DETROIT — NCUA called it quits last week on another credit union failure tied to real estate loans in south Florida, agreeing to sell Huron River Area CU, a once $320-million credit union, to Detroit Edison CU.
As part of a so-called purchase and assumption, NCUA will assume $170 million of loans the Ann Arbor, Mich.-based CU held in the Florida communities of Cape Coral and Lehigh Acres, just as it did when its sold New Horizons Community FCU in June, and as it will do when it finalizes a deal to sell Colorado-based Norlarco CU.
The assumption of the Florida loans leaves NCUA with more than $400 million of loans made in the Florida developments, much of them defaulted on or in delinquency. NCUA wasted little time in moving to shed the loans last week, putting $26 million of the Huron River Area loans, about 100 mortgages, on the market through DebtX, a Boston broker of distressed loans.
The sale of Huron River Area CU was fortuitous for Detroit Edison CU, a $485-million, single-sponsor credit union that has been planning to expand through merger for the past two years. In fact, the 63-year-old credit union had been looking at Huron River Area as a possible merger-mate until the CU's troubles arose earlier this year, according to William Thiess, president of DECU.
The deal gives the 20,000-member Detroit Edison, which only has a single location, 37,000 new members, seven new branches, and a going franchise, according to Thiess. "Huron River was a very profitable credit union and everything was good until they got into these type of investments," he said, referring to the Florida loans.
The bidding for Huron River Area began in August when NCUA invited nine credit unions to a meeting. Serious bidders were invited back to conduct comprehensive due diligence. But the bidders were limited to only those credit unions with high capital ratios because the troubles in Florida had wiped out all of Huron River Area's capital, which reported a $60 million loss for the first three quarters of the year. Detroit Edison, with 14% capital, was one of the finalists.
NCUA, as it does in a typical P&A, agreed to assume all of the troubled assets, including the Florida loans and Huron River Area's wholly owned CUSO which made the loans and faces millions of dollars in legal liabilities. "The books were pretty much scrubbed clean," Thiess said.
The agency also agreed to pay Detroit Edison to cover the negative capital. Neither Thiess or NCUA would disclose how much the payment was.
Detroit Edison was one of the few single sponsor credit unions left in the country, serving employees and family members of the electric utility and its subsidiaries. Because field of membership penetration rates exceed 90%, the board had been exploring ways to expand and had settled on potential mergers in the area. Huron River Area was in their sites when NCUA and state regulators took the troubled credit union over in February to try and resolve the Florida loans. "We were ready to make that phone call," said Thiess, who said they notified both NCUA and the Michigan Office of Financial and Insurance Services of their interested throughout the conservatorship.
To facilitate the merger, Detroit Edison is amending its bylaws to serve eight surrounding counties, which are already served by Huron River Area. Under Michigan law, the credit union will be able to retain its select groups tied to Detroit Edison and also serve the new community FOM.
The CU will eventually change its name to reflect its new FOM, but until then, the branches of Huron River Area will be known as Huron River Financial, a division of Detroit Edison CU.
Immediately following the merger agreement, Thiess and his staff moved to support the beleaguered Huron River staff, which has been under the gun since the regulatory takeover. Thiess said they re-hired the 87 employees and Huron River Area and have plans to hire more staff.
Separately, NCUA is expected to announce a similar P&A any day for Norlarco CU, the once $340-million Fort Collins, Colo., CU also weighted down by Florida loans. The three bidders for Norlarco are Ent FCU, Bellco CU and Public Service CU.
New Horizons Community FCU failed mostly because of its exposure to subprime auto loans made through Centrix Financial, but had a small portfolio, about $3 million worth, of loans in the two south Florida developments. The remnants of the credit union were sold off in a P&A in June to Security Service FCU, a San Antonio, Texas, based credit union with a large presence in Colorado.
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