Out Of Conservatorship, A Brand New Board Learns To Run A CU

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CUDAHY, Wis.-Communication between credit union staff and members has helped pull Prime Financial CU out of conservatorship-and build a brand-new, seven-member board.

The CU sought to remain connected with its members throughout the turnaround, which reinforced member loyalty and prevented a run on deposits, HB Staffileno told Credit Union Journal. The newly appointed PFCU board chairman also explained that the majority of board candidates were passed along to senior management by branch mangers and front-line staff. "The credit union kept track of people who reached out to them about the issues they were facing. They wanted to identify prospective board members from people who were interested in the credit union."

Some of those individuals were eventually contacted by interim CEO Christine Dawe to explore their interest in serving as a director. In Staffileno's case, Dawe got back to him because he had reached out to her in the summer of 2009 to find out what was taking place as a result of the conservatorship.

The goal was to ID members who had leadership experience and who showed concern for PFCU. Experience in the financial industry was not a requirement. "The rest can be taught," Staffileno said. "When you are creating committees and boards, attention, commitment, and attitude are most important. You don't want to bring in people who will sleep in the corner."

Collectively, the new directors have been PFCU members for more than 130 years; Staffileno for the last five. His background is healthcare consulting. "I have operational experience, doing interim management, which is what I think the credit union found most interesting about me," he said. "I frequently go into situations and quickly assess what is taking place."

The State of Wisconsin Office of Credit Unions took over management of PFCU in March 2009. PFCU's net worth stood at 3.64% at press time, which has it on track to meet its net worth restoration plan, said Staffileno, who emphasized credit for the turnaround goes to management, the staff, and state and federal regulators.

The oldest credit union in Wisconsin, Prime Financial was fortunate to have a supportive membership base. "The credit union built trust with members over many years. That strong relationship maintained members' faith," explained Staffileno, who noted 85% of existing membership have been retained, in large part due to ongoing communication with members about the conservatorship and plans for recovery.

With the takeover by the state, former CEO Rich Koenig was dismissed, as were the other six members of the existing board. Dawe is an outside consultant who has experience stepping in to run financials placed into conservatorship.

PFCU's deteriorating financial condition was due in part to its involvement with the now defunct Central State Mortgage Corp.

While a great deal went into turning around the $144-million CU, at the macro level Staffileno pointed to improved expense control and increased revenue to improve net worth. Three of nine branches have been closed, staff has been cut 15%, and the loan portfolio given careful scrutiny.

"It's the board's job from here," reminded Staffileno. "Replacing the entire board presents a unique challenge. Usually, when board members turn over, the remaining board members help the new directors along. We don't have that."

The board will have a representative from the state regulator sitting in on board meetings until PFCU reaches its net worth restoration target of 6%. The new board also gained experience attending board meetings as director candidates for the last six months. Staffileno said the state regulator and the NCUA will provide training, but a great deal will be up to the new team.

"I personally want to gain a greater level of knowledge about our lending practices," Staffileno said.

According to the new chair, effective board members and board candidates need attention to detail, curiosity, and a responsibility to ask questions. "I can't tell you what happened with the previous board," he said. "But maybe the right questions were not being asked along the way. One thing I naturally do is ask a lot of questions, and the entire board has been encouraged to do so as we sat through meetings the last half-year. In any business, not asking enough or the right questions can lead to problems."

The new board includes a member of the Milwaukee police department, a former school principal, a city worker, and a retired PFCU employee of 44 years. All were reviewed and approved by the state regulator; NCUA has approved five, with two applications pending. The new board comes up for formal member election in the Spring of 2011.

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