MOBILE, Ala. -
Dobilas was aware the credit union had some financial challenges when he took the position, but he found out just how serious those challenges were when he learned upon his arrival that New Horizons was being placed by regulators into conservatorship.
Dobilas was not deterred, and he reassured the credit union's new board of directors-put in place as a result of the conservatorship-that despite the problems he still wanted the job, and soon set out to rectify the problems plaguing New Horizons.
Five years later his work can be seen in the balance sheet. The once-bleeding credit union has grown to $110.7 million in assets, and at the same time has shored up its numbers with an impressive turnaround. Indeed, the credit union closed 2006 with a return on assets (ROA) of 2.17%, the tenth-highest return among the 656 credit unions in the $100-million to $250-million asset range (which collectively returned .72% during 2006).
Begun in 1950 as a credit union serving Mobile-area Scott Paper employees, problems started for the credit union soon after Kimberly Clark acquired its sponsor in the early 1990s. By the mid 1990s Kimberly Clark initiated reductions in its workforce of 5,000 jobs, and by 2001 only one of the four processing plants in Mobile remained with 1,000 employees.
In response, by mid-2001 the credit union had switched to an Alabama Geographical Charter, a form of community charter that also allows select employer groups. Yet the CU's management was not prepared to market to a new community membership base and the financial deterioration continued with escalating loan problems that had begun in 1993. Moreover, while the credit union had a community charter, the community itself was having problems of its own as the Mobile economy struggled. By the end of 2001, the capital- to-assets ratio was under 9% and a .68% ROA was recorded for the year.
Out With the Old
Bob Dobilas arrived at the credit union having managed four previous credit union turnaround situations. All of those shared some commonalities in their deficiencies, and New Horizons was no exception. In all cases, he said, there was a lack of controls that resulted in loan, collection and accounting problems.
"In the beginning, the biggest challenge was getting our team to realize things couldn't be done the same as before," Dobilas said. "We had to revamp everything from marketing strategies to our product pricing."
Finding it easier to work with a credit union's existing employees rather than making personnel changes, Dobilas said that "providing a little guidance to help employees buy into the new credit union direction is much more effective."
One initial strategic move at New Horizons included the hiring of a successful, local Chamber of Commerce marketing executive who had numerous small business connections. In turn, the new marketer increased the credit union's advertising in local newspapers, radio and TV.
The credit union was soon benefiting from its local radio, television and newspaper advertisements as well. Today New Horizons is out of conservatorship and has 225 select employer groups with membership growing to nearly 27,000 members at the end of June.
Prior to Dobilas' arrival at New Horizon the credit union had priced its deposits at the top of the market, its loans at the bottom. While attractive, its underwriting standards were not tight, and loan quality suffered. "We have worked hard over the last several years refining our risk-based loan pricing process and also have a great collections team," shared Dobilas. This is reflected in the loan yield improvement to 7.38% during 2006 from 7.25% in 2004, while delinquent loans to total loans have been reduced to .92% from 1.08% for the same periods.
Risk on D and E auto and small signature loan paper is minimized by the credit union's practice of paying for default insurance. Notably, net interest margin (as a percentage of assets) has risen steadily over the last several years, to 3.75% in 2006 from 3.57% in 2004. Additionally, fees and other operating income as a percentage of average assets has risen to 3.86% during 2006 from 2.72% during 2004. Conversely, net operating expense as a percentage of average assets has fallen to 1.99% from 2.46% during the same periods.
"We have been very successful with programs such as courtesy pay and our debit card strategy while we continually focus on gaining operating efficiencies," Dobilas continued.
Active debit card usage by members has increased 86% over the last two years with the addition of the Allpoint Network service. By providing New Horizons debit card holders with 32,000 surcharge-free ATM's nationwide and launching related marketing promotions members were encouraged to apply for or convert their ATM card to a debit card. While operating expense ratios for New Horizons are higher than peers due to an expanding branch network, a continual focus on efficiency has allowed expenses to remain at manageable levels, according to Dobilas.
Important And Necessary Services
Today more than 46% of New Horizons' membership base uses Internet banking, and targeting younger members is an important marketing focus. During 2007 both e-bill payment and e-statement services were implemented-important services necessary to both attract and retain a younger member segment.
"Part of our recent membership growth has been driven by the fallout from the Regions and AmSouth merger and we are focused on providing the services that will help us retain these new members," stated Dobilas, who also thinks it is a matter of time before Bank of America enters into New Horizons' marketplace.
Today, the economy of Mobile is healthy with new companies moving in to take advantage of locally favorable conditions. With that has come intense banking competition-New Horizons currently has more than 60 bank branch locations in its five-county market area, according to FDIC data, and that doesn't count other credit unions also in the market.
Steadfast in his mission to provide the service that is best for their members, Dobilas will continue to rely on the credit union's own brick and mortar and remote services, and has no plans to expand into shared branching. The credit union's sixth and seventh branches are expected to be open by the end of the first quarter of 2008.
During the interim, the New Horizons management team continues to position the credit union to compete. A successful new money market product has recently been launched and the credit union is currently researching a reloadable stored value card product. Other product and services bundling strategies are being explored as ways to further meet members needs while enhancing the net interest margin and bottom line of the credit union.
"We have a healthy balance sheet and are well positioned to compete," said Dobilas, "unlike much of our competition, we have roots here not just branches."
