Positioning for growth
Since Arizona was hit hard by the recession, “We’re no strangers to having to cut costs.” says Daniel F. Desmond, president/CEO of $760 million asset TruWest Credit Union, Tempe, Ariz. “Like most of our peers, we’ve been operating under a regulatory requirement to reduce costs for the past couple of years.”
Because all the local financial institutions have been facing the same issues, he adds, it has been relatively easy to remain competitive in rates and services.
TruWest’s approach to cost-containment has included trimming its staff size. “Our staff represent nearly half of our total operating expenses, so it was clearly an area that could yield cost-cutting results,” he explains.
Since the start of the recession, the number of employees has decreased from 218 to 186. “We also suspended the 401(k) match and had to increase the employee cost-sharing percentage for health insurance,” says Desmond.
While these cost-cutting measures are noticeable, members might not have noticed the credit union’s revenue challenge. The credit union made significant cuts to marketing expenses and instead opted to use lower-cost email campaigns.
The board and management have scrutinized every component of the credit union’s products and services to keep the budget in balance and systematically make sure members’ needs are met.
Part of the process includes analyzing outside vendor costs. “We’ve had good success by analyzing complex third-party billing for items like telecommunications, credit and debit card, and ATM processing,” notes Desmond. “We’ve also negotiated on all contract renewals and branch lease renewals.”
To stay competitive without cutting services, TruWest balances budget issues with member needs by putting more focus on electronic delivery of services.
“The compression of net interest margin is one of the biggest challenges we face,” says Desmond. “As higher-yielding loans and investments pay off, mature, and are replaced with loans and investments with lower yields, we’re facing a significant squeeze.”
The loss of debit interchange income also has put a dent in revenue. “We estimate a decrease of $110,000 in debit interchange income in 2012 from the 2011 level,” says Desmond.
The biggest expense challenge continues to come from provision for loan losses, he says. “Still, we’ve made every effort to preserve and build net worth, to position our credit union to take advantage of growth opportunities when the recession is over.”
Gaining staff buy-in
Competition is the primary force driving $265 million asset E Federal Credit Union to be more efficient, says Tyler D. Grodi, president/CEO. “We’re looking to cut costs on items that are unnecessary, inefficient, or unrelated to our strategic plans,” he says, adding that the goal for 2012 is to position the Baton Rouge, La., credit union for growth when the economy rebounds.
It’s one thing to talk about cost-cutting measures, and it’s another to strategically implement them so staff are on board, he says. “We’ve found the most important obstacle to overcome, if we want to reduce expenses, is to gain employee support. We’ve challenged staff to submit cost-saving and efficiency-improvement ideas which align with E Federal’s strategic goals.”
Employees are challenged each month to submit the ideas, he adds. “We call it iMOJO or ‘ideas meeting objectives, joined as one.’”
Staff are an important part of the solution, so it’s important that they contribute their ideas, he notes. “In one month since iMOJO was introduced, the staff submitted ideas related to payroll processing and the quarterly newsletter that will save the credit union $10,000 next year.”
The credit union also created a Member Satisfaction Action Team to find ways to maintain high levels of member satisfaction, reduce expenses, and increase the credit union’s efficiency.
What does expense reduction have to do with member satisfaction? “Service excellence affects member satis
faction, but so does improving net income,” says Grodi. “Higher earnings translate to higher dividends and lower loan rates which ultimately improve member satisfaction.”
E Federal also is reviewing its entire business model—products, services, markets, third-party vendors, branches, and back office operations—to discern the best opportunities to reduce expenses.
“These reviews help us identify fixed expenses and variable expenses,” he says. “We then compare and benchmark these against our peer group averages. That gives management ideas about ways to cut costs and where we need to focus attention going forward.”