View from Main Street: Interview with Thomas L. Randle, Jr., CEO/President of Sarasota Coastal Credit Union"We're local, and we're lending."
This is the message from Tom Randle, CEO/President of Sarasota Coastal Credit Union in Florida.
No banking institution is immune to today's global economic crisis, but Randle continues to spread the word about the safety and soundness of his 55-year-old credit union.
In this exclusive interview, Randle discusses:
- How his institution reinforces customer confidence;
- Business priorities for early 2009;
- How credit unions can take advantage of the current marketplace and beat their reputation as "America's best-kept secret."
TOM FIELD: This is Tom Field, Editorial Director with Information Security Media Group. The topic today is the financial industry, and what we are seeing happening today, and we're talking with Tom Randle, President and CEO of Sarasota Coastal Credit Union. Tom, thanks so much for joining me today.
THOMAS RANDLE: You're welcome.
FIELD: I'd like to hear a bit about your regional institutions in general, and yours in particular, how you are impacted by some of the recent global economic issues that we are all talking about.
RANDLE: Well, according to the local press, the southwest coast of Florida, and this region that I'm in specifically, may have been the epicenter for this whole mortgage crisis, and this whole meltdown. When the local paper periodically produces the list of all the community banks and credit unions in about a four-county area, there are virtually none that are profitable, and I would say that's true of almost all those in Tampa, as well, which is about 60 miles to the north. So, it does look like the mortgage meltdown began here, driven primarily because of speculators and people that were flipping houses and condos, and when they drove up the prices of the real estate artificially high, I mean, it was silly to think that prices were going to continue to go up 25% or 30% per year forever. But when it crashed, it crashed a lot harder. And I know, even more than a year ago, people here in the business community were saying that this region of Florida was in a recession, way before the recession word was being used, you know, for the rest of the country. Specifically to us, our credit union did not ever make those undocumented/no documentation or what we call "liar" loans. We actually told our members they were bad for them, and turned them away, but they did go some place else and make those types of loans.
RANDLE: And then where we are seeing the particular stress on us is then they default on the home equity lines of credit that people got with us for their first mortgages -- one of those undocumented/no document type loans.
FIELD: So, Tom, we're all talking about customer confidence. How do you gauge the level of confidence?
RANDLE: We've had calls through our call center, but in all honesty I've had none bubble up to me, which is a pretty good indication that it is not a major concern. Credit unions, like banks, have share insurance, and we're on par with FDIC, so the NCUA share insurance has the same levels, and it was recently temporarily increased to $250,000, as well. We simply tell the people that call that the credit union has been here since December of 1953, we are adequately capitalized, we're not well-capitalized anymore because of the losses from real estate, but we are adequately capitalized. We've been here since 1953. We are local. We are still lending. It's business as usual for us. We had amassed a lot of capital since the 50's for a rainy day, and folks, it's raining. And we do believe the sun will shine again, but we don't have the same kind of credit risk in our balance sheet that commercial banks have, because we just didn't make those kinds of loans to begin with, and that seems to satisfy them.
FIELD: That's well said. It really is raining, isn't it?
RANDLE: Yeah, it's raining.
FIELD: Now, how do you communicate with your members, typically? And have you done anything sort of extraordinary to get this message out to them?
RANDLE: Yeah, we, well, I've done a lot of scripting for my sales staff, to take the phone calls when people are shopping for certificates of deposit and things like that. And then we've been more proactive with a little harder message, both in our quarterly newsletter that goes out to all households, as well as on our website, when you go to our webpage at www.sccu.org, we made the message from me, on point, about this mortgage crisis and economic meltdown that we have.
FIELD: Very good. Now, do you feel that you face any greater risks because of the economic conditions, things like phishing, social engineering, sort of the opportunistic crimes?
RANDLE: We're getting a lot more of the phishing and a lot more of these scams where people are getting alerts, primarily sent to their cell phones, telling them to call some 800 number in Canada someplace, because their credit card has been compromised. We haven't had anybody fall for that. We've reported it. We saw another one as recently as yesterday. I don't know. I think the greatest risk for us, because the economic conditions are the continued mortgage default and the extraordinary provisions for loan loss expense that we are incurring, I don't know when that is going to stop. Historically, because this area of Florida is different, primarily on tourism and construction, and not very well diversified, but we had always had a really low unemployment rate, I mean, way below the state average or national average. I mean, we were under 3% for just years and years and years and couldn't hardly even hire qualified people. That number now is going to 7%, if it's not already above that, which is extraordinary for this part of the state, and no relief in sight. So, I don't know where the bottom is. I don't know where we're going to see some rescue or some kind of robust signs of recovery with unemployment and mortgage defaults. I mean, you know, the school board in the county, which is kind of our core membership, when they start laying off people in the hundreds, like they are doing, it definitely has an impact on us.
FIELD: Yeah, that's scary. Given the conditions, what would you say your top two or three business objectives are, as you head into 2009?
RANDLE: We need to grow core deposits. We're not seeing growth in basic savings and money market accounts and CD's. We're seeing more money go out than we're having come in, so we need to have a better strategy to grow core deposits. We obviously need to look at repricing our loans. We are working now with an independent consultant on a loan pricing model. We use a deposit pricing model from the same company. And I think just to continue to reduce operating costs. I think, as painful as this economy has been, when the sun does shine again, we are going to come out the other end a much better organization, leaner and meaner and more efficient, more productive. It's forced us to cut a bunch of stuff.
FIELD: I get the sense that as people hear in the news about banks, there are a lot of people running from banks to credit unions, and you could be the beneficiary of this.
RANDLE: I'm not seeing that yet, but I have heard it. And perhaps other parts of the country are seeing it. We kind of think that when we model the budget for next year that we should be looking for a bit more inflow into some of the core deposits, the CD certificates and money markets. We should see a bump, because that flight to safety we have seen in other down cycles other down business cycles in years gone by, but we've not seen it yet.
And this is a very affluent part of the country. I mean, Sarasota County is very affluent, so it is odd that we haven't seen it. The downside, or the ... the downside ... of people to do that is senior citizens with lots of money and too much time on their hands, our rate shoppers, they're not loyal members, they're not productive members. They just put money in and out of financial institutions, and then they just move it around all the time.
FIELD: Now, going forward, what do you think are going to be the best ways that institutions like yours can enhance and maintain this customer confidence we have discussed?
RANDLE: I think one of the things that came out of our scenario planning session in August from our board management team is we really need to tell our story loudly. I think credit unions are America's best kept secret. I think the consumer really yearns for a place that cares and tells them the truth, and meets their needs and provides great service at fair prices. And I think the cooperative aspect of credit unions is a compelling story. I don't think the media know, no offense intended, or even acknowledge credit unions, or that we are insured and we're still making loans, and we could be one of America's best hopes for coming out of this recession. And were it not for credit unions - and there aren't a lot of us, there's only 8,000 or so left - but if it weren't for us, the American consumer would literally have no other alternative in the marketplace, other than a commercial bank, who would then, you know, just hose them on fees and rates. I mean, they wouldn't have any competition at all. So, I think to tell our story, I think people are really craving to hear that story, and I think we've done a crummy job, as our national organization said, we've done a crummy job with branding us, and getting the message out. There are still just tens of thousands, if not millions of people that don't even know what a credit union is, or if they are eligible to join one. I think we need to tell our story.
FIELD: That's well said. Now, we sat back last week, and we saw some of the major banks in the country get a lot of money from the government. What do the credit unions need, if anything, to improve their liquidity? And it's a question I've heard over and over from people. Okay. There are the banks. What about the credit unions?
RANDLE: Yeah, the system is pretty robust for the corporate credit union networks. They recently ... the central liquidity facility that was the thing that was enacted, I don't know, maybe in the late 70's or early 80's, and I think originally Congress allocated, like, $42 billion or something, for that, well, because that money came out of somebody else's general fund, and then no credit union needed it for 25 years, they gradually reduced it until just a few weeks ago, it was down to $8 billion, by law. Well, then, NCUA, the National Credit Union Administration, and all, got them to boost it back to its original level, to $41 billion. Now, it's a very short term fix, it's typically a 90-day loan that you need to meet liquidity. It's not a -- you can't use it to match off your loan portfolio. But, we were able to get, for an example, borrow money at 2Â¼%. So, if I can borrow at 2Â¼%, or borrow from the Federal Home Loan Bank Board, their classic advance rates are, or they have been lower than 3%, but I don't know where they are right now, today, but that's the rate that we're going to borrow. I mean, we're not going to buy CD's at 4.75% and compete with these banks that are failing, that lost their credit worthiness and can't borrow at the Fed window, and they've still got to meet their daily cash flow. So, they're forced to pay up on deposits, to see if the money can come in the door. I'm not going to get sucked into that game. So, I think that the credit unions will not take anything from the taxpayers and they never have, in this bailout or any other. I think we have a good central liquidity facility for short-term borrowing. The credit union has a really good corporate credit union system, and the Federal Home Loan Bank Board. We also can sell loans. I mean, you can do loan participation or sell some assets to free up the liquidity. So, in our case, we recently sold a small portfolio of about $9 million of car loans to another credit union in another state that hasn't seen a downturn in his economy, has very robust earnings, hasn't seen any mortgage defaults at all, and did not have a good loan to share ratio, and wanted, you know, wanted to buy some loans, and we knew the guy, and it helped us. So, you know, it freed up a little liquidity. So, between that loan sale and borrowing at 2Â¼%, it just gives me the lift I need, and I think we'll be fine.
FIELD: Well said, Tom.
RANDLE: Loan growth, ironically, though, I was going to share, but I forgot to say this earlier, that for whatever reason, and maybe it's because of brilliant management, I would hope, but we have always been able to make loans here. And here we are in the worst economic environment that I've ever seen in my entire life, and our loan growth this year is still about 15%, at a time when most banks are saying they're not making any loans, at all, and most credit unions, the national average for credit unions, I think, loan growth this year, is maybe 5% on an average. So, we have really not stopped making loans to our members, and helping them. You know, we haven't shut down anything, or made a beacon towards ... it's harder for people to get credit. The only thing we've eliminated is 100% loan to value type home equity loans. We've cut those out. But, we haven't even revoked lines of credit yet on people who have home equity lines of credit, although our regulators are asking us to do that, we're sort of trusting of them, if you will, respectfully disagreeing. We're just not sure why we'd want to do that if the member is still making the payments, even though the price of the house, the value of the house has declined, we're not sure that, as a PR thing, that that's a good thing for credit unions to do. But, it's a small number, and in our case, it would be a real small number. I mean, like 85 loans, so it's still very manageable, if we have to do it. But, they're telling us that banks and credit unions around the country are wholesale just closing people's lines of credit. And I just think that's now not a good time to do that. I think the horse, you know, the horse is already out of the barn, the damage has been done. Why would you penalize somebody now who might have a line there that is going to use it for business expansion in a few months, and all of a sudden you take it away? But, anyway, that was just an aside.
FIELD: Tom, you've been a great spokesman for the credit unions today.
RANDLE: Well, thanks. Thanks. Thanks.
FIELD: I appreciate your time and your insight. We've been talking with Tom Randall, President and CEO of Sarasota Coastal Credit Union. For Information Security Media Group, I'm Tom Field. Thank you very much.