The Worry Eater
How First West's unique model enables the business to focus on the member.
Risk Management. For most, it sounds about as exciting as watching paint dry. And you can bet you won’t ever find it trending on Twitter. Ever.
And because risk management is likely to become a hot topic only when something goes terribly wrong (sub-prime lending crisis, Occupy Wallstreet, anyone?), it sometimes has a stigma attached to it.
“When you talk risk, people tend to think negatively, like it’s something to be avoided or there’s a prescriptive ‘thou shall not’ in there somewhere, but that’s not always the case,” says Paul von Saarn, First West’s senior vice-president of enterprise risk management and chief credit officer. “Risk management is also about uncovering things we need to do or can take advantage of.”
Finding new opportunities is the upside of risk for Paul. That’s how First West Capital, the credit union’s subordinated debt and mezzanine financing business was born.
“Our research and analysis told us there was room to grow in serving small- and medium-sized businesses,” he says. “We learned that traditional financing doesn’t work for a huge number of solid, well-run businesses out there and we seized that opportunity.”
The success of First West Capital has been instrumental in helping the credit union buffer the margin compression that has been squeezing many FIs for years now. The prevailing low interest rate environment also raised a flag on another opportunity to shore up the credit union’s income statement.
“We knew we had to lean on other sources of income and fortunately we had several,” Paul says. “We focused on growing those lines of business whose income is not interest-based—insurance, wealth management and automotive leasing.”
Though there was focus on organic growth, the First West model allowed for a confident expansion of the automotive leasing operation into the Valley First region.
“The Envision region has had so much success with automotive leasing. Not long after the creation of First West in 2010, right in the thick of the compressed margin climate, we knew it was just common sense that we expand the leasing operation into the Valley First region, a new market for this line of business,” Paul says.
Not only does the expansion of the leasing operation help drive non-interest income, but it also strengthens Valley First’s reputation in the region.
“It’s Valley First that people are doing leasing business with,” says Paul. “Leasing is not run under a different banner or as “First West Leasing.” It’s a new service offered by Valley First, the same friendly people residents have come to know and trust in that region for years.”
There’s no question that finding new ways to generate non-interest income during severe margin compression is a positive. But what about all those other things that make risk management sound like it’s a high-stakes game with danger and doom with little margin for error?
“That’s the prescriptive side of risk management, those ‘do nots’ I talked about,” says Paul. When it comes to those, I tell people it’s my job to worry about those things—the things that give you headaches. My team and I deal with all those so that our front line people really shouldn’t have to worry about them.”
These days, it seems like there’s an endless stream of things to manage. Credit risk, regulatory risk, liquidity risk, operational risk (with several subcategories), strategic risk—and the list goes on.
“Our world is becoming increasingly complex, with more and more being asked of us every day,” says Paul. “It’s getting to the point that it’s a definite advantage having a formalized risk management program and a team to run it,” Paul says.
Though the regulatory burden on credit unions is growing, Paul sees First West as ready, no matter what.
“The First West model hits a sweet spot between the really large FIs and the small,” he says. “The beauty is that we’re large enough to have a dedicated team to monitor and assess a broad scope of risks, but still small enough to be nimble in responding to changes in our environment.”
When it comes to risk management size does matter—and the impact is perhaps nowhere greater than in the branches. “Because we have a dedicated risk team, we’re able to take a lot of pressure off our people on the front lines,” says Paul.
“I think of it like this: we’ve got their backs. We do the worrying about compliance, finding the next strategic advantage or finding gaps in our plans. That frees our branch teams to do what they love to do most—making sure our members’ needs are met before they walk out the branch door.”