TAMPA-What caused GTE FCU to slip into a financial tailspin and lose $74.7 million from 2008 through 2010 would have closed the doors of many businesses-it virtually pulled its products and services off the shelf.
"If you think about it, from a purely academic perspective, we basically closed down the shop," said CEO Joe Brancucci, explaining that GTE FCU during 2008-2009 in the middle of a dire "sand state" economy reacted by cutting back almost completely on lending, dropping deposit rates well below market, and instituting "fees for everything."
Those are obstacles Brancucci and his staff worked diligently to overcome in the last few years to return GTE to profitability. Last year GTE showed $3.9 million in net income.
All of those issues were eating up capital faster than the credit union could shrink, and the cumulative affect was to severely damage GTE's reputation among members and consumers, said the CEO, who took over in July of 2010. Brancucci believes all the fees, which he said took up pages on the credit union's website, hurt GTE the most within its communities. He recalled speaking with a community member when he was in Tampa interviewing for the CEO job. "She said, 'Oh, yeah. GTE, the credit union with the 25-cent debit card fee.' That's how many people thought of the credit union."
Prior to Brancucci coming on board, GTE charged members 25 cents each time they used PIN debit.
Since that time, however, GTE FCU has begun reaching out to the community with its products and services again, and has worked to extend a new, friendly image. After turning the 2011 profit, GTE has begun exceeding its annual loan and member growth goals during the first few months of 2012. Those goals include some aggressive targets-6% growth in each of the following areas: net new members, loan portfolio, net insurance policies, net new assets under management, and "engaged members."
In addition, GTE FCU has set a goal of a 10% increase in youth accounts and a 10% reduction in operating expenses. It reported $1.7 million in net income through March.
Key Steps Taken
To reverse the credit union's fortunes, Brancucci, said some of the key steps taken when coming onboard included quickly creating a strategic plan as well as a capital restoration plan. In 2010 capital dropped to 6.3% from 8.5% in 2007. "If we kept on that same trajectory, we would not have been in existence a year later."
In 2009, the former 690-employee CU shed about 245 staff members and closed 10 branches. The credit union had shrunk assets from $2.2 billion to about $1.5 billion. To get capital growing, Brancucci knew GTE had to begin increasing usage of the credit union, and the first step toward that was to reduce fees, especially in card areas. "We got our members using our credit and debit cards again. Overall, our fees went from about two and a half pages to less than a half-page."
But the most difficult task, acknowledged Brancucci, was to totally rebuild a lending department and start making loans again. Besides instituting risk-based lending and getting rid of all of the loan restrictions, Brancucci said it had to create a loan engine that generated business "organically."
"We had a loan portfolio that was not built out of organic lending, but from opportunities that may have presented themselves in the marketplace," said Brancucci, who said that approach had led to a very troubled loan portfolio-$153 million was written off from 2008 through 2010, including a number of loans to local hotels. Many of the bad loans were for commercial real estate.
GTE had to align staff and add the talent it needed to drive loans again. "In my career," said Brancucci, who came to GTE after serving as COO at the Tukwila, Wash.-based BECU, "this was the most difficult thing I ever had to do. I can fix a lot of problems, but I have never had to organically rebuild a lending department. I think the first month I was here we closed less than $2 million in loans."
Due to the structure of the previous loan portfolio, GTE, while opening up lending again in 2011, saw loan growth decline that year due to runoff of about $33 million per month, plus it sold $70 million in mortgage loans to Fannie Mae.
To back up its entry into risk-based lending, GTE instituted a strong collections program. Delinquencies have dropped to 3.58% from 4.06%, and allowance for loan loss has been reduced to $33 million in 2012 from $45 million in 2010. Last year GTE markedly reduced its loan losses, writing off $19.6 million. "Delinquencies, by the numbers, are still high," noted Brancucci. "But we actually have them under control. Half of our delinquencies are due to foreclosures that have been waiting for a long time to clear through the Florida courts."
In addition to bringing in new management to oversee collections and bankruptcies, GTE instituted its "We Can Help" program to assist members in financial difficulty, finding ways to help members stay in their homes and keep their cars, including restructuring loans. Brancucci said that effort, which has about $50 million in loans in it now, has dramatically reduced delinquencies and write-offs. What has made the program work, said the CEO, is training front-line staff to look for early signs of trouble. So even if a member is current on a loan, if they bounce a check, for example, the member is referred to the We Can Help team, a staff of four.
Rebuilding Trust Starts With Staff
While GTE had to take many steps to win back the confidence of its members, it first had to rebuild the confidence and trust of its staff. "Employees had been subjected to severe cuts in their pay and benefits," said Brancucci. "There had been a 5% across-the-board pay cut in late 2009. When I came on board, we immediately gave the staff an incentive to perform."
When Brancucci arrived, he told staff if capital, which was below 6.5%, exceeded 7%, employees' pay would be restored to levels prior to the pay cut. "We hit 7.25% capital at the end of 2010, and we were looking at gaining new members again and making loans. We had a new vitality around the organization."
GTE also gave staff back the money they lost in 2010 due to the pay cut.
Those carrots were followed in 2011 with a new companywide incentive program that rewards employees when the credit union reaches major objectives outlined in the strategic plan. "Every employee has the same goals that I do, just a different percentage of at-risk salary."
The CEO, too, got more members on board by asking for their input and getting them to take more ownership of the CU. He introduced his monthly "CEO Corner" column into the online newsletter, including a link to send Brancucci feedback.
"We had a great deal of trust rebuilding we needed to do," said Brancucci, who said the only way to do that was to be open and honest with members and employees.
The CEO's Blog
He also started an internal blog, to which he posts three to four times weekly to increase employee communication. In both internal and external communications, Brancucci said he never "sugar coated anything. I talked about what we were going through, the situations we faced, why we faced them, and why we were making changes. I call it eloquent transparency."
GTE now posts its quarterly financial statement on its website. "Our membership knows exactly what's going on," said Brancucci. "We don't hide anything."
The results are not only evident in GTE's return to profitability, but also in the fact the number of "engaged" members-those who use the CU as their PFI-were up last year 25% over 2010.
Brancucci says GTE is well on its way to succeeding in digging out from the mess it was in, but there are hurdles to overcome, such as Florida unemployment remaining high, a terrible real estate market, and some bad commercial loan assets the CU can't shed. But, he says, the negative headlines will turn around for GTE, away from those in 2009 when it limped along and came close to merging with neighboring Suncoast Schools FCU.
"The headlines of our death were premature. There were some in the industry who believed we would not make it through the first quarter of 2011. And, by God, we had pretty good year last year-we just have a pretty good feeling about ourselves again."