December 4, 2023

To our SESLOC Membership,

As you may have read by now, SESLOC is in the process of seeking a change to a state-chartered credit union. We realize that our letter (the content of which was dictated by legal requirements of the charter conversion process) may have caused you to have some questions that were not answered by the letter. So, let us share with you why we have engaged in this process and why we think it is critical to preserving what is special about SESLOC. But first, we want to share that we are giving members more time to ask questions and consider the vote, so we have extended the member voting period to January 4, 2024. Additionally, we will offer members the opportunity to address the SESLOC Board of Directors and Senior Management at a town hall meeting to take place during the meeting that was already scheduled for December 19, 2023, from 4:00 – 5:00 p.m. at SESLOC headquarters (3855 Broad Street, San Luis Obispo.)

Very few of us ever really like change — at least initially — because of the unknown. Change affecting your credit union is happening both inside and outside our doors. While change is sometimes unwelcome, it is also unavoidable. So, we ask you as members to take the time to read this message to better understand why this charter change is important, not only because it is a change for your credit union, but because the environment in which your credit union operates is changing.

The Board and Senior Management regularly engage in strategic planning for our credit union, examining how to best serve all members, including both our long-time members and our newest members, many of whom are second or third generation SESLOC families. We must grow in order to continue our legacy of member-first financial services, remaining the same SESLOC you rely on and trust. The conversion to a state charter makes this growth easier, providing us more flexibility to add members to our SESLOC ranks through both the addition of members and potential mergers with smaller credit unions that, due to their size, may not be thriving in today’s changing regulatory environment. Thus, after carefully considering what is best for your credit union, over the past 18 months, we have reviewed and completed due diligence for a state charter conversion. We would not make this recommendation unless it was clear that this is the best path for the long-term future of SESLOC. In this message, we will provide more context to the plan of future growth for SESLOC.

We love SESLOC and want it to remain the best, most vibrant, member-focused credit union on the Central Coast for the decades ahead. The Board unanimously requests your support through a YES vote.

What Doesn’t Change

You will still have the same Federal deposit insurance that you have today through the National Credit Union Share Insurance Fund (NCUSIF), with guaranteed insurance coverage to $250,000. This coverage is overseen by the National Credit Union Administration (NCUA), a part of the U.S. Treasury.
There is no change to your day-to-day transactions with the SESLOC, to the branches, to your access to CO-OP ATMs, to Online Banking, or to any other products and services.
There is no change to SESLOC remaining a member-focused credit union, here to support you in person, in our community and online — anytime, anywhere.

Looking at Change

The banking industry has gone through monumental change in the last 20 years, and SESLOC leadership is continually adapting to these innovations. In the last 20 years alone, the shift to digital banking has transformed back-office recordkeeping and computer core systems and enhanced member access through the introduction of online banking, direct deposit, mobile banking and even mobile deposits. Digital or online transactions outpace those made in-person by five times each day. These changes have resulted in exceptional member convenience by providing immediate access and oversight to accounts with online banking services. This convenience has enabled many to skip a visit to the branch, as checks may be deposited on our mobile app and transfers are easily made online between accounts and other third parties. These are all very good changes.

Changes out of our control have had an adverse impact on the credit union in the last 20 years as well. A significant amount of additional resources have been necessary to support compliance within the industry, as required by new laws and regulation.

The events of 9/11 in 2001 prompted the U.S. Government to increase regulations that require all financial institutions to augment compliance programs and staff with a focus on monitoring to detect potential money laundering, terrorist financing, and other suspicious activity, and to expand the verification process for all new memberships.
The housing bust in 2009, which became the Great Recession, resulted in the formation of the Consumer Financial Protection Bureau which further increases monitoring and reporting requirements.
The investments needed for cybersecurity programs and tools to combat hackers and fraudsters is constantly growing, as the sophistication of criminal activity increases and the methods used expand at a rapid pace.

At our Annual Meeting of Members in 2019, we shared that the cost of these types of compliance programs was running about $5 million per year, a fact which is based on a credit union league study that calculated the cost of regulatory impact per credit union member. These compliance programs are a regulated and required part of our infrastructure for safety and soundness. It is a necessary function of our business that will continue to expand, and incurs direct expense with no offsetting revenue. Many of these costs are a burden to smaller credit unions and more so than to large credit unions.

Why Growth?

Through the strategic planning process with the Board, much thought and discussion ensued regarding how best to strengthen SESLOC over the coming years to remain independent in an ever-consolidating banking and financial system. New members are needed to keep a steady influx of new loans and deposits, which spreads the burden of regulatory costs amongst a larger number of people and businesses, thus enabling us to continue our commitment to providing low fees and attractive interest rates. In addition, we must continue to address the needs of younger generations and those with evolving banking preferences to grow a robust and balanced membership base for our future.

The recommendation to convert from a federal to a state charter is not intended for SESLOC to make rapid changes in the short term. The expanded flexibility and regional footprint allows your credit union to grow strategically and thoughtfully over the next few decades. We are not interested in being a credit union that operates across state lines or a credit union that grows just to get big. Our mission remains unchanged. We want to be the best financial wellness partner for our members here on the Central Coast. In the short term, it may mean focusing on growing amongst younger generations and in specific areas that have higher needs for consumer and auto loans. Our approach may also include growth among those who prefer banking digitally with smartphones and other online channels, which won’t require costly brick-and-mortar branches to be built.

We expect the costs of the charter change to be offset many times over by healthy membership growth, including steady growth of younger members who are looking to begin the same journey many of you are already well along; that of participating in a strong, cooperative credit union as their banking choice for years, and even decades, to come.

Sincerely,