RIVERSIDE, Calif. — Sudden losses from its indirect loan program combined with expenses related to the NCUSIF stabilization have led regulators to merge Service Plus CU into the $8-billion SchoolsFirst FCU.
The merger is to be completed by Oct. 31 and follows a decline in Service Plus' net worth to 5.29%.
The $84-million Service Plus serves 9,000 members. Its June 5300 Report reported a net loss before NCUSIF stabilization expense of $1,371,584, plus a stabilization expense of $115,707, for a total net loss of $1,487,291.
Bernie Titus, CEO of Service Plus, told CU Journal the merger was done on an emergency basis on the recommendation of NCUA and the California Department of Financial Institutions, so there will be no member vote. "They looked at our potential losses with real estate loans," she explained. "They weren't losses yet, but in the area where we are, the Inland Empire, a lot of houses have lost a ton of value. Based on their calculations, there were quite a few members whose scores had dropped and they were upside down on their houses. They weren't delinquent on their loans yet, but if they had gone it could have been quite catastrophic."
Another issue that helped drag down Service Plus is its involvement in an indirect lending program. According to Titus, the program went well when the economy was going well, but suffered extensive losses in the downturn.
Prior to the current recession, Service Plus had not previously experienced high levels of loan losses, she recalled. "If we wrote off $10,000 in a month, that was a lot for us. Suddenly, we were writing off $150,000 to $300,000. That was mainly from indirect lending."
Titus said SPCU's board had been contemplating a merger since early last year due to economies of scale and compliance issues. The talk turned serious in July of 2008 when the CU's net worth was at 8%.
When the board made a decision to look for a merger partner, Titus said due diligence included identification of the top 20 performing credit unions in Southern California. "We picked six to interview, and only three of those wanted to be interviewed. SchoolsFirst's CEO, Rudy Hanley, is well known to our board. Our original field of membership was UCR [University of California, Riverside] employees, so we felt this move takes us back to our roots, and we were excited about that. Our two branches fill in a nice gap for SchoolsFirst," she added.
SchoolsFirst's VP of marketing, Derek Longshore, told Credit Union Journal, "We are excited about it and happy to bring new members into the SchoolsFirst family. They are a good fit for us because we serve the same member base-school employees. Also, it is a good fit for us because we wanted to have a presence in the area Service Plus serves."
Service Plus posted a letter on its website dated Aug. 20, from Kevin Ferguson, chairman of the board. The letter said, in part: "In these challenging economic times, we have found it necessary to merge with another credit union that can continue to serve our members' needs. Working closely with our regulators, our board of directors has determined that a merger with SchoolsFirst Federal Credit Union would be the most prudent decision for our members."
Later, the letter said: "We anticipate that this merger will be complete by the end of October. Prior to the conversion of your accounts to SchoolsFirst FCU, you will receive specific information that will prepare you for the transition, including a comprehensive guide that will outline what you can expect.
In the meantime, please continue to conduct your financial transactions at Service Plus CU as you normally would. SchoolsFirst FCU has agreed to maintain the Service Plus CU branch locations, and all Service Plus CU employees will be offered positions at SchoolsFirst FCU."
Titus said the merger will be best for the members of Service Plus, "who will be able to get better rates than we were able to pay."
As for Titus - she will stay on as a "credit union ambassador" until the merger goes through, then she will be retiring in January. "That was my choice," she said. "Every employee and everyone on our management team was offered employment at the same rate of pay or higher, but three of us are older and closer to retirement age, so we will be retiring."
