Servus Credit Union sails on through economic storm
Servus Credit Union CEO Garth Warner has watched several recessions, economic booms and subsequent oil price slumps come and go since he started his banking career 35 years ago.
In a province where volatile energy prices are traditionally either zooming or swooning, the only reliable constant is change, and adjusting to the crazy fluctuations of the Alberta economy.
That explains why caution and prudence seem to be embedded in Warner’s DNA, even as Canada’s second-largest credit union nears the end of another year of sparkling financial results.
“We’re well positioned to do at least as good as last year and possibly better, which would be a record earnings year,” he concedes. “But we’ve still got another month to go (until the Oct. 31 fiscal year ends) and we still haven’t tallied the numbers for September, so it’s not over until it’s over.”
Got that? Hold off on the bubbly for now. You never know what’s around the corner, especially in a world where the key to higher oil prices rests largely with Saudi Arabia’s insular, autocratic rulers.
One thing is clear. Despite the topsy-turvy nature of Alberta’s economy, Servus has not only survived, it has thrived. It boasts assets of $14.2 billion, steadily rising income, a loan portfolio of $12.6 billion, more than 100 branches in 62 Alberta towns and cities, and 2,400 staffers.
That ranks it second in size only to Vancouver-based Vancity among Canada’s credit unions. Alberta’s second-largest player, Calgary’s Connect First Credit Union, is less than a third Servus’s size, with assets of $4 billion.
Warner, who took over the top job in 2009 after Servus completed a three-way merger, says snapping up smaller credit unions isn’t his top priority these days.
“While we’re open to mergers and acquisitions, that’s not our core strategy,” he says.
“If you do the math, and we have a good year and grow by 10 per cent, that equates to $1.4 billion. There’s only one other credit union in the province (Connect First) that would be larger than that, so it makes more sense for us to simply leverage our franchise and our network and grow organically.”
With roughly seven to eight per cent of Alberta’s retail financial services market and just a handful of branches in Calgary, the province’s largest city, Warner sees plenty of opportunity ahead, once the current downturn runs its course.
In the meantime, with interest rates mired at rock-bottom lows, loan spreads compressed, energy investment sinking like a stone, Alberta’s housing sector struggling and car dealers, restaurants and hotel owners now feeling the impact of the oil price slump, Warner has no delusions.
It’s likely to be a tougher slog over the next 12 months, he says.
“Certainly this is not 2008. There is no banking crisis or global panic. At least not yet. In 2008-2009, the price of oil fell very quickly, but then bounced back quickly. Prices got down into the low 30s, but didn’t stay there very long. This time it has stayed down and I think we’re coming to the realization this may last a little longer.”
Since oilsands investment has also plunged, Warner worries that could hinder the pace of recovery even after oil prices start climbing again, just as Ontario’s manufacturing sector has sputtered due to a loss of capacity.
“Each year we’re seeing less and less investment going in. So if we get too many years stacked up where they’re not investing, then when the oil price does turn up, it’s going to take much longer to pull us out of this,” he warns. “It’s not like turning on a switch. I think we could see something very similar here.”
Meantime, there are some benefits to slower growth. Warner expects the cost of adding new branches to come down, as land purchase costs decline and wage pressures moderate for skilled tradespeople.
No matter how bumpy the road gets over the next year or two, Warner has no doubt that Alberta’s economy will do what it always does: bounce back, along with the price of oil, leading to a resumption of strong growth.
“Our economy is always a bit of a roller-coaster. It goes up and it goes down, but the high points of the cycle far outweigh the downturns. It’s kind of like our weather. Just be patient and it will change,” he says.
“As much as (some people) don’t want oil to be a key component of the energy sector, the reality is that it is, and it will be for some time. Worldwide consumption is always increasing and at some point supply and demand will kick in, and the price of oil will come back.
“When it does, the province will grow and be strong again. Long term, I am always optimistic about Alberta.”