By Ray Birch
HARRISBURG, Penn.—While many credit unions, especially those smaller in assets, find the current operating environment challenging, Greg Smith predicts that running a credit union is only going to get harder.
Smith, who is retiring as CEO of the $5.3-billion Pennsylvania State Employees CU next year after leading the organization since 1991, has had a well-traveled career of success in credit unions. He has led a brand new credit union in California, worked for a corporate, and been CEO of credit unions in Minnesota and Michigan before arriving in the Keystone State.
He spoke with CUToday.info about his career and credit unions.
Looking forward, where Smith sees the biggest challenge emerging for credit union leaders is in technologies that will disrupt the close relationship many members have with their credit unions. Credit unions will be hard pressed to find ways to keep members with deep relationships in the fold as they find it too simple to switch FIs, he observed.
“I’ve been doing this for 45 years,” said Smith. “I have seen rate cycles that would blow your mind—prime at 21% one point and the nearly zero at another. But I think it’s got to be the technology we are starting to use, and have been using on the Internet, that is going to bring about the big changes.”
And the pace of change, already exceedingly fast, is only going to accelerate, forecasts Smith.
‘These Are the Good Old Days’
“I tell CEOs that these are the good old days—that in a couple years we will look back at this and say, ‘Wow, it was easy back then.’ At a recent board meeting my chairman recognized me for my service, and I said the last 27 years were the easy ones,” Smith said.
Smith shared that earlier this year he was attending a Visa payments forum and the president of the company noted that in the next two years we will see more changes in payments than in the last 10.
“And I think he is right. It’s going to get very interesting and it will become incredibly challenging for the industry and especially smaller credit unions,” he said.
Smith said credit unions are now in a marketplace where it’s simply become too easy for consumers to try new things, change their habits, and choose a different financial service provider—for some or all of their banking needs. Smith pointed to China and how fast plastic cards have moved out of mainstream use, how alternative payment forms have stepped in, and how that has impacted some FIs.
“In China consumers don’t really use plastic anymore, they use their phones and QR codes for payments,” said Smith. “The president of Visa talked about shopping in one China market for hours and never seeing a piece of plastic. One bank in China saw 25% of its card business go away in 12 months. I worry about issuers in the U.S., specifically PSECU. We are one of the largest card issuing credit unions in the nation, and we have a heavy reliance on interchange and interest income from credit cards. If that interchange starts to be reduced because of new payments mechanisms…”
Starting With a Start-Up
Before Smith was running one of the larger credit unions in the country, he was working his way up industry ranks, taking CEO positions at progressively larger shops. Smith got his start at the age of 19, when he was going to school at the University of California in San Diego. Five men had just formed Torrey Pines CU in La Jolla, Calif., all chipping in $5.
“We had $25 in assets and when the founding directors hired me to run the CU they said they would pay me $50 a month,” recalled Smith. “My accounting skills were kind of light back then, and I did not realize that if the credit union only had $25 in assets, it would be hard for them to write a check for $50.”
With Smith riding his bicycle back and forth from the nearby college campus to the credit union to run it, the CU eventually grew to $7 million in assets.
“And the directors had no problems with writing me my paycheck, which certainly grew over the years,” said Smith.
Smith ran Torrey Pines CU for five years before moving north to Wescorp, where he was VP of finance.
“It was the only job I ever had within the movement in which I was not the CEO,” said Smith. “I was the sixth person hired at Wescorp.”
Learning from Two Mentors
Smith stayed at Wescorp for four years before moving on in 1981 to run Orange County FCU in Santa Ana, Calif., for four years. Smith said that Wescorp well-known leader, Dick Johnson, became one of the most influential people in his life.
“Dick was a great man. He believed in me, had faith in me, and let me run the Wescorp operations,” said Smith. “He was a mentor to me, one of two in my life, including Gordon Dames.”
Dames is another well-known, long-time credit union CEO, having served as CEO of Mountain America CU in Utah and San Diego County CU in California.
Following his time at Orange County FCU, Smith ran Teachers Credit Union in Minneapolis, Minn. for three years, and then headed to Michigan State University FCU in East Lansing, Mich., before taking over at Pennsylvania State Employees Credit Union in 1991.
Smith admitted that way back when he started at Torrey Pines Credit Union that what he really wanted to become was a banker.
“I had told myself I always wanted to grow up to run a bank, and now I am so thankful I never did,” said Smith.
He said the accomplishment he is most proud of is growing the strength of PSECU to help it withstand challenges it faced over the years and the ones still ahead.
“When I started at PSECU in 1991 we were $600 million in assets and had $19 million in reserves,” recalled Smith, who added that PSECU recently received a 96 rating from Consumer Reports—the highest among CUs. “We had about 3% capital then, during a time when regulators were not paying attention to capital as they are now. Today we have more than $620 million in reserves and 11% capital. In my time with PSECU the credit union has grown by about eight times in assets and about 30 times in reserves.”
What that does, insisted Smith, is give the credit union the proper safety net to not only survive but thrive.
“This gives us staying power,” he said. “We can usually see many of the potholes the road ahead, but things still happen that you can’t predict, do anything about, or control. That is why you need that buffer. I am proud to leave the credit union in its best shape ever.”
‘Not a Socialist’
At the same time, Smith has always adhered to giving back to members as much as possible. PSECU returned $60 million to members in the last six years and is on its way to improving on that total this year, said Smith, noting that in his final year he is not taking his foot off the gas pedal and expects the credit union to have a record year. Smith’s philosophy has been to
give back to members every day with better rates, and to treat each member equally, despite the growing size of the institution.
“I am not a socialist, but I think credit unions should give everyone the same deal, which is why we still don’t risk-price and we don’t tier our savings rates,” said Smith.
One of the more unique aspects of PSECU is that despite its $5.3 billion in assets, it is essentially a branchless operation that almost exclusively delivers services electronically. Yet he acknowledges it’s not a model he really believed in when he arrived in Harrisburg.
“People don’t really know that PSECU has always been branchless. It’s not that we moved away from branching at any time,” said Smith, acknowledging that initially he had planned to turn the credit union toward a branch model. “I came from a background of branched credit unions, and thought we should begin doing that. But you can see who won that argument and I eventually agreed. I am a big advocate of the branchless model now.”
Smith said he has yet to decide what is ahead for him when he steps down at the end of next February.
“I am not going into consulting and I am not going to work at another credit union,” shared Smith, who said he learned an important lesson late in his career. “We had a for-profit CUSO here at PSECU, but we eventually sold it. What I learned in that process is it’s hard to run for-profit company with a not-for-profit heart. This whole concept of people helping people has really resonated with me. Working within credit unions is what I love to do.”