By Ray Birch
MASSENA, N.Y.—It never hurts to be prepared. And SeaComm Credit Union began getting ready for an unexpected business threat—like the pandemic—right after the Great Recession.
“We've been preparing for this since 2008,” said CEO Scott Wilson about how the $695-million CU has managed through the current pandemic and economic downturn. “We understand that we had to be different from the time of the previous economic meltdown. We knew we had to be a very focused organization and made sure, too, we had tons of liquidity. We have $90 million in capital—we can ride this out a long time.”
The credit union’s overall approach to business and to maximizing revenue, efficiency and performance, has been working well since the Great Recession, according to Wilson.
“We have not had to tap into our capital yet. And, again, that is because we became proactive early,” Wilson said.
Regarding more recent efforts, Wilson said the credit union made adjustments early on, as soon as the health crisis arrived.
“In the middle of March, when everything started to happen, we were forced to make some adjustments to our operating model,” said Wilson. “Like most credit unions we had to reduce the amount of people in our lobby. We did not close them, but we stopped allowing in-person transactions at the teller line. The people working onsite were those close to our essential business.”
SeaComm in March also cut its planned budget expenditures by 7%.
“That saved us a considerable amount of money,” Wilson said, explaining among the steps SeaComm took was pushing out a planned new office construction slated to begin in May until September. “That was a very good thing when April rolled around and we saw a significant decrease in our noninterest income, specifically to overdrafts and card interchange.”
Operating Efficiently
Turning back to what has strengthened the CU since the Great Recession, Wilson said SeaComm has always been right-sized, operating efficiently, with its net operating expense to average assets ratio in recent years averaging approximately 2.5%.
“We've never been overstaffed,” explained Wilson, who said jobs are not in jeopardy, but the credit union has examined wage freezes and 401(k) benefit adjustments. “I call all this active balance sheet management. We made those budgetary changes and we also looked at ways we could increase revenue. Obviously, getting loans out the doors is important. I think one of things that was probably really good for financial institutions like us, were PPP loans. That brought in fee income—income to help offset what we lost on the non-interest side of the ledger during the early months of the pandemic.”
Looking to drive greater efficiencies, Wilson said since 2008 the credit union has been focused on working smart, including using software from FMSI/Kronos to evaluate transactions per hour per person.
“That allows us to focus on the transactions our staff are doing, and that has helped tremendously with our call center performance,” he said. “We have been making staffing adjustments based on that tool.”
Cost of Funds
But what may have had the greatest effect on SeaComm solid, pandemic-surviving bottom line, said Wilson, is adjustments it has made to its cost of funds.
“We've always been high on cost of funds. It has been a business decision of the board to give the best return to members we can,” Wilson explained. “We've always been one or two in our market for deposits, and this year we lowered rates based on the Fed funds adjustments.
“Other things that have helped is we have a very active investment portfolio, and we have continued to do well on the mortgage side,” continued Wilson. “We did sell some of our bonds that had a lot of appreciation, and those profits have been helpful.”
Despite fee income declining 33%, the credit union’s ROA stands at 1.04%.
“All of these adjustments we have made, in terms of our budget expenses and other things, have really made a difference,” said Scott.
Scott added SeaComm has also performed significant scenario planning, which has lessened the dollars it might have otherwise placed into reserves for loan losses that are expected to surge once forbearance periods end.
“That scenario planning has put the credit union in the best position we could possibly be in now,” said Wilson.
Scott Wilson
Wilson said its scenario planning included making a detailed analysis of the economic impact of the pandemic on its largest employer groups.
“We looked closely at local hospitals, universities and school districts…We even have one casino in our market,” said Wilson, adding delinquencies remain low at SeaComm at .58%.
Planning Pays Off
What has hurt the revenue typically represented by overdraft income, Wilson said, has been federal stimulus money, which allowed members to avoid overdrafting accounts. But now that stimulus funds have run out, overdraft volume is beginning to return to normal.
SeaComm may make adjustments to is provisions for loan losses if the economic environment worsens, said Wilson.
“But we have plenty of liquidity to meet our needs, we have tons of cash flow coming into our investment portfolio. We have 14.36% capital and we are running very efficiently,” concluded Wilson. “All of our planning, which really began during the Great Recession, has paid off.”
More in this series: