Turnaround Story: CEO Shares Details

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SAN FRANCISCO-GTE Federal Credit Union was on the brink of having to close its doors a year ago. But an influx of new talent and a change in focus has led the CU back to profitability.

That was the message from Joe Brancucci, president and CEO of GTE FCU, and Brad Hines, chairman of the board for the $1.4-billion credit union that serves 187,000 members, primarily in the Tampa, Fla., area.

Hines noted the former telephone company employees' CU experienced fast growth in the 1990s, but the Florida real estate bust that began in 2007 and continues to today hurt the credit union "badly."

"We had big losses in 2008 and 2009," Hines told attendees of NAFCU's recent Annual Conference here. "We had lost sight of what is most important-our members. The credit union had lost its focus. Examiners were mad at us, members were mad at us and employees were mad at us."

Downhill Fast

Brancucci said, once events started, they went rapidly south at GTE FCU. "There was no way to address all of the bad things that were happening, such as delinquencies."

How bad were the CU's financials?

In 2008 the credit union lost $27.3 million, though its net worth ratio remained in "well capitalized" territory at 7.9%.

The next year it lost $44.8 million, including a $12.3 million NCUSIF assessment. It had $55.5 million in delinquent loans and placed $43.3 million in allowance for loan losses. Its net worth ratio dipped to 6.3%, making it "adequately capitalized."

By 2010, GTE FCU had net income of $1.1 million before assessments. It paid $1.6-million to the NCUSIF and $1.9 million to the corporate stabilization program, leaving it with a loss of $2.4 million. Its net worth ratio then recovered to 7.25%, or "well capitalized."

In the first quarter of this year, the CU posted net income of $699,261. Its net worth ratio was 7.41%. (Second quarter financials were not available at press time.)

Failure To Communicate

When Brancucci was hired by the GTE FCU board to turn things around in summer 2010 it was the fourth workout assignment in his career. He said in most there were problems with cooperation between the board and the CEO. "For a board to ask how things are going once a year, it is too late," he assessed. "There needs to be an ongoing relationship that needs to be worked on."

New Talent

When Brancucci moved into the post he said it took him 60 days to understand the organization, the community and what the board wanted. He said it was important not to wait for a big event such as an NCUA examination, but to look for small things to fix. The most pressing problem in GTE FCU's case was that capital was below 7%, he said, prompting a need for a capital-restoration program.

His solution: get employees involved by offering to restore a 5% pay cut that had been imposed on the staff-plus bonus-if the credit union's capital ratio was restored. He acknowledged increasing salaries and paying a bonus is contrary to what most companies do when facing a financial crisis, but he needed to rally a dispirited bunch.

Employees who are engaged when they come to work want to solve members' problems, he said. Telling people they should be happy they have a job is not the answer.

"When we focused on members and employees, things started turning around," Brancucci recalled. "We brought in a lot of new people. Eighty percent of our vice presidents have turned over, and 57% of the staff is new from when I started. The new staff made a difference because we needed new talent. The only break we have had is getting the staff on board and getting them to believe in what we were doing."

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