SAN DIEGO-The way John Tippets sees things, the economic situation can be summed up by three circles of decreasing size.
The former CEO of $5.4-billion American Airlines FCU in Dallas has come out of retirement to take on the challenge of helping North Island CU rebound from being classified as "significantly undercapitalized" last year by NCUA. The $1.4-billion credit union's former CEO, Mike Maslak, retired Jan. 12, 2009, after more than 21 years at the helm. Tippets took the wheel Nov. 5.
Now charged with the turnaround, Tippets told Credit Union Journal he was not brought in to dress up the credit union for a future merger, and that his goal is to return North Island CU to a viable operation.
"I don't think there is any bias that [a P&A] will be the ultimate outcome," Tippets said. "Both the board and regulators hope we will turn things around. Depending on how well we do and how well the economy goes, we will see what happens. I hope to be here for a year or two and not as a caretaker. My goal is to be a success, however long that takes. It is not going to be easy; it will be a long slog."
In terms of the job ahead, Tippets explained, "I drew a graphic for someone [recently]. I made a big circle with a whole bunch of environmental issues: a national recession with a magnitude not seen in years, unemployment at 10% nationally and 12% in California, and there is a housing bubble-in some places far more extreme than others, but it is especially bad in California. Because of these factors, consumers are going through a lot of turmoil. They are facing cutbacks on their income, so they are cutting back on their spending. It is a different consumer from two or three years ago. Some are going through bankruptcy or foreclosure. Some are doing strategic defaults. And they no longer have their home equity line as an ATM."
The common denominator of all of the factors in the large bubble, Tippets argued, is neither he nor North Island CU can change them. "They are relevant, and they are impacting every credit union, but we can't control them," he said.
The second bubble, Tippets continued, is slightly smaller and contains, "Past decisions impacting our credit union." These include: the problems with the corporate CU system, the need to replenish the NCUSIF, and, "loans made enthusiastically two or three years ago that would not be made today, such as home equity loans on top of subprime mortgages. These are things we can't control because they are in the past, but they do affect us."
Not a 'Turnaround'
The third circle is, "things we are doing and can control," he noted. North Island CU doubled the staff in its collections department, it has "drastically reduced" expenses and it has new marketing initiatives to promote new products. Some of those initiatives were launched prior to Tippets' arrival.
"There are things that are in control of the credit union's management," said Tippets. "I am optimistic and positive. I believe 'turnaround' is the wrong word, because we have not seen the bottom yet. We are working off bad loans and will be for a couple years. Unemployment is and will continue to be a problem - I wish we could get the people in Washington to focus on that. Housing is back to a long-term mean, but there is a 'but' and it is a significant 'but.' Unemployment used to be 5%, now it is 12%, so we can't tell if we are at a 'normal' level where things are stable. I hope we may have bottomed out, but I'm not confident yet.
"'Turnaround' is not the right word," he reiterated. "I refer to moving forward, especially on the things we can control."
Among the cost cutting measures implemented by North Island FCU (including some that began prior to Tippets coming on board): its headcount is down by almost 150 people over the last year; it has closed four branched; the defined pension plan has been discontinued; it is auditing healthcare benefits costs; it subleased a floor in its headquarters building to a tenant, and there is an ongoing effort to find ways to save on equipment, paper and other internal costs.
Don't 'Hunker Down'
Similar to his avoidance of the word, "turnaround," Tippets does not want to hear about a need to "hunker down."
"When you hunker down, your revenue decreases," he asserted. "We are putting in a great deal of effort to rebuild auto loans, but it takes a long time to turn around a ship. The credit union sold its credit card portfolio, so we have designed an unsecured loan product that will compete in that area. The banks are telling us our timing is wonderful, because they are in the process of offending everyone who has a credit card. We are eliminating shotgun marketing and concentrating on rifle marketing, meaning we want our dollars used to be effective. At American Airlines Credit Union we had a savings product that allowed people to ladder one-, three- or five-year certificates, and we are looking into that here."
All of the above initiatives are "tactics," not "strategies," Tippets clarified. "We are going forward on these things and trying to reverse our revenue decline."
Tippets said he became involved at North Island Credit Union after indicating to some friends that he would be interested in coming out of retirement if there were any three-to-six month assignments available, such as at a CU in conservatorship. He said he spoke with several executive recruiters, and after hearing about the North Island position expressed interest. He stressed he was hired by North Island's board, and not regulators.
Many Positives Despite Many Troubles
Despite troubles seemingly besieging North Island from all sides, Tippets insisted there are many positives.
"This credit union has a fantastic brand," he declared. "So many credit unions have changed their brand and have no legacy benefit. North Island is the largest naval and aerospace complex in the country. It is coming up on the 100th anniversary of naval aviation in 2011. We are celebrating our 70th anniversary this year, so we have an attachment. People are still employed and the government is spending money on the military. Some 30% to 40% of our members are attached to our core brand."
Another positive, he said, is the CU, "has unusual strength that I didn't know about coming in. The staff here did a really top-notch job of building relationships, pricing loans, bringing in checking accounts and monitoring accounts. We need to keep that element of the credit union strong. It doesn't mean we are not going to have some business loans go bad, but I'm very impressed with the business side of this credit union."
Tippets even had praise for the federal and state regulators that have descended upon the CU. He said regulators have been "very constructive" in their dealings with North Island. "They have been harsh where they need to be harsh, but they have made some very good suggestions. We are between 2% and 4% capital, and we will stay in that range for a couple years."
According to Tippets, the "canary in the mine" for the health of North Island CU in the months ahead is how it deals with modifications and refinancings in its mortgage portfolio.
"It will be a key indicator as to how we come out of this. We try to keep members in their homes, but if we have to foreclose we are going to try to sell it as fast as we can. We will be focusing on our core: the members, the business owners, our staff, and our relationship with San Diego. We are trying to connect with our strengths."
North Island CU currently serves more than 98,000 members throughout San Diego County.
