When implementing NCUA’s practice of turning around problem credit unions versus liquidations or paying to merge, the key success factor was finding experienced capable turnaround managers. One name was frequently mentioned as an example by NCUA Regional Directors (RD) in this talent quest. Only after leaving NCUA did I meet him.
Jeff Farver was the CEO of San Antonio Federal Credit Union (SACU), now Credit Human, for almost 22 years–July 1990 to retirement January 2012.
In early 1990 Farver was asked by NCUA RD John Ruffin to take over NCUA’s largest problem conserved credit union. By 1995 this insolvent $650 million coop had achieved a 6% net worth.
Becoming a Problem Solver
SACU was not Jeff’s first rodeo. In the 1970’s, he had joined a small Florida bank as comptroller just as interest rate turmoil upended traditional assumptions about investment management. At Eglin FCU in Florida, he resolved a deeply flawed investment strategy as investment manager.
Based on this success he was hired as CEO of Chattanooga TVA FCU. Upon arrival, total assets were earning 8% and the cost of funds was 8.25%. The investment portfolio in 1981 was $5 million underwater due to Fed Chair Volcker’s rapid double digit increase in short term interest rates.
His success in these three previous problem situations caused NCUA’s new Region 5 RD John Ruffin to again reach out to takeover San Antonio Credit Union, the industry’s largest problem case. The credit union was $25 million insolvent with troubled business loans, fixed rate real estate loans underwater and no proactive recovery strategy. He took 90 days to assess the situation and then negotiated a partnership with NCUA to inject a NCUSIF capital note, incentive targets and forbearance for time to implement product and business changes to restore solvency. By yearend 1995 he had achieved his 6% net worth objective set in his workout goals with NCUA.
Recently Jeff shared thoughts from a decade of post-retirement mentoring college business students.
I describe his advice from five decades as balancing the tried and true with the new. A timely quest at the beginning of the year.
A Turnaround CEO’s Learned Wisdom
The reason I bring the balanced scorecard concept is that I do believe in balance! If an organization and its leadership “over-plays” diversification of its customer base and takes away resources and “pricing values” from its existing customers, it is putting at risk the customer base that brought its current success.
Further, the question must be answered how diversification impacts existing customers in the short term and more importantly in the long run. Leadership must articulate the pros and cons of growth for growth’s sake.
In 2000, SACU’s indirect auto lending was 60% of our earning assets and 70% of gross income. I recognized that gas price hikes or recessions could adversely impact our delinquencies, charge offs and financial workout. Also real estate lending was a commoditized market with narrow interest spreads and Interest rate risks causing surges in demand or declines of loan volume.
Entering a New Market
By luck I interacted with several manufactured home lenders in trouble financially. With GNMA’s help, SACU took over the servicing of their GNMA loans, hired their staff and entered this new line of lending.
Months later Jamie Dimon in the Bank One merger chose not to continue the Manufactured Home lending business. I went to Seattle and convinced 34 Western region mobile home lenders to become credit union employees. They generated $200 million in new mobile home loans the next year.
These new business lines generated improved Interest rate spreads, allowing us to pay our existing members better savings & CD interest rates. Moreover, our manufactured home loans averaged 200 basis points less than bank or other lenders’ interest rates.
When I retired in 2011, SACU had $1 billion in indirect auto loans and $1 billion in manufactured home loans. SACU’s diversification was a win for our member savers and our new MH Loan borrowers. It is the cooperative model at its best.
Don’t Forget the Core
The key issue still today is how do mergers, expanded market reach, bank or third party loan acquisitions, and new services provide value to existing members whose loyalty created the basis for further expansion? Without balance, credit unions could lose the relationship advantage that is the basis for their continued success.