Young, Educated Membership Drives Technology Credit Union

SAN JOSE, Calif. – Okay, so the dot.com slump has hit Silicon Valley and times are tough. At Technology Credit Union, total membership stagnated last year as the flow of new members from sponsoring companies shrank by half. Consumer loan volume dropped. The ratio of loans to deposits shriveled to a five-year low. Even employees from established, well-known companies such as Sun Microsystems, Intel and Cisco found themselves poring through help wanted ads. TCU CEO Ken Burns talks openly about the impact. “We have seen an increase in delinquencies and chargeoffs. While not excessive, we have experienced the downturn right along with our membership,” he says. “It’s a much more challenging environment than we saw a couple years ago, when there was so much growth in the Silicon Valley that we kind of rode along on the coattails in terms of new membership and loan demand.” But there was also good news. TCU joined the Billionaires Club last year. Business development officers beefed up efforts to bring in new member companies. Burns says although many sponsors are struggling, the credit union is sticking with its decades-long focus on serving members from the high-tech industry. After passage of HB 1151 the credit union converted to a state charter. Until then what was Technology Federal Credit Union focused exclusively on Silicon Valley. Now the credit union can offer membership to employees of technology-based companies anywhere in California. “That’s been very helpful,” Burns says. “What it’s done is make it easier to bring in technology-based companies around the (San Francisco) Bay area, where we remain predominately focused. It has also provided us the ability – through leveraging our Internet banking – to attract new members and retain those who might relocate to a different part of the state.” Or for that matter, he adds, anywhere else in the country. Burns sees member demographics as a plus: members’ average age is 38; they’re highly educated, with advanced degrees in many cases; their average household income is $105,000. While members may wrestle with today’s slump, they’ll also be involved in the latest developments such as wireless technology and the nanotechnology that will allow almost microscopic computers and processors. That translates not only into a very desirable membership profile, but one with high expectations. Burns sees those demands as a key to keeping the credit union progressive. “Strategically, we want to be fast followers of technology,” he notes. While that doesn’t mean being on the bleeding edge, in Silicon Valley is does mean picking up quickly on proven technology. Members tend to be busy and don’t have a lot of time to spare. They require convenience, accessibility and accuracy, in many cases through full automation and technology. They use the Internet and e-mail extensively, and don’t hesitate to express their opinions. “We get excellent feedback from the membership when we launch new products and services. That’s certainly true when we’re talking about electronic products and services, and enhancements to our Internet services,” Burns says. “For example, we updated applying on-line for a loan. You can now get an update on the status of your loan, and we can actually send a member an e-mail when the rate on the loan they’re interested in reaches the level they want. You can be notified when rates on a 30-year fixed rate mortgage drop to 5.75%.” The TCU mortgage portfolio represents about 57% of outstanding loans. Loan to value runs just under 70%, so members have quite a bit of equity in their homes. Fortunately for members and the credit union, Burns says for the most part prices of Silicon Valley homes haven’t softened. There has been some depreciation in homes costing $2 million and more, but overall demand continues to exceed supply. “Growth in mortgage lending has been a huge part of our success over the last five years. When I came on board, we had not really been a mortgage shop. We did some research and education of our management and board on how we could manage our balance sheet. “We are at a point where we have saturated our appetite for fixed-rate products. We are now selling to the secondary market and retaining servicing rights so we can continue to meet the demands of the membership while controlling the amount of risk we take on in terms of our overall balance sheet,” Burns says. He describes TCU’s approach as managed risk. At the same time the credit union is willing to take some risk, it also pursues thorough research and due diligence before launching something new. Vendors are studied and TCU checks out the results of how a program actually worked elsewhere. Even what seem like winning innovations sometimes don’t make the cut. At one branch TCU installed a videoconference system and pneumatic tubes that allowed a teller behind a wall to run two teller lines. It seemed like a system TCU’s tech-savvy membership would readily adopt. They didn’t. Based on member feedback, the credit union pulled the plug. Burns speculates perhaps the approach would work at a new branch. But at this established branch many members had evidently developed a relationship with the tellers, and seeing them on a video screen just wasn’t the same as an in-person visit. Burns seems comfortable around technology. After all, he grew up in Los Altos, just outside San Jose, and as a child dreamed of becoming an astronaut. He recalls writing when he was 10 or 11 years old to virtually every NASA installation in the nation for information. “Quite frankly, I had no idea I would be moving into the financial services industry until I was just about to graduate from San Jose State University,” Burns says. “My undergraduate degree was in business administration with a emphasis on accounting. Not knowing exactly what I wanted to do, I took a lot of courses in economics and computer science, which of course have proven invaluable.” He went to work in Brisbane, Calif., for a CPA firm now known as McGladrey & Pullen, the largest credit union auditor in the nation. “That was my introduction to credit unions. I didn’t even know what they were. After two years I went to work for San Mateo Credit Union in Redwood City. I came in as sort of their CFO/CIO in charge of accounting and finance as well as computers.” Two years later he joined Bay Federal Credit Union in Santa Cruz as vice president of finance, then was promoted to executive vice president. The CEO, Bill Santone, was planning to retire in three years and became a mentor to Burns. When he retired, Burns indeed stepped into the CEO slot. Six years later he received a call from a couple headhunters. Would he be interested in the CEO position at what was then Technology Federal? Not interested, Burns responded, adding he knew a couple guys who might be. He was quite content at Bay Federal, and considered himself very plugged into the community. But the headhunters persisted, and asked for a resume. Although he didn’t have a current one, Burns hastily put one together and sent it to them. “I would speak to them, but wasn’t going to make a move unless I thought it was ideal. Frankly, all the doors opened up. It turned out to be just that. The interview process, with the headhunters as well as with the search committee and the full board, was very enjoyable,” he recalls. That was in 1995. Tech Fed at the time had $380 million in assets compared to Bay Federal’s $100 million. So it was a move to a significantly larger credit union. If Burns were again updating the resume, you might read that he is married, has two daughters 14 and 17, and is active in his church. Living in California he is able to enjoy a wide range of hobbies including snow skiing, golf, scuba diving, tennis, chess and playing guitar. Able, that is, as far as the climate. Balancing outside interests with work life is another matter. “It’s very hard to find the time to pursue all that. I’m fairly well adept at a few of them – I’m a pretty good snow skier, I’m not too bad on the guitar, but when it comes to my golf game, I need improvement. When I break 100, I’m having a good round,” Burns says. -