HOUSTON—First Service CU here grew assets by 12% in 2015 and expects to perform well again this year, despite doing business in an oil region economy that began struggling last year.
The $597-millon First Service attributes the success, which began several years ago, largely to a word CUs heard a lot during the recession—“efficiency.”
“We are in a fixed-margin business. You either get more efficient or you die,” said Dave Bleazard, president and CEO of the $597-millon First Service.
That thinking has supported dramatic growth at First Service, whose goal is to reach $800 million in assets in 2018, up from $533 million at the start of 2015 and $318 million in 2010.
The CU reported $8 million in net income for 2015, a 43.7% increase over its 2014 total of $5.6 million. Total income was up 31%, from $30.6 million to $40.2 million.
Scale Needed
But that success won’t last unless the CU gets even larger, insisted Bleazard.
“We believe we need to gain economy of scale to compete with the largest players in this town,” said Bleazard. “Unfortunately this is a bank town. So we compete against Capital One, Chase, Wells Fargo…We have to get to the point where we can offer the same products and services at the same cost as the banks. And the quickest way to do that is through scale.”
At the end of 2015 First Service reported $444.1 million in net loans, a 19.7% increase over the $371 million it held at the close of 2014. The credit union also grew its membership last year by 9.3%, ending 2015 with 57,104 members compared with 52,232 members at the end of 2014. Deposit growth was up 12%.
Bleazard said $800 million is not some arbitrary number set when he came on board in 2004. He explained that he studied successful financial institutions nationwide and came to the conclusion that at $800 million FIs begin to receive the greatest economy of scale regarding their expenses. He said that number has increased with inflation, and that after the credit unions reaches its $800-million target—which it is ahead of pace to accomplish—it will continue growing.
“We don’t believe in a silver bullet, no special program. We feel we have to be good at basic blocking and tackling, which is what we focus on relentlessly,” said Bleazard, who added that the CU has also grown through merger and will continue to do so—including a new interest in possibly buying local community banks.
'Basics' Important
Bleazard acknowledged that lending growth has been a big part of the credit union’s success story. And keeping with his emphasis on simplicity, he said the “basics” work there as well.
“Some of our friends in the credit union business think that lending is about special campaigns,” the CEO said. “We don’t believe that and never have done those things. Like a good sports team, you master the basic fundamentals. Once you do that you can see success.”
The “basics” for lending, according to Bleazard, is how to get from start to finish on a loan quickly.
“How do you eliminate redundancies within that process? How do you train an FSR to conduct a correct interview so you get the correct information the first time and it’s not back-and-forth between the underwriter and the sales person?” he explained.
According to Bleazard, once the loan gets to underwriting, the key is the employee knowing how to underwrite reasonably quickly on loans that fall outside of auto-decisioning.
“Then, when it comes to booking and funding, do your booking and funding people follow quality control checklists and are they using software to automate as much of the paperwork as possible,” said Bleazard.
Online Enrollment
Processes within First Service’s two key growth areas in 2015, lending and new membership, have been fully automated, said Bleazard. That not only has streamlined both efforts, allowing the credit union to sign more than half of its new members online last year, it has led to more loan opportunities.
“These two processes dovetail,” said Bleazard. “We open a membership and go through your credit report and we see a credit card at Chase. We then automatically do a preapproved solicitation for that card and close that business as well.”
While many processes are automated, Bleazard reminded that staff have to be skilled to spot opportunities to discuss products that members need.
“We continually train our employees so they know how to get more than one loan per contact and are actively asking for the business,” explained Bleazard, who said the credit union held eight sales training courses last year.”
Staff are heavily incented, as well, said Bleazard, who emphasized the credit union cannot set incentives and stay with the same structure for an extended period.
“To get the right kinds of employee behaviors is not simple,” he said. “You have to constantly refine incentives. We do that at least once a year or more often.”
First Service has also had to adjust its growth objectives for 2016 due to the “recession” Bleazard said has hit Houston due to falling oil prices. The CEO said his credit union has already seen delinquencies creep up as members lose jobs.
“We were booming here when the recession hit the U.S. in 2008 and 2009,” said Bleazard. “That was when the price for a barrel of oil was $100. Now it is about $25 to $30.”
Branches Closed
The economic decline here led the credit union last year to close two underperforming branches it estimates will not get back on track. But the CU is continuing with plans to add two new locations this year that will bring First Service’s branch total to 13.
“We will have to temper our growth because I don’t think we can achieve the 22% to 23% loan growth, with 15% to 18% share growth,” acknowledged Bleazard. “For 2016 we will budget for half of that—so we will try to grow loans around 10% and shares 8% to 9%.”
But Bleazard is confident First Service will hit its $800-million-asset goal in 2018.
“I’m optimistic,” said Bleazard, who did not say if merger as a means to grow would play a larger in the coming years. “I still think we can keep our loan growth going well, and we are ahead of our projected growth pace. So if we slow down for a year we will still be all right.”