first mortgage program in place for several years when the Fed announced in November of 2008 it was going to buy mortgages to prop up a fluttering housing market it saw a "tremendous opportunity" for First Tech to make an aggressive move.
"We didn't have any subprime loans on our books, so we had good quality in our loan portfolio and we knew our members would be eligible for a refi," he said.
Van Vleet said prior to 2009 few First Tech members were taking advantage of its first mortgage product-the result of a combination of lack of awareness and non-competitive pricing. First Tech responded by introducing mortgages through an "extensive" mass media campaign.
"We tend to do more advertising online but for this we did billboards in the community to increase visibility and awareness," she recalled. "We also had a microsite and had internal sales contests to engage the staff. We had a tiered incentive plan for non-mortgage frontline staff that paid for referrals."
To manage the increased workload First Tech brought in temporary workers, which Van Vleet noted helped meet demand at peak times and allowed FTCU to eliminate the positions as volume slowed.
Sigmon said First Tech originated $580 million in mortgage loans in 2009, significantly more than its previous high of $150-million in 2003.
"We really saw the writing on the wall, we staffed up and we were able to handle the loans when they came in," he declared. "It is all about member service-when you can respond quickly to requests you can get the loan, and there was more opportunity during that time."
First Tech also benefitted from its "fairly conservative" underwriting criteria in 2007-08, Sigmon added. He said its charge-offs were higher than normal in 2009, "but not nearly as bad as some other shops are seeing. What is really generating negative ROA at many credit unions is high write-offs and we were able to avoid those."
Delaying Non-Essential Expenses
On the expense side, Van Vleet said when the corporate stabilization expenses began coming to light First Tech' management team reviewed which planned expenditures could be delayed. The search was on for non-essential expenses: for example, it delayed by a year a plan to replace carpeting in a portion of its headquarters members don't see.
"We looked to have tighter management of headcount and we deferred any project that wasn't going to generate revenue," said Sigmon. "We have a relationship-oriented deposit base. We have a low reliance on deposits as a funding source, so when the Fed started dropping rates we were able to respond fairly quickly and lower our cost of funds by lowering our deposit rates."
First Tech also initiated a push throughout the year for e-statement enrollment, which Van Vleet noted further cut expenses. The result: an 18% increase in the number of members who signed up for e-statements.
"There's not one single thing we can point to, it is a combination of several things we did," Van Vleet said. "It is important to note that nothing we did to save money was at the expense of the members. We use a Net Promoter Score, and had a 30% increase during this time, to 78 from 60."
Moving forward, Sigmon said an ongoing goal is for members to have a checking account relationship with First Tech without adding costs. He said the CU has a "very competitive suite of products," and if a member comes in to open up a checking account, they also walk out with a debit card in their hands. "That interchange income is a fantastic source of income. We have strong usage of credit and debit cards by our members."
"Our success in 2009 was not about doing anything different, it was about doing what has worked in the past," Sigmon continued. "Plus we had the added benefit of the mortgage origination income. We have conservative underwriting, we really understand what we are doing on the lending side and didn't overreach for risky loans."