BAKERSFIELD, Calif.-After a very difficult three-year stretch during which it lost $77.7 million, Kern Schools Federal Credit Union welcomed black ink back to its books in 2011.
The $1.2-billion CU's net income for 2011 was $25.2 million, excluding assessments. Kern Schools paid $2.8 million to the Corporate Stabilization Fund, leaving it with net income of $22.3 million.
Those numbers follow some tough years. Its net loss for 2010 was $12.8 million, including more than $3.5 million in assessments. In 2009 it lost $40.6 million, including $13 million in assessments. And in 2008 it lost $24.3 million.
Its numbers across the board are looking up now, however. KSFCU's net worth ratio for 2011 was 7.72% ("well capitalized"), up from 5.4% in 2010 and 4.89% in 2009 (both years "undercapitalized"). Its net worth ratio bottomed out in June 2010 at 4.31%.
Like many credit unions, Kern Schools' bottom line has gotten a boost from a reduction in its Allowance for Loan Losses, which was $28 million in 2011, compared to $51.1 million in 2010 and $50.9 million in 2009.
President and CEO Steve Renock told Credit Union Journal the turnaround started in 2010, "even though our 2010 results did not look very good."
"We cut expenses by $20 million in 2010, and then another $6 million in 2011," he reported. "The single biggest impact was closing seven branches, three out of town and four here in Bakersfield. That reduced our headcount from 550 to 400. That was not easy or fun to do, because it affects peoples' lives, but we needed to make sure the credit union, which has been around for 70 years, will be around for the next 70 years."
KSFCU's EVP/Chief Financial Officer Matthew Davidson said he and his team searched for every possible expense line item for review, including some 300 vendor contracts ranging from ATM processing to janitorial to insurance to landscaping.
"Many of these contracts automatically rolled over, so we stopped that and examined each one," he said. "We talked to the vendors about getting bids. We were in difficult shape because our operating expenses were so high."
Kern Schools FCU switched its core data processing and IT platform, which not only saved $2-million per year but allowed it to offer a mobile banking capability it did not previously have.
"We have strategically looked for things members wanted, and they wanted mobile banking," Davidson said. "We are trying to operate in a state of normalcy now, rather than recovery."
'Tough Decisions'
Management had to make a number of "tough decisions" to restore the credit union to health, but Davidson said the "toughest" was letting people go.
"Closing branches and changing computer systems were big-dollar items, but if you look at our financials line by line you will see we reduced expenses in nearly every area."
To accomplish a broad-based reduction in expenses, he continued, it was important to get the entire staff to buy in to the overall goal.
"We wanted them to come into work and figure out how to do things better for the good of the credit union and the good of the membership," Davidson said.
Morale is "better now," as the credit union has not had any more large layoffs, noted Renock. He said employees had not been given raises in a number of years, but in 2011 staff received merit raises and the 401(k) matching and educational reimbursement programs were restored.
"This is important because we need a strong group here to serve our members," Renock said.
Loan Delinquencies Down, Collections Up
According to Renock, the economy in Kern County is "slowly getting better" as local oil and agricultural concerns have had good years. It has "revamped" its collections team and practices, including hiring a new head of collections in 2010.
Davidson said the job of collections is made somewhat easier by the "culture" of KSFCU's membership. "Our people want to pay back their loans," he declared. "This allows our collections people to work with members on a plan to get their loans paid."
Renock said local economic conditions are improving "somewhat" as shown by the credit unions declining delinquencies. He noted delinquencies on consumer loans have improved much more than mortgage delinquencies, because area housing prices remain depressed.
"This is a great concern for us because many of our members are underwater on their homes. But the good news is the vast majority of those loans are performing."
In the year ahead, Renock said the goal is to "get back to operating like a normal, healthy credit union." Like other credit unions, he continues to be wary of lending. "That tells us we need to continue to keep our expense numbers down, as that is the one thing we can control. We cannot control the economy."
Davidson acknowledged, however, that going forward the key to continuing the turnaround will be finding loans. "To be a vibrant credit union we are offering low-rate mortgages and car loans," he said. "We are doing a rebranding so people think of the credit union first for loans."
'A Tough Couple of Years'
As part of the rebranding, KSFCU will be doing targeted marketing during the next six to nine months with the goal of making it "top of mind." Davidson said the credit union is working with a market research firm to survey its members and some non-members.
"We will make our loan rates competitive and we will make the lending process as easy as possible," Davidson vowed.
Renock said the turnaround has been and will continue to be a "team effort."
"It is not just senior management that has gotten this done," he said. "It has been a tough couple of years for our team, but the team contributes to why our members are so loyal and we want to recognize them."
