Kevin Foster-Keddie, president of Xerox Federal Credit Union, has been waiting for the downsizing bomb to drop for a decade.

So when Xerox Corp. announced earlier this year it was slashing 10,000 employees worldwide - 10% of its workforce - he wasn't surprised.

The cuts have sapped loan demand at $280 million-asset Xerox Federal. Loan growth is running at about half management's expectations so far this year.

Delinquency rates are expected to jump to 0.8% from 0.6% over the next 12 to 18 months, and El Segundo-based Xerox Federal is pumping up its reserves.

But all this bad news does not bring Mr. Foster-Keddie down.

"Our response is to reorganize and do some downsizing of our own," said Mr. Foster-Keddie, 40, who is recognized as one of the most progressive executives in the industry. "We were planning to do it anyway, and Xerox's downsizing allowed us to do it more quickly."

Life After Layoffs

Xerox Federal's plan for the future includes expanding its customer base, adding new lines of business, and streamlining its organization.

This year the credit union added employees of a few Xerox suppliers to its customer base, and it plans to add more in the future.

By the end of 1995, Mr. Foster-Keddie said the credit union should add employees of 12 to 15 suppliers across the country.

Xerox has literally thousands of suppliers, some of which already have credit union service and can't be touched, Mr. Foster-Keddie said. Finding the right groups to take in will be a lengthy process.

"It would take us 10 years to integrate the suppliers," he said. "Right now we're identifying key suppliers in key markets and going for them."

Until recently, Xerox would have opposed the credit union's efforts to bring in outside groups.

"Xerox only wanted one credit union for its employees," Mr. Foster-Keddie said. "They viewed it as an employee benefit, and they didn't want non-Xerox employees."

Xerox's attitude has changed as it increasingly parcels out work to outside companies, he said.

Shortly after he started in 1983, corporate management told him to expect cuts sometime down the line.

"They didn't have numbers, but they saw what was happening in the economy and said the corporation would restructure," he said. "I don't think they saw the extent to which they would outsource."

At the same time Xerox Federal is expanding its customer base, it is looking to cut costs.

This year it cut full-time positions by 19 to 91, and doubled part-time staff to 20.

The costs of running a credit union with branches across the country keep operating expenses high.

Last year Xerox Federal's operating expense-to-asset ratio stood at 3.4%, compared with 2.6% for its peer group in California. By increasing automation, the credit union is shooting for a 3.2% ratio this year.

Prior to the cutbacks, Xerox Federal had no problem cranking out loans. Spurred by incentives and pay-for-performance plans, employees kept its loan-to-deposit ratio hanging around 90% for about 10 years.

Xerox's cutbacks have forced it to be a more creative and aggressive lender. he said.

The credit union is considering segmenting and diversifying its Visa credit card line according to usage patterns, he said.

"Someone who's a heavy user with a minimum balance doesn't want an annual fee," he said. "We can design a card for a particular user."

Xerox Federal also plans to market a card for its Spanish-speaking members, Mr. FosterKeddie said.

The credit union also is trying to become a bigger player in the mortgage market.

With about 15 other credit unions, Xerox Federal is trying to develop relationships with real estate brokers so they'll refer clients to credit unions for financing.

Xerox Federal also plans to use its wholly owned brokerdealer to bring in business. In 1993, the credit union's Capital Corporation contributed about $200,000 in revenues.

A Range of Insurance Products

Because the credit union subsidiary offers a range of insurance products, Xerox Federal is more attractive to suppliers. "Xerox has great benefits for its employees, but some of the suppliers don't," Mr. Foster-Keddie said. "The size of some .of the employers prevents them from easily getting products from someone, and the Xerox name is one they trust."

The subsidiary has an office in each of the credit union's nine branches nationwide, and helps generate business.

For example, last year the credit union's Dallas branch was in a rut. The subsidiary opened an office there, generating more business and showing the staff how to actively sell. Business subsequently picked up.

Kudos for Management

That action was cited by the National Association of Federal Credit Unions when it named Mr. Foster-Keddie "Professional of the Year" for 1994. He's a frequent speaker at credit union conferences and is well regarded among industry executives.

"He's a real up-and-comer," said John Siefken, president of $1.2 billion-asset Citizens Equity Federal Credit Union in Peoria, Ill. "He's a real bright guy."

Mr. Foster-Keddie's credit union experience goes back to 1975, when he was a part-time manager/treasurer for Norwest Medical Federal Credit Union while attending Reed College in Portland, Ore.

Mr. Foster-Keddie, who's 6 feet 6 inches tall, also played college basketball. He still plays pickup games at a gym near his home in El Segundo - sometimes against professional players.

"I stole the ball from Gary Grant from the Clippers once," he said, "and I have witnesses."

Kevin S. Foster-Keddie

Age: 40

Born: Seattle

Home: El Segundo, Calif.

Education: MBA from

University of California-Los

Angeles, 1986; BA from

Reed College, Portland,

Ore., 1983

Career:

1975-1976:

Norwest Medical Federal

Credit Union, Portland, Ore.

Part-time manager/treasurer

1976-1981:

Northwest Farmers insurance Group Federal Credit Union, Tigard, Ore.

Assistant manager

1981-1983:

Farmers Insurance Group Federal Credit Union, Los Angeles

1983-present:

President, chief executive, and treasurer of Xerox

Federal Credit Union, El Segundo, Calif.

Family: Wife, Cam; five children,

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