HARRISBURG, Penn. - Pennsylvania State Employees CU plans to rebuild capital by leveraging its cost-effective branchless model and being aggressive with lending.
That's the strategy of PSECU CEO Greg Smith, who knows something about effectively building capital. Smith took over the credit union in 1991 when capital levels were below 3%, and grew capital in recent years to 10.5%, while still providing members with
In March 1991, capital at PSECU stood at 2.75% and $20 million. "We were a $600-million credit union and now we are about $3.4-billion," Smith said. "We actually had built capital to just under $300 million, and then for couple years we did special dividends and pushed some of that back to membership. At the start of this year we were at about 9%, and then 7.5% after the corporate assessment."
At press time, Smith shared that PSECU had incurred approximately $37 million in charges from the assessment, but said the CU will rebound from the corporate bailout by leveraging the efficiencies of its branchless model. PSECU has only one main location, and serves more than 350,000 members through its sophisticated online banking system. That has returned the CU a 2.6% operating expense ratio, and a 650:1 member-to-employee ratio.
"I am not saying that everyone go out and adopt the branchless model," Smith said. "That's not feasible. But if you don't have some of the benefits of the branchless model now, you will likely need them. I believe more credit unions will be looking at those advantages. I know it's going to be one of the things that gets us through this tough patch."
PSECU will not improve its capital ratio by shedding assets, Smith maintained. "That's not the way. I suppose those credit unions that find themselves having to provide NCUA a plan because of PCA, that's certainly one of the easier ways to do it. I never have built capital that way and it may be more challenging to get assets back once members have moved."
Smith emphasized capital growth cannot ride on the backs of members. "It has to be balanced," he said. "I have always thought that our job at the credit union is balancing benefits between the members who have money and members who need money. Right now our focus is more on the loan side."
Count Smith as one who always believed the credit union needed to sock something away for a rainy day while still giving back to members. "I always felt pretty comfortable that we could guide the credit union around most of the potholes in the road," Smith said. "Capital is for those things that come from left field that you can't possibly know are coming. We all certainly received verification of that thinking during January through March."
