MIRAMAR, Fla. – In the latest effort to combine two credit unions with losses, Space Coast CU announced yesterday it has agreed to acquire the failed Eastern Financial Florida CU to create the state’s third largest credit union and one of the largest in the nation.
The deal will put strains on Space Coast because Eastern Financial ended the first quarter with negative capital of $3.5 million, unless NCUA agrees to put some money into the merger. While Space Coast ended the first quarter with more than 11% capital, any merger without NCUA assistance would deplete all of its excess capital.
The merged institution must have a net worth-to-asset ratio well above the NCUA’s required 7% for a well-capitalized institution. Together, the two credit unions will have about $220 million in net worth for a 6.7% ratio based on their combined $3.29 billion in assets.
Eastern Financial, chartered in 1937 to serve employees of Eastern Airlines, has been on a steady descent the past two years, which culminated in a $133 million loss for 2008. The losses were trimmed to $4.5 million for the first quarter of 2009.
Space Coast, which eked out $361,092 in net income on its $1.7 billion in assets last year, reported a $11.7 million loss for the first quarter, comprised of a $3.2 million operating loss and an $8.5 million charge for its share of the corporate credit union bailout, and a 3.3% delinquency ratio.
The plan to meld two large credit unions with losses is being tried across the state with Suncoast Schools FCU and GTE FCU working on a merger too. Suncoast Schools had a $76.7 million loss for 2008 and a $53.6 million loss for the first quarter; while GTE had a $27.5 million loss for 2008 and a $21 million first quarter loss. Tom Dorety, president of Suncoast Schools, told The Credit Union Journal their merger is on track and the respective staffs are currently engaged in due diligence.
The combination of ailing credit unions is being undertaken elsewhere, in California especially, as the spreading crisis among credit unions had severally reduced the number of large, well-capitalized credit unions that are able to absorb large, troubled credit unions.
The combination of Space Coast CU and Eastern Financial will create a credit union giant with more than $3.3 billion in assets and serving more than 400,000 members, most of them in Florida.
A team of ten senior managers from Space Coast, located 100 miles north of Eastern Financial, were at the Eastern Financial credit union yesterday performing due diligence.
"This merger will provide members of both credit unions with an expanded service area that provides branches and ATMs along the I-95 corridor and beyond," said Doug Samuels, president Space Coast, in a statement yesterday. "We are also excited about being able to apply the operating efficiencies SCCU has built to the new, larger credit union, and ensure that the member-owners receive a good return on their investment in the cooperative."
Meredith Gibson, a spokesperson for Space Coast, said despite several problems, they believe Eastern Financial has a viable structure and a valuable franchise. "They have tremendous strengths," she said, adding that NCUA approached Space Coast for a possible combination because of the credit union’s management strengths.
Space Coast was chartered in 1951 to serve employees working on the space program at of what was then known as Cape Canaveral and now serves more than 1,000 select groups.
Eastern Financial made itself over after the 1991 bankruptcy and liquidation of Eastern Airlines and now serves more than 1,200 select groups.
