During his 37 years at thehelm of State Employees' CreditUnion, CEO Jim Blaine has seen theorganization grow from $300 million in assets to $33 billion and its branchcount rise from eight branches to 256. With more than 2 million members and5,800 employees, State Employees' is the second-largest credit union in the U.S.
Now Blaine, 66, plans toretire once thecredit union's board selects his replacement. "Sixty maybe the new 40, but 80 is not the new 50," he joked. "In terms of age,it's time for me."
In an interview,Blaine spoke about regulation, the future of the credit union industry and
In an interview,Blaine spoke about regulation, the future of the credit union industry andStateEmployees' plans for branching.
The following is anedited transcript of that conversation.
S&P Global MarketIntelligence: Why was the timing right for you to step down now?
Jim Blaine: We'vebeen working on it for about 18 months. We've got the succession plan in orderand have done all that work. The fiscal year ends June 30, so we'd like to doit at the conclusion of the fiscal year to kind of wrap up. The [hiring]process generally takes three or four months or may go into the first quarterof next year if it goes national. So we've been working on it a long time andthe organization is in good order. It's time to get on with it. And I've beendoing it forever.
The IndependentCommunity Bankers Association and American Bankers Association continue to callfor a repeal on the tax-exempt status that credit unions have. Do you have anyconcern that could eventually come to pass?
I live in fear for the ABA and the ICBA because if they wereable to repeal the tax-exempt status for credit unions, they would no longerhave any uniting force among the banks. Credit unions are the best thing tokeep the trade associations in business. Our credit union pays each and everytax that the banks do except income tax. We are a cooperative and we operate ona not-for-profit basis. We are required to keep reserves, but every other pennywe have is sent back to our members. As a not-for-profit, our bottom line iszero. If you get [the repeal] passed, what tax rate are you going to apply? I'mgoing to advocate that all financial institutions pay an 80% tax on their netincome. We will still manage to zero.
They ought to quit griping and just leave it alone. Itreally is a non-issue.
But do you believe itcould eventually happen?
There's no reason for it to happen. You can apply the tax tocredit unions, but it won't make any difference to the operations, thecompetitive advantage or the fiscal resources of the government. Again, a zerobottom line is what we manage to. That's what a cooperative is. Bankers, blesstheir hearts, they're trying to maximize the bottom line. A credit union triesto minimize it. Our best ROA is zero. If we're well capitalized our bottom lineshould be zero. So apply any tax rate you want to zero.
What is your outlookfor the credit union industry in general? Do you have any concerns about itsshort- or long-term viability?
If you look at credit unions as a financial institution forconsumers it is the best model. It is better than the banking model and fintechor any of that. But it is an inferior model for commercial business banking.The banks are better at it because it's a different business. The future looksgood because consumers are finally waking up that there is a difference.
The risk is credit unions may evolve into trying to be morebank-like, and I think that's a mistake. The other concern is that we areconsolidating, and as a co-op gets bigger and bigger then you run the risk oflosing touch with your original purpose. You might say 'Well you're mighty big,how can you say that?' Well we have said we are not going out of NorthCarolina. If [members] move out of the state we love you, but not that much.You'd be better off using a local bank or credit union. So we have startedlooking inward and there's lots of room for growth because consumers are notwell served by the financial marketplace. The banks have gotten so large it'snot their primary focus, and the small ones are gone. So if we stay true to ourroots the opportunities are there.
As CEO of one of thelargest credit unions in the nation, how do you feel about the way the largestinstitutions are generally being regulated in relation to smaller ones?
Given what happened in 2008 with the collapse of thefinancial system almost worldwide, based on bad financial practices byfinancial institutions and their leaders, we need very strong regulation thatassures that will never happen again. So I am pro strong, prudent regulation,which protects the consumers — and businesses for that matter — and assures prudence.
I, like everybody else working in finance right now, cringeat the way some of the regulations are being implemented ... There's extra costand a lack of collaboration with the regulators. I think banks, credit unions,the FDIC and the NCUA are all on the same side. We're trying to do what'sappropriate.
There has been a lotof talk in the industry about the Financial Accounting Standards Board'scurrent expected credit loss proposal, or CECL. What do you see as the biggest problem with theproposal in its current form?
I'm a CPA, although I'm inactive. I think CECL, in the sensethat a loan loss reserve should project some level of future loan losses, isentirely reasonable. It's a return to the way it used to be not that long ago.The idea is that when you book loans some percentage of those is going todefault. And you ought to reserve for those as you book them.
Everybody gets uncertain about change and implementation canoften be rocky, but I think it's a positive change and will be viewed as thatonce it's implemented.
Do you see SECU'soverall branch footprint shrinking in coming years as digital offeringscontinue to handle more and more transactions?
There's been a discussion for many years about branchsustainability and viability. We're a strong believer in local service. Wethink it's our sustainable, competitive advantage. And it's a barrier to entry.If you come into the state and want to put in a branch network it's veryexpensive.
Transaction processing in branches is going away. But manyof the more important services like insurance, trust, tax, mortgage andfinancial counseling are advantaged by a face-to-face meeting with somebody inthe local community. We deliver all services at all locations. In the ruralareas of North Carolina, the commercial banks have pulled back either becausethe opportunities are in the urban areas or because of vast consolidation. Alot of the community banks just aren't there any more.
Another factor is that it's an exit strategy just in casewe're wrong on branches. What we're finding is that most of our members use allchannels. And rarely does a member use a single channel. With all theelectronic access channels, what we're seeing quite often is that members arelooking for contact-center kind of support. So what we've done instead ofbuilding huge call centers in urban areas is to put in a phone system thatexports those calls back to the local branch. So what we really have if we'rewrong is 250 small contact centers. Also, a lot of those rural areas have highunemployment, and [working in the branch] is often the best job in the county.People get it that we're putting those jobs back in communities that are reallydrying up, and it builds strong relationships in those communities.