Tom Johnson: Learning the STCU way
-June 4th, 2015
Spokane Teachers Credit Union, based in Liberty Lake, ranked third among the largest credit unions in the state by the Puget Sound Business Journal, now has about $2 billion in assets, and it reported 2014 net income of about $19 million. Its president and CEO, Tom Johnson, says business is good, and the credit union has seen significant growth.
STCU’s membership, now at about 138,000, has been growing steadily over the past years. The credit union has 18 branch locations, 14 of them in Washington and four in North Idaho. It has about 550 employees in Spokane and North Idaho and says it will open its 19th branch, the Qualchan Branch, late this year.
STCU was founded by a Lewis & Clark high school English teacher named Ernie McElvain and several other teachers, who opened the doors of the credit union with $4,000 in a shoebox used for cash deposits, and a tiny cubby hole of a classroom at Lewis & Clark High School. As the story is described on the STCU website, “Access to the credit union was difficult in those days, but we’d hang a bell outside the second story window with a rope attached and running down to the front door. When members wanted to transact business, they’d pull on the rope and let us know they were waiting.”
In 2011, for only the fourth time in its 77-year history, STCU welcomed a new president and CEO—Tom Johnson.
Johnson succeeded Steve Dahlstrom, who spent 30 years at STCU, including 20 as president and CEO, before retiring in 2010. Dahlstrom succeeded Clare Chapman, who was the second president of the credit union serving from 1969 to 1991. Ernie McElvain founded STCU in 1934 with several other Spokane schoolteachers.
Johnson has been associated with the credit union since 1994, when he joined its volunteer board of directors. He became part of the management team, as vice president of administration, in 2006.
Johnson took time out of his day last week to bring the Journal of Business up to date on the current state of the credit union at STCU’s offices in the Hutton Building downtown at 9 S. Washington. In 2014, STCU moved its commercial lending operations there and installed a new branch in the ground floor of the building, moving from its leased space at the Schade Brewery building near the Riverpoint Campus.
JB: How is business at STCU?
JOHNSON: Business is going well. I’m enjoying it. And we seem to be doing well as an organization, so that part seems to be very positive. The big picture is that we crossed the $2 billion mark late last year in terms of assets.
And as of the latest monthly financial report at the end of April, we were at about $2.1 billion in assets.
JB: What were you doing before you came to STCU?
JOHNSON: My wife and I moved to Spokane in 1989 from Illinois. I was recruited to Whitworth University to be vice president of finance in business affairs. I served there for 17 years up until I moved to STCU. The last 12 of those years, I served on the board of STCU and became familiar with the credit union and its culture, its operations and the management team. In 2006, I had a conversation with Steve Dahlstrom and one thing led to another. I came on board as vice president of administration in 2006. Steve retired in 2010 and the board went through the search process, and I was selected in early 2010 to become executive vice president. In January, 2011, I became president and CEO.
JB: About 18 years ago, STCU’s charter changed from an education-related credit union to a community- at-large credit union. How many members and board members are still involved in education?
JOHNSON: Yes, 18 years ago the state regulations opened up and allowed any credit union in the state to expand to be a statewide community charter, and so we chose to do that. Then the next expansion was 10 years ago when we applied for and received a charter for Kootenai County, and over the past decade we have expanded that to be five counties in Northern Idaho. From Coeur d’Alene north, we can service anyone who lives in those counties.
We still have about six out of 10 board members who are either teachers or are associated with education. Only 20 to 30 percent of the membership today is involved in the educational process; the majority of the membership is not. It’s taken our board longer to transition since we have longtime board members.
JB: How did the credit union navigate the Great Recession?
JOHNSON: One of the interesting things is that during this whole recessionary period, we’ve had no general layoffs. So we continued to grow as a financial institution and grow in assets, loans, and deposits. That allowed us to maintain employment and even add employees during that whole time period.
We were experiencing a period of growth coming into the recession—and we had a couple of unusual years where we grew at a 20 percent clip—but the last few years we’ve been averaging probably 8 percent growth. This year we budgeted closer to 11 percent. I don’t know if we’re going to hit that mark this year. Lending is a little behind our original forecast of what we thought it might be earlier in the year.
JB: What’s new at STCU?
JOHNSON: Mobile apps. We have a fully functional mobile app, so you can pull up your accounts on the Apple iPhone, iPad, or other devices, and you can check your bank balances, pay bills, and make deposits. It’s a great resource for people.
JB: Mobile always brings up security. How do you ensure members security?
JOHNSON: We have a whole team of people from a couple of different departments, including IT security staff who monitor our systems 24/7, to make sure we don’t have intrusions. There are constant attempts on security every day with spam and email and other types of breaches.
We also have another team of people in our fraud department, and it may not be that the bad guys are attacking STCU but rather they’re attacking members’ accounts through social engineering or by some other means. They may have gotten some identifying information about the member and either attempt, or do in fact perpetrate fraud on a member’s account. We have systems to monitor that and people in place to work with members if that kind of fraud occurs. Those people work with local law enforcement and, if necessary, with federal law enforcement to pass information along and to deal with the fraudsters.
JB: How much a year do you lose to fraud?
The amount is in the tens of thousands of dollars. It is significant, although I don’t have a specific dollar amount.
Another direct cost for the credit union is when there’s a breach of data, and once we are alerted that a set of our credit card numbers have been stolen or breached, we have to replace the cards for our members’ benefit and our own, so we have costs that are related to reissuing cards, the inconvenience for the members to have to re-set up account and such. So we’ve also spent tens of thousands of dollars in replacing cards, as a result of breaches.
JB: Your online banking is relatively new, as is the new STCU mobile app?
JOHNSON: We installed our new online banking system a little over a year ago … and it’s really the basis for launching the mobile app. It’s very user-friendly and robust and gives our customers online access to accounts. We find that people tend to use that channel more than any other channel that we have, including STCU branches, mobile, and ATM machines. The number of transactions on our mobile channels far exceed the numbers on our other channels.
We keep adding channels and consumers use those channels, but they don’t give up on the old channels, so we still have to maintain all of those. So we continue to have and expand branches, we have chat, we do email, we do iPads and iPhones. And, online we have to have an application for the Android version and the Apple version, so it proliferates. We have more overhead today than we’ve ever had before because of all those channels. But we have to have that to make it easy and convenient for our members, and we want to make it easy for them to conduct their transactions and conduct their financial life.
JB: STCU’s loan portfolio grew 12 percent during 2014. The bulk of those loans were consumer loans?
JOHNSON: We have pretty much the full breadth of consumer lending such as autos, recreational vehicles, boats, and motorcycles.
Last year we saw an uptick in auto lending in particular. The auto manufacturers saw it, and the retail auto dealers saw it, and we saw it on the lending side. Across the nation, there was a significant improvement in the auto market so we’ve done a lot of lending for autos in the last 18 to 24 months.
We thought that it would continue at that pace, but it’s slacked off a little bit in the first part of this year and that’s not unique to us. Generally, though, it’s still good, and we’re still growing in auto lending.
We also offer credit and debit cards and lines of credit, typically home equity lines or fixed home-improvement loans—second mortgages. We offer the full breadth (in consumer lending) and that’s traditionally a credit union’s bread and butter. Probably about 85 percent of our lending is made up of that and about 12 to 14 percent is in commercial lending for us.
JB: What’s happening with home mortgages?
JOHNSON: Mortgages are doing well. The market has shifted from being a refinance market, which it was for several years during the recession, with low interest rates, to a purchase market.
People were kind of hunkering down and not out buying new homes, but that is shifting as we speak to more of a purchase market. There also are a lot of first-time buyers and that’s encouraging as we have a strong market in the pipeline. We’re actually exceeding our projections on the mortgage side of things.
JB: Are all of STCU’s commercial lending operations located at the Hutton Building offices?
JOHNSON: We have about 10 employees at our downtown branch in commercial lending, and we do primarily real estate lending. For us, that means anything from a duplex to a fourplex on up to a building. We also do loans for small-business owners here in town. Most of those loans are $10 million and under in size. We also do some cash flow and industrial equipment financing for small business, but that’s a smaller portion of what we do. We’ve been doing commercial lending for about 10 years.
It’s working well for us and definitely commercial lending will be a growth area. We’ll continue to look at branch sites to expand our geographic footprint, and to continue to expand in the area of technology to make sure we’re up to speed and current meeting the needs of our members for convenience and online access.
JB: What does the future hold for STCU? Will you be adding more branches?
JOHNSON: We have continued growth plans for new branches, and we recently announced that STCU’s 19th branch will be built in the Qualchan area.
It’s a geographic location we’ve looked at for a number of years, even though right now there is just a small pocket of a business area there. We’re going to sign a lease to take over that building here in the next month or two and probably begin construction there in the fall. We’ve got plans to expand the actual structure itself to give us more square feet, and then we have to create a drive-through that’s standalone and separate from the building because that was one of the challenges in the existing structure.
We’ll be constructing other branches as we go forward and in some cases have already secured ground for that. We have a couple of (potential branch) sites where we already own the property, such as in the Airway Heights area.
That’s on the schedule for future development. We also have secured property in the Argonne corridor. And we have a number of other general locations for other future branch sites. We’ll be looking to expand in the North Idaho markets, where we’ve been since about 10 years ago. Our most recent branch opening was the Coeur d’Alene branch, which we opened in February.
JB: Do you have future plans to expand lending services further?
JOHNSON: Expanded business lending is another area we’ll continue to try to develop. Our location here and the fact that we took the Hutton Building and have converted it, putting in commercial lending here, was a strategic move to be relevant and available to the downtown business community.
Downtown is definitely on the move. We are very pleased for the community and the things we’ve approved as taxpayers, such as the renovations to Riverfront Park and the downtown streets that will be improved in the next five years. I would include the Hutton Building in that list of improvements, but we’re just one of many, many investments that have been made here over a long period of time, to keep this downtown vital and alive and thriving.
It’s really fun to see.