California’s biggest credit union SchoolsFirst tackles cybersecurity

When Bill Cheney led the National Trade Association, policymakers often asked him, “If credit unions are as good a deal as you say, why isn’t everyone a member of a credit union?”

His response was always, “Exactly!”

“If I were the CEO of a bank, my job would be to maximize the value of that bank for the shareholders,” said Cheney, who is now the CEO of SchoolsFirst Federal Credit Union, the largest credit in California for school employees and their families. “We don’t pay dividends to shareholders because we don’t have shareholders; we pay dividends to our members. Our job is to put members first. It’s really an amazing business model.”

As a member-owned, not-for-profit financial cooperative, SchoolsFirst is part of a unique and trusted banking experience 90 years in the making.

Founded on June 12, 1934 during the Great Depression, what was then the Orange County Teachers Credit Union began when 126 school employees pooled $1,200 to establish it. The credit union has grown steadily since.

A 2020 merger with Sacramento-based Schools Financial Credit Union made the state’s largest credit union even bigger. Originally serving Orange County, it now covers the entire state, offering a variety of products and services such as checking and savings, credit cards, home and car loans and retirement planning.

With this expansion, SchoolsFirst’s big challenge is educating younger generations about credit unions while safeguarding its members’ finances against cyberattacks and effectively integrating new technologies.

Southern California News Group spoke to Cheney about SchoolsFirst’s 90 years of serving school employees and their families and what the future might hold. The interview has been edited for space:

Q: Do all credit unions focus on a specific community?

A: Credit unions have what’s called a field of membership. Our field of membership is the educational community and has changed only in the sense that we’ve expanded geographically.

Q: Did that expansion coincide with your recent merger?

A: No, we actually expanded our charter before that.

Schools Financial became part of SchoolsFirst on January 1, 2020, but our systems were integrated toward the end of the year. When we planned the merger, we didn’t plan to send everybody home in the middle of March — hats off to our team for pulling it off.

Q: What impact did the pandemic have on your day-to-day business?

A: We’re an essential business, so we kept all our branches open except those serving colleges, universities and school districts. For example, we closed a small branch at Cal State Fullerton, but our biggest, oldest and busiest branch in Santa Ana stayed open.

We had to move quickly to protect the employees at our branches. But we also sent hundreds of team members home, so we had to make arrangements for them to work from home.

That first week, I reassured our team — and the rest of our leadership team did as well — that everybody’s job was protected regardless of their role in the organization and that our members needed us now more than ever.

Q: And how did you reassure your members?

A: We have an emergency loan program for use if, for example, there’s a state government shutdown and people’s pay is delayed. It hasn’t happened for a while, but it has happened. And so, we had this program in place (during Covid-19).

The government stepped in and provided stimulus payments, so we didn’t have to utilize (the program) too much. But some of our members did lose their jobs and that emergency loan program helped them through that interim period until the government stimulus kicked in.

But the big challenge credit unions face is educating younger generations about their value, mission, and purpose because it’s not always clear. Even some of our members refer to us as their bank. We are in the banking business, but we are not a bank. We’re a credit union; we’re a mutual.

We have board members like a bank, but our board members are elected by our members to serve as volunteers to run this $30 billion financial institution. They represent our members’ interests, and that builds trust.

Q: Can we talk about services? For example, there is immense pressure in California to own and finance a home. How is SchoolsFirst working to make these loans happen for your members, and how much of the business does it represent?

A: People are challenged by higher interest rates and higher prices. Higher interest rates are good for our members who save, but if you’re a borrower, it’s challenging. You used to be able to get a mortgage for 3%, and now they’re close to 7% and higher. That’s a big difference on a home payment in a high-priced market like California.

Real estate is a huge part of our business—not as much as it was when rates were lower, but we do make a lot of mortgage loans and home equity loans. Most of our real estate team is in Tustin, although we also have operation centers in Riverside and Sacramento.

With first mortgage lending, we do have some flexibility, but the rates are pretty much set by the secondary market. Our rates are competitive, but the difference may not be as much on the real estate side, just because of the way the market works.

What’s different are the fees and the terms of the loans. For instance, we have a special school employee mortgage with a low down payment and no private mortgage insurance requirement. By not requiring them to have that, we’re able to lower their monthly cost quite dramatically.

Q: Do you ever bundle and sell loans?

A: It does happen occasionally, but when we sell a loan, we retain the servicing. The member still comes through us for everything.

Q: Why do you think SchoolsFirst has managed to grow when smaller credit unions have folded or been absorbed?

A: We’ve expanded geographically, and we’ve certainly changed a lot in the products and services that we offer over the 90 years. I actually started on the 80th year of the credit union, coincidentally, and we’ve seen a lot of growth in that time period. But really, since our beginning, we’ve stayed focused on school employees and their families with, as we say in our mission statement, world-class personal service.

Q: What does the future look like for SchoolsFirst?

A: Things are now changing faster than ever, and our member’s needs are changing. Cybersecurity is a huge deal. We have a great team here that protects our system and our servers. And, of course, you can’t open a newspaper or turn on a program without hearing about AI.

In some respects, we’ve been using artificial intelligence in our business for a long time, but it isn’t the same as people. If a member calls with a question, for example, we have an internal pilot that uses AI to help our team quickly find the answer by going through thousands of pages of standard operating procedures. But a person always answers the member’s question.

Continuing to focus on our members and anticipate their needs and look out for their financial wellbeing—it’s what got us to this point. And that’s what is going to make us successful in the future.

Q: Will you continue to expand geographically?

A: Yes. We are expanding geographically in several ways. We provide a wholly-owned subsidiary organization that provides third-party administration services to more than 300 school districts and county offices. That’s expanding statewide as far north as Nevada County. 

We also work with a third party to help us understand where our members are and where there’s potential for growth in terms of our future expansion. We typically add two or three branches a year, so it’s not rapid growth; it’s controlled. Even if people never go into a branch, they like to know that there is one convenient to them in case they need it.

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Bill Cheney

Title: CEO

Organization: SchoolsFirst Federal Credit Union has more than 30 billion in assets and serves 1.4 million school employees and their families. It has 69 branches and more than 300 ATMs statewide. Members can also access a cooperative of thousands of free ATMs there and nationwide.

When he first joined a credit union: “My initial introduction to credit unions was (at the McCombs School of Business at the University of Texas at Austin),” he said. “I worked for the State Property Tax Board and joined the Public Employees Credit Union in Austin, Texas, in the early ’80s.”

How he ended up working for credit unions: After graduating from college, Cheney spent five years at what was then Andersen Consulting.

“One of my clients was the Security Service Federal Credit Union in San Antonio, Texas,” he said. “I worked there off and on different consulting assignments, mostly having to do with technology. In 1987, I was offered an opportunity to work for the Security Service. That was my first credit union job.”

Moving around the credit union world: Cheney moved his family to California in 1997, where he spent nine years as CEO of what was then Xerox Federal Credit Union in El Segundo and another four years as CEO of the California and Nevada Credit Union Leagues. He also spent four years as CEO of the Credit Union National Association in Washington, D.C.

In 2014, Cheney returned to California and settled in Orange County as CEO of SchoolsFirst Federal Credit Union.