Editor's Note: This is the first of three stories detailing how three credit unions that had been losing money and even operating under conservatorship turned themselves around. Their stories were shared during NAFCU's annual meeting in Nashville. CUToday.info will profile all three this week. The first in this series, featuring Arlington Community FCU, can be found here.
NASHVILLE–Keys Federal Credit Union found a unique reason to celebrate its 75th anniversary: it emerged from a six-year conservatorship.
Today, the $128-million CU based in Key West, Fla. has returned to health, especially considering where it had been. And where it had been was nearly to the end of the highway for which Key West is famous for different reasons. Its turnaround story was shared during a panel session at NAFCU’s annual meeting.
Scott Duszynski, the president and CEO of Keys Federal who was hired to lead the turnaround, said the CU’s problems began in large part with its board of directors.
“There was some pretty severe infighting within the board,” he said, noting that at the time the disputes were beginning to fester Keys Federal had 9.25% capital. “They had some basic disagreements over the direction of the credit union,” he said. “Our CEO left, involuntarily, and they started down the road to high expenses. Four of the seven board members figured out that too much was being spent, and they decided to sign a voluntary conservatorship order.”
With the voluntary conservatorship in place, Keys Federal took an involuntary blow when the Florida Keys were hit by Hurricane Wilma. “We had about 70% of the auto loans in the Keys at the time. The storm surge was eight feet, and cars and salt water don’t mix at all. We had two Geico reps in our offices writing check for a month. Almost 80% of our loan portfolio turned over in two months.”
Then, like credit unions everywhere, Keys Federal was hit by the financial crisis and the losses began to mount: $1.8 million in 2008, $4.8 million in 2009, and more than $5 million in 2010. In July of 2009, delinquencies had spiked to 5.57%.
Not surprisingly, NCUA and Keys FCU itself were searching around for a merger partner. And then the agency had a surprise: “They said, ‘We think you can give this a go,” said Duszynski.
Hard Choices
Giving it a go meant making some hard choices, including:
- FTEs were reduced from 59.5 to 36
- It combined two branches into one and closed two others
- It eliminated the 401(k) match, salary salary and inventive programs
- It sharply reduced dividends (even to this day its deposit rates remain low, said Duszynski, and its current cost of funds is nine BPs)
- It eliminated all travel
- It renegotiated all contracts
According to Duszynski, in September 2009 67% of Keys Federal’s assets were in long-term mortgages. It has since reduced its concentration by focusing on consumer loans, car and boat loans, and loan consolidations. It also reinstated its card program.
From left, Karen Rosales, Scott Duszynski and Dan McGowan.
All of those strategies are paying off for Keys Federal. As of March, its loan portfolio showed long-term mortgages had been reduced to 37% of the overall mix, consumer loans were $54 million as of March 2016 vs. the $19 million in March 2012; card balances are now 5% of its portfolio, and its loan-to-share ratio stood at 86%.
More Important Than Metrics
But there’s something more important than those metrics, stressed Duszynski.
“Employees are key,” he said. “When you have employees who are not earning salary increases, there are no incentives, there was a threat to the credit union disappearing, you have to somehow keep their morale up. So you have to give them short-term, attainable goals, and when they met them we could only do things like bring in breakfast for them. You must show that you believe when you are going to get through this. There is no way we can fail. You have to stay positive no matter what. We had interactions with the NCUA throughout this that were a little rough, but most of our staff never knew it.”
Employees were also critical to something else that was critical to its turnaround, said Duszynski: community involvement, which he called “huge.” In 2012, with 36 FTEs, staff provided 362 hours of community involvement. In 2015, it did 588 hours with 41 FTEs. Those hours do not include its participation in numerous community organizations.
Working to Put Lid On Assets, But...
Today, Duszynski said Keys Federal is working to keep its assets flat, although it has seen 29% consumer loan growth in 2016.
“We have maintained a low net operating expense, or at least low for us, of 3.58%,” said Duszynski.
Delinquencies are at 0.17%, and it has increased net interest margin by rebalancing the balance sheet by 150 basis points over three years.
And the credit union’s net worth, which once sunk as low as 2.86% is now back to 7.03%.