MIRAMAR, Fla. – NCUA, which is predicting increasing loss from large credit union failures in the coming months, was trying last week to keep the costs down for the merger of Eastern Financial Florida CU, the largest natural person credit union failure ever.
Officials at Space Coast CU, which has agreed to acquire the one-time $2.4 billion credit union, said last week the deal was a straight merger and is not a purchase and assumption deal that is typical for troubled combinations, and they do not expect to receive any kind of capital infusion from NCUA for taking on Eastern Financial.
Meredith Gibson, a spokesperson for Space Coast, located about 100 miles north of Eastern Financial’s Miami-area base, said the combination with Eastern, which has negative capital of more than $3 million, will dilute its capital from a strong 11% ($188.6 million) to less than 7%. "We are still working out final adjustments but the combined entity will be adequately capitalized (meaning above 6%)," she wrote in an email response to inquiries.
NCUA officials said they are hoping to limit the costs of the Eastern case to the National CU Share Insurance Fund, as the agency is expecting growing costs and the dilution of the fund’s reserves due to the expanded coverage to $250,000 per account to require a $1 billion charge to credit unions later this year. "The final costs are unknown at this point—they will be disclosed in the future," said John McKechnie, NCUA spokesman.
The deal, one of two pending mergers of Florida credit union giants, will create a credit union with about $3.2 billion in assets serving about 360,000 members, with more than 60 branches in Florida. Still, the new credit union will be dwarfed by another one combining Suncoast Schools FCU and GTE FCU creating an institution with almost $8 billion in assets.
Eastern Financial was chartered in 1937 to serve employees of Eastern Airlines, then retooled in 1991 after the liquidation of the failed airline to serve more than 1,500 select groups and nine surrounding counties. But it ran afoul in recent years of the state’s soured real estate market, lending millions to several ill-fated residential developments and investing in what would become a failed exotic mortgage-backed security known as a collateralized debt obligation, or CDO. For 2008 it reported a whopping $113.5 million loss, the second biggest ever for a natural person credit union.
Space Coast CU was chartered in 1951 as Patrick Air Force Base CU serving employees of the space program and now serves eight surrounding counties.
