Author: Chip Filson

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Catching Up with Leonardo

This year marks the 500th anniversary of the death of Leonardo da Vinci. To mark this event a new exhibition of the artist’s works has opened at the Louvre in Paris, France.

Many of the artist’s most important drawings and sketches are in the show, except one. As reported in the Washington Post’s review:

“Only one major episode of Leonardo’s life isn’t covered in depth: the story of the enormous bronze equestrian statue made for his patron Ludovico Sforza, the clay model of which was supposedly blown apart by French soldiers after they stormed Milan in 1499.”

Grand Rapids, Michigan and Leonardo da Vinci

Few can travel to Paris to see this exhibit. However, Americans do have the opportunity to see the “one major episode” not in the exhibit.

Leonardo’s horse, constructed from his drawings, now stands in the Meijer Gardens and Sculpture Park in Grand Rapids, Michigan.

The story of how the largest sculpture ever envisioned in Europe came to this location is told in my blog:

Leonardo’s Horse: A Vision Outlasting Its Creator

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What Deregulation Means

“Deregulation isn’t an issue of less regulation. When I talk about deregulation, I mean that decision-making is put back where it belongs-in the hands of the boards of directors and credit union managers. In other words, let credit unions be credit unions.”

(Ed Callahan Feb 1987)

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The Myth of Efficiency and the Allure of Scale

Supporting most mergers and more recently, bank purchases, is a belief in the importance of getting bigger.

The assumption is that size creates scale resulting in greater efficiency. But the assumption is much less compelling if one were to look at the operating expense or efficiency ratios of the set of credit unions over $ 1 billion. Both ratios are all over the map for the largest credit unions.

The wrong focus?

Efficiency is not unimportant, but it is only a part of the performance requirements needed in a competitive organization.

Today’s financial, economic and competitive uncertainty rewards the ability to traverse the unexpected and the unknown. An efficiency orientation can undercut the ability to adapt and respond to ever changing events.

Where should the emphasis be?

If efficiency can hinder progress, what is the skill set needed by management to succeed? Dealing with new circumstances requires creativity and courage, that is a team that trusts each other.

Technology and especially artificial intelligence applications can force a standardized solution on individual circumstances, that while efficient, may strip a process of its most critical component, human skills and empathy.

When I speak with CEOs with long running, superior track records, they often describe a people centered, process approach, to building their credit union. The priority can be member service, trust or another form of member advocacy or empathy.

This core management process is then reinforced with metrics shared with the entire team.

Member relationships drive scale, not efficiency

The outcome these CEOs single out is “productivity” often measured by average member share and loan relationships, not efficiency. For member relationships are the underlying factor that brings “efficiency” no matter the scale or size of a credit union’s balance sheet.

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Credit Union Uniqueness

“The disturbing word bandied about this year so far is comparability.” It came up in President Bush’s plan for solving the S&L mess-to make the NCUSIF accounting comparable to those other funds. . .Comparability is also echoed in the phrase, “bank envy”, the desire of some credit union people to enjoy more of the powers of banks. . . this comparability stems from a kind of inferiority complex. Those who embrace the notion believe that by becoming more comparable we are somehow elevating ourselves. In fact, the opposite is true. Credit unions are different. There were set up to be different and should remain different. They are different because we put the emphasis on the people we serve. Our strength is that we help people.”

(Ed Callahan July 1989)

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Who or What is FRED?

Context and perspective is critical in evaluating current performance and planning future goals. Financial data and trends on credit unions and banks for a given market is readily available from multiple providers, including Callahan & Associates.

However finding relevant and comparative local and macroeconomic data is often harder.

One of the most comprehensive databases for the latest information on a national, regional or MSA market is the Economics Research unit of the St. Louis Federal Reserve Bank.

One of its services is multiple economic and financial databases compiled under the acronym FRED. The FRED® data service is updated daily and allows 24/7 access to over 500,000 financial and economic data series from more than 85 public and proprietary sources.

The following are three examples of different local economic data downloads that illustrate different perspectives about a market.

Data Examples for Three Cities

The Case-Schiller housing price index for Washington DC shows that the prices have yet to exceed its pre-2008 crisis peak:

A second example shows the unemployment rate in Springfield, Illinois, the state capital:

A third  graph portrays the average hourly earnings of all private sector employees in the Dayton, Ohio MSA.

Connect for Research, Data Monitoring, and Business Analytics

The St Louis Fed’s Research Division is in the top 1% of all economics research departments worldwide. It’s Page One Economics working paper series provides emerging research ideas and analysis for the general public as well as economic and financial professionals. Email sign up is available. Have your business analyst bookmark FRED.

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How One Credit Union Brings Members into its Digital Design

Many credit unions find their web site is in a state of constant makeover, or expansion. Often these changes are internally generated. Sometimes external consultants are used.

Canada’s largest credit union is redoing its opening web pages. Want to help? Just visit their beta site and click on the feedback link.

The draft design is a powerful statement, as is, of the credit union difference. But it goes a step further and asks the members to give their insight.

Question: When was the last time you asked your members to contribute to a development project in your credit union?

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Credit Unions and Community Impact Lending: A Gold Mine

For decades Vancity Credit Union has been a leading innovation of cooperatives in Canada. US credit unions have traveled north of the border to visit this creative center of credit union evolution.

Today, Vancity is Canada’s largest community credit union, with $27.4 billion in assets plus assets under administration, more than 534,000 member-owners and 59 branches in Metro Vancouver, the Fraser Valley, Victoria, Squamish and Alert Bay.

As one element of its strategic plan, the credit union developed the concept of “impact lending and investing.”

Vancity also provides stories to illustrate how these concepts apply in both traditional and non-traditional lending programs.

The Need and a US Example

A number of credit unions have also explored this “impact” approach for their communities. This focus has become more critical as companies of all sizes are finding it harder to get loans. In a Pepperdine/Dunn & Bradstreet survey only 28% of small business reported success in getting bank loans during the September quarter, down from 32% in the second quarter.

California Coast Credit Union has tried to increase its community impact in several ways, with small business lending a more recent area for focus.

Robert Disotell, Chief Lending Officer, sent me a case study of how this opportunity is being implemented:

The business owners (husband and wife) had been individual members for many years. They decided to leave their jobs and form a company that leveraged their many years of experience as employees of other companies. They opened several business accounts with CalCoast, but no loan products since they didn’t have an immediate need. And we did not offer business loans or lines of credit at that time.

 Fast forward 18 months. The members happened to mention to one of our tellers that they may need an equipment loan. Good timing, since we had just rolled out our equipment term loan and line of credit products. The teller contacted our Commercial Services Officer and he in turn set up a meeting with the members. He and I met with them to find out more about their business.

I should mention at this point we were somewhat skeptical. The company was less than two years old, they were a contractor, and most of their work was through the government. All high risk red flags. But we took the time to meet at their facility, and we were impressed. Here is what we found:

  • They had excellent revenue growth their first full year of operation
  • Their expenses were extremely well-managed
  • They had grown with no debt, completely unleveraged (except for small trade balances)
  • They had accumulated significant cash balances in their business accounts (on a daily average basis)
  • Their Accounts Receivable and Accounts Payable were in great shape and well-managed
  • They managed to do all this without a line of credit. This is almost unheard of for a contractor, where cash cycles tend to be longer than other businesses.

We felt their story was compelling enough to go forward and provide them with an equipment loan ( a basic five year amortizing loan) and a one year line of credit at Prime +2%. They still haven’t used the line of credit, but they said they believe they will soon because revenues are on track to almost triple this year!

From a community impact standpoint, the additional equipment has given them the ability to bid on larger, more profitable jobs. It also meant hiring additional employees to form a crew to operate the machinery. So certainly helpful for the local economy. Also, this is a woman and minority-owned (Hispanic) company.

The lesson is this. There are so many opportunities to work with your local businesses. They are being abandoned by not only the big banks, but also smaller regional and community banks. This is a gold mine for CUs. Take the time to learn their business. Understand and assess their character. Ask probing questions. Be one of their key partnerships. Learning and understanding how your local businesses operate – it is extremely fun and rewarding (and profitable!).

 Robert Disotell | Chief Lending Officer

California Coast Credit Union | 858.636.4282 | calcoastcu.org

 

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Learning About Leadership: From a Mentor and Father Time

I recently received the following comment from Doug Fecher, CEO of Wright-Patt Credit Union reflecting on celebrating another year of experiences. Or as he opens his remarks: “knowing that we know a whole lot less than we did just a few years ago.”

His reflection is a reminder of a leader’s influence as a mentor, whether intended or not.

I remember my first boss in credit unions – a former Ohio State All American who played for Woody Hayes, won a Rose Bowl and national championship with the Buckeyes in 1954, and played for the Steelers for a year or two until he blew out his knees (before they knew how to fix them). Bill came home a local hero for his success on the football field so they made him manager of the local credit union.

I’m starting to understand what Bill must have thought about us young kids as we went at our jobs like we knew it all. Of course he’d forgotten more than we knew about credit unions and the business of running them. His genius was in letting us make our mistakes so that we’d come to know what he did: that none of us is as smart as we think we are. Of course he would never let us make a serious mistake, and he went about it in a way in which none of us really knew how much he was teaching us. I remember him growling at us (he always growled even when he was being nice … I think it was the football player in him). “I don’t care what you do, just do something even if it’s wrong!” (I removed the expletives he used about every third word.)

Sitting still was never Bill’s style … Moving the ball down the field was his way, even if every once in a while you’d get thrown for a loss.

I think about Bill every so often, and especially as each year goes by. He played the part of a dumb football player pretty well … dumb as a fox. The man taught me more than I ever gave him credit for and I only started realizing that a few years ago.

Some days I think that’s the way people look at me, as if our business is starting to pass me by. And it makes me smile.

– Doug Fecher, CEO Wright-Patt Credit Union