I got this!
As you know, Local Government Credit Union ventured out into deep water in June with the transition to a new independent model - CIVIC FCU. Everyone held their breath, this was no easy task,
The short-term concern was whether the data/tech conversion of 400,000 member accounts could be effectively managed. Problems are the rule, not the exception in such complex efforts. CIVIC seems to have gotten across that bridge in pretty good order. There were some snafus; and member service complaints soared as "wait times" in the contact centers became measured in hours. That "white-knuckler" hopefully has passed.
The longer-term question is how well CIVIC will fare having abandoned the 275 local branch structure of SECU in favor of the new, " all (almost!) digital" format. Full automation/all digital can be more efficient and perhaps less costly as long as there are no "problems". Unfortunately,... members encounter lots of problems with their finances. Stuff just happens - to all of us.
The experienced, local branch staff has long been recognized as the key to the "highest in nation" service quality ratings SECU received. Local staff were authorized to act "to fix the problems", "make the exception" - on the spot. They were hired to listen, decide how to make it right, and even knew how to be humble and apologize! Members knew they had an ally - and an advocate! - when a problem occurred.
Hard to match that with an algorithm, especially after waiting 30 minutes on hold! SECU experienced a similar collapse in service with the centralization of '"loan decisioning" and collections two years ago - the elevated, multi-million dollar losses in delinquency and charge-offs have yet to recover.
✅ Will be interesting to watch "the service quality" barometer at CIVIC going forward. For now, from the June 30 regulatory reports, here are some "first indicators" on CIVIC:
Assets: Have dropped from over $4 billion to $3.66 billion.
Deposits: Have declined by @$500 million to less than $3 billion, despite good rates.
Loans: Dropped by over $200 million in the last quarter; delinquency is up to @5%.
Membership: Peaked at 407,000 and has now declined to 381,000.
Expenses: Up substantially, as might be expected with the transition.
Net Income: Operating in the red for the last 3 quarters, capital remains strong.
😎 Anyone can "go digital"! In the future, comparing the success of CIVIC vs SECU may be a strong signal as to the value of that SECU branch network.
How important do you think that local branch service is to the SECU membership?
Meanwhile at Civic: https://www.wsoctv.com/news/civic-federal-credit-union-works-resolve-customer-service-issues-post-merger/8d7921d9-318b-4254-90b4-916d193996c0/
ReplyDeleteThe amount of work Branch Employees are asked to do is what makes this organization together.
ReplyDeleteThis highlights the either/or fallacy. Members want a high quality in person branch presence AND a high quality digital experiences. Civic is guilty of underestimating member expectations for the former. SECU needs to make sure we don’t underestimate member expectations for the latter.
ReplyDeleteTo have a huge expensive branch structure for problem resolution is a pretty narrow view. Some members simply prefer human interaction, whether they have a problem or not.
ReplyDeleteOnly concern is Civic's delinquency, but LGFCU got laid away in mortgage just like SECU. Civic lost members that are expensive to serve. When the dust settles, they will have a very low cost (compared to branches) digital delivery. It's better they lost members that don't conform to their operating model and strategy, but they'll come out the other end far more nimble and not saddled with the huge brick and mortar infrastructure. Bold to get in front of the future.
ReplyDeleteCivic is currently bleeding cash big time. Dwayne better get his act together quickly before NCUA ends up running the place.
Delete10:42pm Although expenses are elevated, it would seem logical that that resulted from the conversion. Also CIVIC has stated that the cost of the SECU partnership was @$60 million annually... so a $5 million monthly cost savings should kick in starting in July.
DeleteService levels over time will decide CIVIC's future. Watch to see if member support in terms of new loans, deposits continues over next couple of quarters.
Again CIVIC is well-capitalized and financially can weather some turmoil.
DeleteThey hired 77 people in 2Q, and that full annualized expense isn't their run rate yet. They dramatically under-estimated the backroom FTE needed in the absence of branches. Then, their DQ to NW and DQ ratios are scary and off the charts - so likely materially more provision expense is ahead.
Who serviced their loans / delinquency prior to June?
Delete2:07, the same company that bought the loans back when LGFCU needed liquidity. Not sure why you would give that up when you don’t originate QM mortgages unless you are trying to purposely decrease shareholder value.
DeleteSaw my first Civic commercial at the gas station. All about how they are there for Local Government employees. Commercials like that always make me wonder if companies are spending their money wisely. On the things that will SHOW local government employees that they're taken care of.
ReplyDeleteWhat is their loan to deposit ratio? Hope they aren’t borrowing money from credit lines already.
ReplyDeleteDo you have any thoughts on Civics borrowing of over $350 million on the recent call report?
ReplyDeleteThey are borrowing from the Fed to fund operations.
DeleteWhen did SECU centralize loan decisioning?
ReplyDeleteThey didn’t. They tightened credit standards and have automated approvals for some, but no automatic denials. Every loan has a human underwriting it, whether it’s approved (including automated approvals) or denied.
Deletei'm an employee that's pure BS. Still trying to act like they didn't screw up.
DeleteThe branch's ability to approve loans has been greatly curtailed.
DeleteCan you give specific examples?
DeleteRelated to the merger topic - probably never been a more clear cut or obvious mistake on CIVIC's part not to merge with SECU. Probably also the most apparent case of a breach of fiduciary duty by Maurice and their Board. First by saying no to the verbal offer and not letting SECU make a formal offer, and then by making sure Dwayne had a good execution and staffing plan and the independent financial assumptions were strong. CIVIC members have a case.
ReplyDeleteNot only that, they were channeling insider information to select members.
DeleteMakes you wonder - should it have gotten as far as a vote from membership? Merge, keep branches. Don’t merge, basically all digital. Whole different model. Wonder how that vote would have gone? Hard to say, but digital users didn’t lose either way. Branch users lose with a vote not to merge, so they would have voted at higher participation rates… just look out how many members they lost - all most likely to vote down independence.
DeleteNorth Carolina law forbid the merger. That was decided by NC courts years ago. the proposal was illegal from the getgo. so much for SECU's legal department.
DeleteThere are major headwinds for them and could be a very big problem. They are undercapitalized for the risk on their balance sheet.
ReplyDeleteI've thought about this for a while, what is the new purpose of SECU?
ReplyDeleteFinancial service for State employees, teachers, and families. Consumer financial services! Not business, corporate, or commercial real estate. That is reserved for banks. although SECU is hoping to change that with HB --trying to join the banks but retain its tax privilege.
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