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K-Fed Bancorp (KFED-NASDAQ) |
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November 14, 2008 Issue |
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The Most Powerful Name In Corporate News and Information. |
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CURRENT ISSUE | COVER ARCHIVES | INDEX | CONTACT | FINANCIALS | SERVICES | HOME PAGE |
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Becoming A Mutual Savings Bank Has Allowed K-Fed Bancorp To Improve Their Products And Services To Better Serve Their Niche Of Kaiser Permanente Medical Care Program Employees In Southern California, As Well As Grow From A $200 Million To An $850 Million Bank |
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President, Chief Executive Officer and Director |
Financial |
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K-Fed Bancorp |
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Kaiser Federal Bank is a federally chartered stock savings association that converted from a federal credit union in November of 1999. Kaiser Permanente Federal Credit Union served employees of the Kaiser Permanente Medical Care Program who were primarily located in California from San Francisco County to San Diego County.
K-Fed Bancorp is a federally chartered stock corporation that was formed in July 2003 as a wholly owned subsidiary of K-Fed Mutual Holding Company in connection with the mutual holding company reorganization of Kaiser Federal Bank. K-Fed Bancorp completed a minority stock offering on March 30, 2004, selling 39% of its outstanding stock raising $55 million in capital with the remaining shares owned by K-Fed MHC.
K-Fed Mutual Holding Company is a federally chartered mutual holding company that was formed in July 2003 in connection with the mutual holding company reorganization of Kaiser Federal Bank. K-Fed Mutual Holding Company currently owns 66.1% of the outstanding common stock of K-Fed Bancorp.
The stock of K-Fed Bancorp is traded on the Nasdaq National Market under the trading symbol "KFED".
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Interview conducted by: Lynn
Fosse, Senior Editor, CEOCFOinterviews.com CEOCFO: Ms. Hoveland, what was the vision when you changed to K-Fed Bancorp? Ms. Hoveland: “When we changed to K-Fed Bancorp, we were looking for a way to improve the products and services for our niche, which happens to be Kaiser Permanente Medical Care Program employees in southern California. As a credit union, we could not do that, we were restricted in a number of areas. As a mutual savings bank, we were able to expand our ability to make a variety of different kinds of loans, especially real estate, even multi-family and commercial loans while at the same time make the income needed to pay the interest rates to build deposits. We were very successful. When we made the change we were not quite $200 million in assets and today our assets are over $850 million, with the same number of employees.”
CEOCFO: Is it still all Kaiser Permanente? Ms. Hoveland: “No, we are now open to the public with the ability to provide banking services to our community. This way we are also open to people who use Kaiser Permanente as their health care provider. We have over 55 ATMs with the majority of them located in Kaiser Permanente medical facilities giving us a lot of visibility. Now 50% of our account holders are what we call the general public and 50% are Kaiser Permanente employees.”
CEOCFO: Why do Kaiser Permanente employees need their own bank? Ms. Hoveland: “We started out as their credit union over 55 years ago and after 50 years, we converted to a bank. To them, we are still their financial institution; some still call us “the credit union”. We can access over 70,000 Kaiser Permanente employees for financial services. That’s a nice niche in an industry where community banking in southern California is almost unheard of.”
CEOCFO: How is the area you are serving faring under the current economy? Ms. Hoveland: “Kaiser Permanente is still doing well because the economic situation has not dribbled down yet to businesses and the worker; it’s getting there, but hasn’t gotten there yet. Real estate is a different arena. We have what we call the Inland Empire, the central part of Southern California, which is away from the beaches where everyone would like to live, but can’t afford the housing. The Inland Empire has been hit the hardest. It was one of the few places available to build new housing and the developers got out there very fast. The houses, built during the height of the market when anyone could get a home loan, sold for more than their true value. As long as the loans were available and the demand for housing increased the area was skyrocketing, it was crazy. Everyone was living on credit, including Wall Street and everyone invested in the premise that the home values would continue to increase. The Inland Empire is the hardest hit because it is the furthest away from the most geographically desirable place to live and it had the most affordable housing compared to the rest of the area here. Orange County and parts of Los Angeles County are still pretty solid and when I say that I’m talking about 15-20% reduction of what we see in our portfolio as far as the home values are concerned. If you have a good loan with an 80% loan to value in this market and had to sell the house the loan is still ok.”
CEOCFO: Clearly, you are doing well because your figures show it; how is business going and how do you continue to be successful? Ms. Hoveland: “Business is good and we are definitely still minding our P’s and Q’s. We are very conservative, always have been, and will remain that way. We have difficulty competing with a couple of the larger banks that have problems with liquidity, because their rates are so high for deposits. However, those banks are also the ones that are the most questionable as far as what their status is.”
CEOCFO: What are the services that you would like to add next? Ms. Hoveland: “We don’t know if there’s too much we want to add right now. We do online banking with bill pay and we have an audio response unit that provides banking for people that do not have computers, but have a touchtone telephone. We have more financial service centers, which are cashless branches with an ATM, than we have cash branches. This model is less expensive. We can put financial service centers in more areas to help the people who need to talk to a person or work though a process, not just cash a check. We have a large number of our own ATM’s and a very active Visa debit/check card program. Our loans are solid. Our loan department is very efficient and we’re working to increase the multi-family real estate loan portfolio now.”
CEOCFO: Do you find that that customers come to you for advice now more than they might with other types of banks? Ms. Hoveland: “That’s what we like to think, that it is the service we provide. The one-on-one personal service that you might not find at a much larger bank that has branches on every corner. Other banks may not really know who you are as an individual or understand your work environment or your pay scale, which is what we know with the majority of our clients.”
CEOCFO: What do you look for in your people? Ms. Hoveland: “We do a very stringent testing process for our employees. We have a basic reading writing and arithmetic test, a cognitive reasoning test and job match tests. If a job applicant scores well in all three areas for the position then we know that we will not only be able to train them, but we will have a good employee. It is a win-win situation. We spend the time training them because we know that they can be successful and they are appreciative and enjoy working here. It is a great environment because everyone can do what they need to do. It doesn’t take two people to do one job, and that’s why we’ve been able to keep the number of employees down.
We believe that the best investment is in our self. When we sold 39% of our stock in 2004 our account holders who had been with us for 10-30 years purchased the majority of it. Most of them do not even have brokers. This is the only stock they own. Part of our premise for having a stock re-purchase program is to help them if they need to sell their stock. The average is from 100-500 shares is for them a large investment.”
CEOCFO: You say that you take a very proactive approach in managing your loan portfolio; what do you do there that may be a little different from other banks that helps you stay on-top of the situation? Ms. Hoveland: “When the crazy types of loans were out there that even Fannie and Freddie were buying, we said that they didn’t make sense. If somebody can’t afford to make a house payment on a fixed rate loan, why would you give them a variable rate that’s going to go up at a later date? Why would you not want somebody to prove to you how much money they make and what their debt structure is? Why would you just assume that the value of that property is going to go up and going to take care of whatever you have loaned on it? How could anyone afford a half a million-dollar house or more which was the low end of the market in Southern California? With the way people were getting seconds, did you know they would get the 80% and then they would go out and get another 20%, sometimes 30%? 110% loans were not uncommon, and they would use the money to pay off their credit cards and go out and run them right up again! The credit issue itself is getting to be horrendous; everybody is living on credit and that’s not good. It is funny money, it is pretend and eventually it has to be picked up. We looked at every loan we originated or purchased with a conservative approach always asking, does this make sense. ”
CEOCFO: What’s ahead for the bank? Ms. Hoveland: “We are going to do what we’re supposed to do. We have a saying around here, “We don’t do or we don’t know”. We will just stick to what we know to do; how to do it, do it right and be what we have always been. We’ll be here another 55 years and hopefully continuing to pay a decent dividend even though the price of stock is just at the mercy of the market. If you’re a bank, you’re a financial institution and you get put in the same pocket as everybody else unless the numbers are stronger.”
CEOCFO: As CEO, what are your activities during the day? Ms. Hoveland: “I handle investor relations and we just finished our annual meetings, one for the K-Fed MHC and one for K-Fed Bancorp. I also manage the marketing for the bank. I have a great team, CFO, Operations Officer, Chief Credit Officer, and Chief Information Officer. I just make sure they all show up and do their job.”
CEOCFO: In closing, what should people remember most when they read about K-Fed?
Ms. Hoveland:
“They should know who we are, because we are strong, solid and safe.
We are young in the eyes of the market, with not much stock to trade, when
all of a sudden we pop up doing something that catches attention, like the
last quarter’s earning. It is the direction that we’re going to go in; we’re
going to continue to improve because we are conservative.”
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“When we changed to K-Fed Bancorp, we were looking for a way to improve the products and services for our niche, which happens to be Kaiser Permanente Medical Care Program employees in southern California. As a credit union, we could not do that, we were restricted in a number of areas. As a mutual savings bank, we were able to expand our ability to make a variety of different kinds of loans, especially real estate, even multi-family and commercial loans while at the same time make the income needed to pay the interest rates to build deposits. We were very successful. When we made the change we were not quite $200 million in assets and today our assets are over $850 million, with the same number of employees.” - Ms. Kay M. Hoveland |
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