SAN DIEGO-Marla Shepard saw the future back in 2008, when, fittingly, she was president and CEO of the then $944-million First Future Credit Union-the need to bulk up to better compete with the big banks.

In April of 2008, shortly after First Future CU and then $907-million California Coast CU announced they were merging, Shepard told Credit Union Journal that at the "last three or four board planning meetings we talked about merging and the need to be bigger. To be competitive in San Diego, a very competitive market, we needed economies of scale to make a difference. For the health of my credit union and my members, a large merger is necessary."

Today, Shepard is president and CEO of $1.7-billion California Coast CU, the surviving name when the two credit unions combined. The struggle to make headway in this hotly contested market remains just as fierce, and she is not looking to back down from the fight.

"Competition is a good thing because it creates value for consumers," she said. "It is important for any financial institution to differentiate itself. We differentiate by having a message of being unique and different. I think the credit unions in San Diego have done a pretty good job of differentiating for the most part."


Ads 'Very Creative'

California Coast has a community charter, and Shepard said after the merger it became even more important to create a brand. To that end, in 2011 it implemented a rebranding effort that included "very creative" television spots that told the story of being a member not a customer, a person not a number, and carried the slogan, "In your best interests."

"Any financial institution in San Diego must be flexible, innovative and very quick to market with new products and services," Shepard said. "TV and radio are expensive, so we have products tied to the branding to try to get business from our advertising right away. The challenge is good, because it makes our credit union flexible and innovative. We need to do these things to be competitive in this market."

Cal Coast's management team holds weekly meetings that include a review of its competitors' rates, setting its rates for deposits and loans, and discussing new products and services that are coming to market. Shepard said it is a "very proactive" process.

According to Shepard, "Other credit unions are definitely our competitors. Credit unions, banks and even car dealerships are all trying to get the same business. It adds another element, but it does not change what we are doing."

Despite all that competition, there is a "fair amount" of collaboration among San Diego credit unions, Shepard continued. While "some credit unions are better at collaborating than others," she said political activism is the best example of successful collaboration.

"There is a California State PAC, and there is good representation on the PAC committee by San Diego credit unions both big and small. On legislative and political issues we work together."

In addition, there was a recent benefits survey that involved collaboration by several different credit unions, Shepard pointed out.

"There are lots of things we can talk about and share, just not products and services," she said. "We definitely talk about regulations and how credit unions are responding. North Island is talking about forming a business lending CUSO in San Diego. We are interested in joining the CUSO, although we are not sure if it will be limited to San Diego or would include all of Southern California."

There was "some talk" years ago about advertising a collective credit union brand in San Diego, but Shepard said it would not make sense now. In her opinion the credit unions here are differentiated already.

"In San Diego consumers are more aware of CUs than they are in many cities due to all the commercials that are on television," she observed.


Building Membership

California Coast has 22 total branches, counting four in San Bernardino County, and 445 employees. Shepard said after the merger with First Future there was an evaluation of all of the branches, and those with significant overlap were closed.

"Overall, we are happy with our current locations," she said. "All branches have a focus on getting new business. The top two priorities for this year are new member growth and loan growth. So all the branches are involved in trying to get both goals."

Cal Coast has had a "pretty robust" sales program in place for years, Shepard said. For starters, there is an automatic discussion of checking accounts when onboarding new members.

"Our employees know it is important to cross-sell products to new members," she said. "Bank Transfer Day did not change that. It brought in more members to sell to, which is a great opportunity."

Bank Transfer Day-Nov. 5, 2011-was California Coast CU's highest new member growth day of the year, with more than 1,200 new members joining during November. Since then, Shepard said, the number of new members has continued to be at "elevated levels." New member growth in 2011 was up 57% over 2010.

Of the new members, 24% have taken out loans. Shepard said the three most common loan types have been auto, Visa, and real estate.

"Loan production is higher in 2011 than it was in 2010, though on a net basis there is a slight decline in loan balances as people are paying off their Visa cards," she said.

Another important figure related to new members: 80% have opened checking accounts. "This is logical because bank fees were on checking accounts, so that is why people came to us," Shepard said.

Retirement and financial planning also are available, and Shepard said if appropriate those products and services are brought up during onboarding.


Momentum Continues

In 2011 California Coast CU reported $9.3 million in net income prior to assessments. It paid $3.5 million to the Corporate Stabilization Fund, leaving it with net income of $5.7 million. Its net worth ratio was 9.7% ("well capitalized").

In 2010 it booked $7.8 million in net income, even after paying $3.7 million in assessments. Its net worth ratio was 9.45% ("well capitalized"). In 2009 it had $3.3 million in net income, with a net worth ratio of 7.94% ("well capitalized").

In 2008 it lost $50 million, although its net worth ratio remained well capitalized at 7.31%.

"In 2012 our momentum continues," Shepard said. "We had an excellent first quarter for new members and loans-both were ahead of projections. Across the board lending is up, topped by phenomenal interest in mortgage products. We are funding a lot of mortgages each month, keeping some of those while selling 60% on the secondary market."

With low interest rates available, it is affordable for Cal Coast's members to refinance, she noted, adding roughly 85% of its mortgages are refis.

The local real estate market is improving a "little bit" every month, Shepard said. The CU is seeing an improvement in auto lending as well, but that also is mostly refinances.

"The dealers for the most part own new car loans," she said.

The main factor holding back loan growth: consumers are trying to rid themselves of debt. In an effort to counter this trend, Cal Coast reviews its members' credit reports and sends them pre-approved offers to transfer their loans to the CU. It also looks in its records to see which car loans will be paid off soon and gives the members a pre-approval for their next car purchase.

Cal Coast currently is testing a "new" product that it offered years ago. Shepard said it has created a draft that allows the member to write it out similar to a check. "We are hoping that it will be convenient enough that it will give us a fighting chance at the dealership."


Surviving Recession

The Cal Coast-First Future merger was finalized in July 2008, which happened to be the same year as the economic meltdown. Shepard said it reduced its expenses by 20% during the recession. The merger meant excess branches, so it closed five overlapping branches. Although it had no layoffs during the recession, over a three-year period it reduced staffing by 100 positions through attrition.

"We became very expense aware," she recalled. "We negotiated tougher than normally with our vendors. We looked for every expense that was not necessary and cut it. We had a major focus on efficiency after the merger. Building capital also was a major focus during that time. We raised a few member fees, but not many. Mostly we tried to generate income through efficiency."

As the economy slowly emerges from the doldrums, Shepard said given that there continues to be low loan demand, Cal Coast, like most, is not interested in deposits.

"2012 is looking good," she said. "Loan growth is up, as is membership. Earnings are up, and income is definitely up. Fewer members are stressed, so we are not seeing the number of loan modifications. Requests for modifications slowed down in 2011 and have been much better in 2012."

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