Nearly three years ago John Tippets accepted what some said was a losing proposition — trying to turn around North Island Credit Union, then teetering on the brink of collapse.
When he retires for the second time, next month, Tippets can leave knowing he achieved that.
Tippets’ performance was recently recognized by Debbie Matz, chairwoman of the National Credit Union Administration, the federal agency that oversees the credit union industry.
“North Island was one of the credit unions on the brink of failure. I was told there was virtually no way that North Island would make it as a stand-alone credit union,” Matz told the National Association of Federal Credit Unions in July. “But John and his board were not willing to give up. There were a lot of late nights, and a lot of tough choices.”
At the trade association’s annual convention in Nashville, Tippets accepted the CEO of the Year award, insisting that the inscription on the award carried the words, “Island team,” referring to NICU’s brand.
Tippets said he had a number of positive things already in place when he came on board in November 2009, replacing retired CEO Michael Maslak.
Good Management and Systems
For openers, the management team in place was competent and had installed good systems for its operations, he said. The institution wasn’t besieged by lawsuits, had a well-known brand, and had a good performing business loan portfolio, Tippets said.
However, what was deeply troubling was the extent of the credit union’s problem loans, particularly its mortgages and home equity lines of credit.
“We were losing $2 million to $2.5 million a month in loan losses,” he said. “If that continued at that rate, we wouldn’t be in business today.”
Because of the heavy losses that totaled about $100 million over two years, NICU’s net worth fell below the minimum required by regulators. The capital ratio actually dropped below 4 percent, an undercapitalized position that made it subject to federal takeover.
When large credit unions fail, regulators usually merge them into stronger credit unions.
The fact that Tippets was the chief executive at American Airlines Credit Union for 17 years and familiar with regulators and what they were seeking likely helped NICU’s situation, Tippets said.
Boosted Capital Levels
To right the failing institution, Tippets and his board took aggressive steps to shrink its size, which resulted in boosting the credit union’s dangerously low capital levels.
“There’s really no other way to do it. You have to shrink to earn money,” he said.
From about $1.5 billion in total assets in 2008, NICU was reduced to $1.08 billion in assets as of the end of June. It closed seven branches, and cut its staff by about 40 percent, from about 500 people to less than 300. It also became extremely tight making new loans, and stopped paying higher rates on term deposits.
From more than $1 billion in loans, NICU shrank its portfolio to $647 million at the end of June.
After recording net profits in both 2010 and 2011, the credit union is now looking at increasing some types of lending, particularly to small businesses, Tippets said.
“We’re back in the business lending, back in real estate lending and we’re actually having a very good year on the auto side,” he said. Car loans have more than tripled above what they were during the previous two years, he said.
While business lending makes up a small part of NICU’s portfolio, Tippets said he hopes that pending legislation passes to allow credit unions to do more of this.
“You need business loans to balance your portfolio, and this is also good for the community and for small businesses,” he said. “To have more competition out there making business loans is good thing.”
The commercial banking industry actively opposes proposed changes that would increase credit unions’ ability to make more business loans.
While Tippets successor hasn’t been named yet, the “hand-off” to a new leader will happen soon, letting him get to his second retirement.
He leaves the job feeling good about what he and his team achieved, but says the work isn’t finished.
“This has been a fun story to tell,” Tippets said. “But the glass is only half-full…We’re not done yet.”