Turning Around a Troubled Credit Union Put Bruen to the Ultimate Test

By JIM RUBENSTEIN CU Times Senior Correspondent RIDGECREST, Calif. — When it comes to coping with severe adversity in a scandal-plagued credit union and then methodically charting the turnaround, 30-year-old Eric A. Bruen figures he could easily write the faith-based book. “I just love this industry and when I was brought in to face this challenge, it was something I hoped I could handle,” declared Bruen, a CEO described by peers as a passionate guy who ended up helping restore the financial health of the $16 million Searles Lake Community Federal Credit Union. Bruen, the son of First Entertainment Credit Union CEO Charles Bruen, admits there were huge stumbling blocks along the way in fixing the dire conditions at the CU, whose problems a decade ago were climaxed by the firing of eight of the CU’s 10 employees in an embezzlement scheme. That fraud created $673,000 in losses and naturally swift NCUA scrutiny as the agency moved toward merging the institution, which in three months saw member shares drop $1.5 million amidst the glare of extensive negative publicity in this high desert area north of Los Angeles. But financial problems at Searles Lake continued for years after the 1996 losses as a succession of CEOs and NCUA tried to stabilize the CU with outside management and technical talent. At one time NCUA had pushed for a merger with NWC Financial Credit Union, now AltaOne, also of Ridgecrest, but Searles Lake members rejected the consolidation. Fast forward to the spring of 2004 and the hiring of Bruen, whose first CU job in 1997 was as a file clerk at Ralph’s Federal Credit Union in Glendale. That was the same year his father served as chairman of the California Credit Union League. The younger Bruen confesses that the Searles Lake Board “probably was not looking for a credit union manager so young and untested” when it hired him at age 27. But they also saw something special in his CU network experience and recognized the high praise bestowed by superiors at Ralph’s and at Pacific Transportation Credit Union in Pasadena where Bruen did everything from loan compliance to member service. Once on board at Searles, Bruen said he recognized the CU’s shortcomings in technology, the lack of a risk-based loan policy and a poor image in a community hit hard by layoffs and downsizing by one of its biggest employers, the Kerr-McGee mining firm. Crediting his father and former boss at Pacific Transportation CU, Michael Bare, with inspiration and guidance, Bruen said he moved quickly to adopt “a completely different strategy in consumer lending, mirroring Rex Johnson’s University of Lending program, which not only rewarded members but also built relationships for future needs.” In the first 30 days, Bruen revised loan rates as well as both processing and underwriting systems tailoring them to “the idea that you must evaluate the risk of the loan or product before turning someone away from a ‘colorful’ credit history.” The CU also drastically changed its ties with local dealers and began educating members “about what they were buying as opposed to just pushing the loan through.” This brought a high level of member service generating high yield loans with minimal risk. By the end of 2004, the loan portfolio had grown 24% to more than $1.9 million. Assets had climbed by 11% with the CU posting a healthy 0.98% ROA “and the net worth concerns of the previous 10 years appeared close to being behind us as we showed a 6.23% capital ratio,” said Bruen. And now on Feb. 1, Searles Lake marks another milestone when it changes its name to Desert Valleys Federal Credit Union in a move to build a broader community image. But back in 2004 despite gains made by Bruen, there was a “cloud,” or overhang, as the CEO calls it, of dealing with a separate and second $260,000 check kiting loss that came to light just days after he was given the president’s job. “It was to say the least a bit of a surprise when I learned about the check kiting from an NCUA auditor and I also learned about the purchase of land for a new $2.6 million building,” said Bruen. The Searles Lake CEO said he realized that the board’s land purchase was a mistake, ordering a delay in construction of the headquarters building, which now is scheduled for completion in June, five years after it was first proposed. Turning It Around In early 2005, he said, it became apparent the kiting loss would be written off by year-end, but it was also evident “that we were getting stronger every month with interest income rising, deposing growing and service and fee income increasing,” adding “word of mouth was getting around.” In 2005, Searles Lake completed a computer upgrade and purchased new software technology including a check imaging platform from Wescorp. The CU incurred losses of $328,000, but was still able to post a profit of $128,000, equal to an annualized ROA of 2.50%, said Bruen. All the while, Bruen said he worked on improving employee morale, setting up an incentive program. The CU also added an array of new products including a HELOC program, GAP, and overdraft protection. Searles Lake also has a mortgage brokering program, which acts like a CUSO, but serves as an intermediary for members with several different mortgage lenders. Last year Searles Lake posted ROA of better than 1.4% and a third consecutive year with delinquency below 0.4%. Net losses in 2006 were less than $28,000 and the loan portfolio grew another 7% to more than $11.2 million. As to lessons learned and his own success, Bruen said he is grateful to NCUA, the California League and, in particular, to Bare, now CFO at Redwood Credit Union in Santa Rosa, for steering his career at a crucial time and allowing him to enroll at the Western CUNA Management School in Pomona. “This intense three-year program helped educate and shape me in more than words can explain,” he said. His father, Charles, chimes in that he his proud of his son’s accomplishments. The elder Bruen admits he warned Eric against taking the Searles Lake job as too daunting. “My question to him was: why get involved in something that looked pretty terminal?” declared Bruen recognizing that sons don’t always take dads’ advice. But the elder Bruen also recalls his son’s interest in the industry as a youngster “even when I had him with me as we walked around credit union convention exhibit halls.” –[email protected]