The Lesson Plan From The School of Hard Knocks

Hey, teller with time on your hands. Put down that cup of coffee.

Sorry, member who is just one day late on a payment; yes, we are calling.

And you, IT guy looking for some budget for that whiz-bang technology you really want; show me some hard-dollar ROI.

No one said it quite that way but they all said as much recently when Credit Union Journal profiled four credit unions that have watched their net income statements go from black to red (to sometimes deeper red) and finally back to black as part of our "Back in Black" series (CU Journal, Feb. 20 and Feb. 27).

None of the Journal stories are about bad management or risky moves that came with very little reward. All of the stories are instead about the very real, day-to-day challenges of trying to operate a successful credit union when the world around you collapses and all those basic assumptions you had turn out to be as stable as sand through your fingers. Maybe that's why they're called Sand States.


A Story To Share

Real estate that wasn't real. Receivables that weren't received. Outstanding loans that turned out to be anything but. There isn't a credit union CEO or manager who doesn't know the story of the past three or four years and the cost of the recession to consumers and their co-ops. A merger-a-day pace doesn't occur just because boards are all getting tired.

The real story lies in the lessons learned, and there have been plenty. CUES and CUNA and NAFCU could all abandon their management school curriculum at this point and just have CEOs who have been in the trenches sit down in front of all those classes and just talk about their experiences, the business models that have been turned on their ears, and how a five-year plan can be unanimously adopted one day and put up for adoption the next.

One thing that was most compelling in the four profiles we've published to date-Mark Hawkins of Altura Credit Union, Steve Renock of Kern Schools FCU, John Tippets of North Island Credit Union, and Tom Dorety of Suncoast Schools FCU-is how all hail from different parts of the country and all were interviewed by different reporters, yet their quotes and observations were at times almost interchangeable.

Hawkins, whose credit union saw years of losses before turning a $25 million net in 2011, has had to let more than 120 people go and acknowledges "people have been hurt pretty badly." But the other side of that is "you find yourself in a situation where it's got to be done, and you do what needs to be done," he said.

Among the chief lessons Hawkins cites: "The importance of non-interest income can't be overstated."


Not Easy or Fun

At Kern Schools, which also was $25 million to the positive last year, Renock noted expenses were cut by $20 million in 2010 and another $6 million in 2011. It, too, has reduced headcount by more than 100 people, which Renock noted was not "easy or fun to do." But like Hawkins observed, the bigger picture, said Renock, is to "make sure the credit union, which has been around for 70 years, will be around for the next 70 years."

After difficult years, North Island has seen back-to-back years of black numbers. Tippets has overseen a reduction to $33 million in operating expenses from $60 million, part of which also meant painful layoffs of more than 200 people. Members watched as seven branches closed, and North Island also got quick dealing with those who were slow. Loans are now delinquent even when the payment is one day late, and its collections staff immediately follows up.

The only one of the four not to close a branch has been Suncoast Schools in Florida. As a result, said its CEO, Tom Dorety, that has meant that during idle times in branches tellers became call center operators. "We made a deal early on that if we were not going to close a branch we had to make sure the branch was contributing," said Dorety. "We learned to be as efficient as possible."

Like North Island, Suncoast got aggressive in collections, forming a "Member Solutions Department" for any member who showed any sign of delinquency. All of that and more has paid off; Suncoast reported 2011 net income of $21 million.


Steve Martin Management School

All four of the CEOs also shared another fiscal crisis strategy, first pioneered by that management guru, comedian Steve Martin. Many years ago Martin released an album titled "Let's Get Small," which pretty much sums up the message these four CUs and many others have had for their vendors when it comes to reworking existing contracts. But in this case no one was laughing.

No one may be laughing now, but we are seeing the occasional smile. That goes for employees, too, who may not have the idle time they used to, but they do have a job.

Frank J. Diekmann can be reached at fdiekmann@cujournal.com.