SAN DIEGO-A time-tested rule of camping is to "leave the campsite in better condition than you found it."

If North Island Credit Union were a campsite, John Tippets would have his merit badge. After retiring from American Airlines FCU in Texas 2008, one year later Tippets was brought in to help turn around the fortunes of "The Island," as it calls itself. There was much turning around to do. In 2008 NICU lost $50.1 million. In 2009 it lost $52.3 million, including $9.6 million in assessments.

After the implementation of numerous cost controls that dramatically cut expenses, and with significant help from a reduction in allowance for loan losses, North Island began to get a little greener. Indeed, its net income for 2010 was $11.4 million, even after $3.1 million in assessments. In 2011 it posted $19.6 million in net income, excluding assessments. It paid $1.8 million to the Corporate Stabilization Fund last year, leaving it with net income of $17.8 million.

North Island's net worth ratio for 2011 was 7.33% ("well capitalized"), up from 5.25% ("undercapitalized") in 2010 and 3.39% in 2009 ("significantly undercapitalized"). Its allowance for loan losses also improved dramatically: ALL was $29.2 million in 2011, compared to $41.9 million in 2010, $62.4 million in 2009 and $40.8 million in 2008.

As he prepares-once again-for retirement, Tippets told Credit Union Journal he has thoroughly enjoyed his time in the San Diego market.

"My peers are Terry Halleck [CEO of San Diego County CU], Marla Shepard [California Coast CU] and Debra Schwartz {Mission FCU]. Those are the credit unions that I share with," he said. "I call them, and sometimes I share with them what I'm doing and sometimes they share with me."


'Out of Town, Out of Touch'

Asked if he viewed the area's other large CUs as competitors, Tippets pointed out credit unions own roughly 10% of the market. "And they are maybe 5% of our competition, so it is all relative. The other credit unions do much the same things we do, and they are all member focused, so there are no big differences. Our bank competitors are out of town, out of touch and out of price."

One of the elements Tippets said he is most proud of from the turnaround of North Island is the restoration of North Island's business lending department. He recalled how the CU suffered from two years "where we had our hands tied behind our backs, unable to make business loans."

"Now we are forming a CUSO, possibly," he said. "We are starting with our member business loan department, plus two credit unions said they would take some participations. That is an example of collaboration that will be good for all credit unions involved. It is good for us to work with other credit unions for the benefit of all."

The idea a a business lending CUSO started late last year with conversations Tippets had with other local credit unions. He said North Island already has done management services for other CUs, including back office documentation on business loans.

"This credit union has an advantage in that we know our business members," he said. "The concept applies even more importantly to the business side than to the consumer side. Business loans have lots of value, are larger in size so they have economics of scale, and they give a better yield than a lot of secured consumer loans right now."

According to Tippets, even in a strong CU market such as San Diego, credit unions are "all small players compared to banks-even Navy (Federal)."

"If we want to be heard in Sacramento, or by regulators, we have to work together," he declared. "My focus during my years here was very internal. I wish I could have been out working more with other credit unions, but I had my priority."


Viable Not Vibrant

North Island is "making a couple hundred thousand every month" in 2012, Tippets reported. He said its loan losses are one-third of what they were three years ago. Working expenses are 45% percent of what they were four years ago. Cost of funds is just 25 basis points.

"So there are lots of positives, but still we have a small margin," he said. "We are viable but not vibrant. The economy is little or no help. Housing prices may have bottomed, but the bottom was really the pits. It probably will take a decade for the housing market to recover."

Local unemployment is still 9.3%, which Tippets said not only is a high number, it misses all the people who have dropped out of the workforce because they have not found a job after months of searching. He said consumers are just not going to be confident while they are worried about their jobs or their spouse's job.

"We can expect to get no help from Sacramento because the state has a budget deficit. California should be a vibrant economy, but it is not," he said.

With no outside assistance coming, Tippets said management and staff at North Island are, "working our tails off to get loans, and now we can see some results. For two or three years we had to be very careful and could only take A or B paper. Now we are doing our job and reaching more of our membership. We have increased our marketing budget, including radio and print media."

North Island's members have been "very loyal" through branch closings, lower-rate CDs and other changes that affected their level of service, Tippets said. The CU's board has looked into giving bonus dividends to reward members who have been loyal. North Island has teamed with a local chain called Islands Restaurants, which has a member of the credit union on its board.

"The bonus dividend ended up being only about $10, which would not have been very exciting for our members," he said. "But with the deal we worked out we are paying the restaurant $10, while the member gets $20 in purchase value. Our name is on the mailing, as is the restaurant's name. It is a nice little surprise for our members who have three or more products with the credit union."

The only catch besides multiple relationships: that the members receiving the divident consider referring North Island to their friends, family and employees.

"This promotion reinforces our great brand name," Tippets declared.


Great Market

San Diego is a "great" credit union market, Tippets said, citing large numbers of young people in the area who understand social media and delivery.

"New York City has three times the population of San Diego County, but we have 50% more credit union assets here," he pointed out. "Most people in New York City are not aware of credit unions. People have to know what credit unions are and how they are different from banks to be successful, and the community here knows credit unions. Some credit unions are on TV, and there is enough of a branch presence that most people see credit unions a couple blocks from where they work or live."

Although many employers have traditionally supported credit unions in the San Diego area, Tippets said he fears some of the smaller CUs may continue to struggle.

"Credit unions have a voice in the marketplace. Mission Federal is known by the school districts and North Island is recognized by people who know the history of the Coronado Naval Base, where we had our start," he said. "This year we have been celebrating our connection to naval aviation. When doing hard, painful things it is nice to have something positive to talk about. It doesn't drive a lot of loan volume, but it is nice. Last year was the centennial of naval aviation, we were part of that. We also part of the college basketball game that was played on an aircraft carrier moored in San Diego Harbor."

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