GTE Federal Credit Union’s ($1.5B, Tampa, FL) net worth ratio has historically been lower than national and peer averages. In the second half of the decade, the ratio reached its peak of 8.60% in the third quarter of 2007. By that point, there was turmoil in the financial markets, and home prices were slipping in markets across the United States. That quarter also marked the point where the Florida Home Price Index registered an annual decline for the first time since 1995. Since that time, the management team at GTE has endured continued home price declines in Florida, an increase in the state’s unemployment rate to 12.0%, and other industry shake-ups.
Joe Brancucci mentions earlier in this profile that the first goal he set upon arriving at GTE was to reach a net worth level of 7.10% by year-end 2010. “The staff didn’t believe it because at that point, we were in the mid-sixes and deteriorating,” he says. “We closed the year at 7.25%. But, that didn’t mean we didn’t need to make some other hard decisions such as right-sizing the organization.”
The Florida housing market has seen further deterioration, but it’s definitely slowed down. We’ve had a couple of quarters of improvements. It’s leveling off. And we’re looking forward to better days.
Managing the delinquent loan portfolio to minimize losses that would further deplete reserves was critical to GTE’s improvement. While delinquency peaked at 4.56% in the third quarter of 2010 (around the time of the peak in Florida’s unemployment rate) the charge-off ratio peaked 18 months prior, in the first quarter of 2009.
Helping members and maintaining a sustainable credit union recovery are not opposing actions. Troubled debt restructures (TDRs) account for 10.4% of the credit union’s loan portfolio, which is nearly 10 times the United States credit union industry average.
Beyond mitigating losses, the credit union did adjust its asset base. At its highest point, the credit union held nearly $2.2 billion on its balance sheet. At the end of the first quarter of 2011, that had slipped to $1.48 billion. Beyond just size, asset composition at the institution also changed. Now the credit union is more liquid, with just under 70% of its assets as loans. Four years ago, that figure was 84.0%. This changing dynamic is not isolated to GTE Federal Credit Union. With the credit crisis, capital constraints, and now the challenge for loans, 81% of credit unions have seen net loans as a percentage of the balance sheet decrease since 2007.
At year-end 2010, GTE posted a net worth ratio of 7.25%, well above its goal of 7.10%. As of March 31, the ratio had slipped slightly due to strong asset growth driven by member savings – a sign of renewed trust and commitment to the organization. This influx of shares in the first quarter is also a return to normalcy – an environment GTE staff is welcoming.