February 17, 2010 Dollars & Sense
February Providing growth and stability in a struggling economy
SLFCU: Woven into the Fabric of the Community
While so many around the world and in our own neighborhoods are facing financial difficulties, it’s comforting and encouraging that your credit union had a year marked by growth and stability. The dismal economic picture did not prevent Sandia Laboratory Federal Credit Union from posting an exceptional financial performance while continuing to offer you sound, high-value financial products and services.
SLFCU executives and the board of directors have been proactive in calculating the risks and making plans for worst-case economic scenarios. The principles that have seen us through the turmoil of the past few years are the same ones that have guided your credit union for more than six decades – conservative values and sound lending supported by loyal, responsible members.
In a recent survey, 96 percent of our members told us they were “extremely satisfied” or “very satisfied” with SLFCU. In 2009, you said you supported us, and you demonstrated your trust by helping us set records in both deposit and lending dollars. Meanwhile, we opened a new branch, offered new products and services, continued our support for the children’s hospitals, and established new channels for ensuring the financial success of our young members.
As other financial institutions took hits – from high loan delinquencies to outright failure – SLFCU was there for you and the rest of our community. You recognized the strength and stability of your credit union. You’ve brought your savings, your loans, and even your family members to the financial institution you trust.
Our members and the values derived from our membership are the keys to our success.
You’ve demonstrated your commitment to SLFCU, and we are here for you. And no matter what the future holds, we’ll continue to be here, providing the quality financial products you need and the outstanding service you deserve.
In our 2009 Annual Report, SLFCU Board Chairperson Bruce Ten Broeck and President/CEO Chris Jillson discuss the opportunities the economy created and how SLFCU is preparing for whatever happens next.
How can SLFCU continue to do business as usual through the economic crisis while banks and other financial institutions are raising fees and limiting loan dollars?
Ten Broeck: We can’t exactly boast that the economy hasn’t had an impact on SLFCU. It has. We’ve made small adjustments here and there, but it hasn’t changed our business plan. We’ve always been a conservative credit union. During the boom times we could have gotten into higher-risk investments and higher-risk loans, which might have given us better-looking numbers at the time, but we didn’t. And that conservative approach protected us when the economy turned negative.
And, of course, our members are in a class of their own. As a whole, they make smart financial decisions and their credit union can now reap the rewards. Our delinquency rate is so low – 0.24 percent compared to about two percent for other credit unions and five percent for banks – we don’t need to change our strategies to cover losses.
Jillson: We also continue to keep a close eye on our bottom line. To hold down operating expenses, for example, we’ve cut back significantly on conferences and travel and replaced them with online seminars and training. We review open positions to better define needs and responsibilities, and improve electronic efficiencies to save money. About 80 percent of our members take advantage of our online capabilities.
Our employees also help us save money – from suggesting cost-cutting measures like bringing a coffee mug from home instead of using disposable cups to simply doing their jobs well. We invest in training, and survey responses tell us that money is well spent. Our members like the service, and our employees like their jobs – 98 percent are very or extremely satisfied, and our turnover this year was 13 percent, compared to about 15 to 17 percent in the credit union industry. Our employees are also SLFCU members. They have every incentive to do their jobs well and help the credit union succeed.
Are all credit unions as strong as SLFCU?
Jillson: I’m afraid not. In general, credit unions are faring better than banks since they answer to members instead of shareholders, but a handful have closed this year and others are struggling.
The credit union failures, including the conservatorship of two large corporate credit unions by the National Credit Union Administration (NCUA), have affected our bottom line. The NCUA has assessed all federally insured credit unions with a special insurance premium to rebuild the National Credit Union Share Insurance Fund. This is costing us $2 million per year for five years. The premium is not a result of anything we did wrong. All healthy credit unions have to pay these higher insurance premiums. It’s the cost of doing business in difficult times. We’re managing this additional expense and maintaining our own reserves by rethinking some planned investments in infrastructure and capital expenditures. On the other hand, we carefully consider such costs regardless of the economic picture.
Ten Broeck: SLFCU really is a leader among credit unions. At our NCUA review in October, the regional supervisor said he’d like to spread our business plan throughout the industry. The examiner praised our asset quality, sound underwriting, and collections processes.
The credit union consulting firm Callahan & Associates ranked SLFCU as a leader in its Return of the Member (ROM) index for credit unions with more than $1 billion in assets in 2009. ROM measures lending, savings, and product usage – in other words, how well we deliver economic benefit and good products to our members. SLFCU was ranked sixth in the nation out of 154 peer credit unions of similar size.
It really seems that our members recognize SLFCU’s value. The growth we’ve seen this year -- $198 million in deposits, $110 million in loans, and a four percent increase in membership – come from what we’re calling “a flight to safety.” Maybe they’ve been on the receiving end of some of the questionable practices of other financial institutions; maybe they’ve just heard their fill of bad news about banks. For many reasons, our members have decided to put their trust, and their nest eggs, in SLFCU.
Jillson: Our members’ faith in us makes us strong and gives us the opportunity to grow even more. Despite the economic situation, we had the means and confidence to continue with our plans for a new branch south of Albuquerque. The Los Lunas branch opened in September, and like the Edgewood branch, it serves existing SLFCU members – but now we’re more convenient to them. Their Valencia County families can join, and it’s easier for them to take advantage of more of our solid products and services close to home.
Some signs indicate the economy is improving, but others point in the opposite direction. How is the credit union dealing with an uncertain economic future?
Jillson: In 2007, when we saw trouble approaching in the mortgage market, we carefully reviewed all of our investments to make sure they were sound. Going forward, we continue to ask ourselves “what if?” We’ve implemented a new risk decisioning tool that models various interest rates and other known risks and plays out various scenarios. It helps us monitor our risks should the recovery period be longer than expected or if the economy should worsen. We have no concern about the credit union’s future. We can ride out this recession even if it takes several more years because we’ve got a solid foundation.
Risks, however, come from more than just the economy. For example, SLFCU also is careful to protect its data. We do an annual data restoration test off site, and each year we get better at it. In 2009, we restored data within 24 hours and ran test transactions at the branches. Should our system go down, we could go to another location and activate this disaster recovery network so members could continue with basic transactions.
What can members do to ensure their personal financial well being?
Ten Broeck: Just as members have demonstrated their loyalty to SLFCU, the credit union makes it our business to help our members succeed financially.
We recently formed Young Adult Advisory Panels to help us determine how we could better serve members age 18 to 34. Among their suggestions were expanded seminar offerings, so in 2009 we introduced financial education workshops aimed at young adults, including a first-time home buyers seminar. We’re also working toward more online features at their suggestion.
Our teen financial education courses continue to fill to capacity. We expanded the course offering to Edgewood in 2009, and we’ll offer it in Los Lunas in 2010. Sandy the Lab has spread smart savings tips to younger children, and we’ve formed a partnership with the National Museum of Nuclear Science & History (formerly the National Atomic Museum), which will provide more educational opportunities.
Jillson: Members also have access to tools for protecting themselves. This year we introduced the Debt in Focus online budgeting tool and began offering an identity theft protection service.
And the MEMBERS Financial Services Program* is there for members who want advice about investments, college savings plans, and more. Lately members have come to them to review their portfolios. Between taxation changes** and inflation, they want someone to look at their whole financial picture and tell them if they’re still on track to meet their goals for retirement or paying for college. Not knowing is the worst thing; MEMBERS Financial can tell you where you stand. They can also help members determine the level of risk they’re willing to take with investments and point them toward appropriate opportunities.
Ten Broeck: It’s important to us to make a difference in the community. We’re proud of the educational and investment opportunities we offer, but we’re also extremely pleased with the growth of SLFCU Business, which has been able to offer financing to local businesses while loan dollars from other financial institutions are vanishing. SLFCU Business has been offering commercial accounts since 2007, and members are starting to recognize it as a valued service. Member businesses have done $20 million in loans this year.
This fall we made one of our biggest commercial loans – and one that really fit with our goal of stimulating the local economy – to Los Poblanos Historic Inn and Cultural Center. Los Poblanos spent years formulating their expansion plans, but when they were ready to proceed, the credit market had dried up. SLFCU had money to loan them.
The federal government is imposing new financial industry regulations in 2010. What do these mean to SLFCU?
Jillson: There’s a cost to us to comply with these new regulations. We have to make changes to some products, change the way we share information with our members, and update product materials.
The new regulations are a result of, and aimed at, financial institutions that have been taking advantage of their customers through exorbitant fees, surprise rate hikes, and the like, so we’re fortunate that the effects on the credit union are relatively minimal. And we’re taking the opportunity to make these required changes work in our members’ favor.
For example, to meet the new credit card standards we’ve had to switch from fixed to variable rates. But at the same time, we’ll be lowering our credit card rates. Our student card holders have proven very responsible in their use of credit, but the new regulations require that college students under age 21 have a co-signer or proof of income. So we’re trying to counter that sting by offering a new 0.5% cash rebate on purchases for student cards.
This next year may also bring regulatory changes to credit card merchant charges and overdraft limits. But we’ll address these issues as they arise, always keeping our members’ best interest in mind. For example, if we need to notify members about overdraft limit changes, we’ll also remind them that they can set up low-balance account alerts in CU@home® Online to better monitor their cash flow.
No matter what the future holds, SLFCU’s first priority will continue to be the financial health of the credit union and its members.
New in 2009
These new offerings and innovations save our members time and money, while focusing on convenience and security.
• SLFCU Los Lunas branch
• Extended terms and new financing thresholds for vehicles such as RVs
• Time-saving, enhanced-security safe deposit box access system at Los Lunas
• Online account opening lets members open new accounts anytime, anywhere
• First-time home buyers seminar
• Budgeting seminar for young adults
• National Museum of Nuclear Science & History partnership
• More timely debit transaction information on CU@home®
• Foreign currency available at every branch and online
• Debt in Focus online budgeting tool
• ITAC Sentinel® identity theft protection service
• Easy download into QuickBooks® for business members
SLFCU Serving the Community
In 2009, SLFCU and the Credit Union Association of New Mexico completed a five-year, $1 million commitment to the University of New Mexico Children’s Hospital, which funded the pediatric emergency room in the new children’s wing. All major fundraising efforts, including staff raffle baskets, casual day campaigns, stuffed animal sales, and member donations, were focused on meeting SLFCU’s goal of $25,000 per year.
SLFCU has had a long-standing relationship with both the UNM and Oakland children’s hospitals.
The credit union supported the community in many other ways as well, including:
• 750 pounds of food collected for Roadrunner Food Bank
• 15th Annual SLFCU Scholarship awarded to 12 students
• Sponsor and Presenter at School to World career event for mid-schoolers
• Nearly 50 financial education courses presented to all ages
• International Credit Union Day presentation at an area school
*Representatives are registered, securities are sold, and investment advisory services are offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor, 2000 Heritage Way, Waverly, Iowa 50677, toll free (800) 369-2862. Nondeposit investment and insurance products are not federally insured, involve investment risk, may lose value, and are not obligations of or guaranteed by the financial institution. CBSI is under contract with the financial institution, through the financial services program, to make securities available to members. IRA-1009-3924, FR011004-E2D5
**Representatives are not tax advisors. For information regarding your specific tax situation, please consult a tax professional.
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