TAMPA, Fla. – State regulators last week issued a cease and desist order against Bay Gulf CU, forcing the one-time $217 million credit union that has been hit hard by the region’s real estate bust to boost its allowance for loan losses.
William DeMare, president of Bay Gulf, said the main focus of the supervisory order revolved around a disagreement on ALL calculation on loan modifications, especially with respect to debt restructuring in one of the most troubled real estate markets in the country. As a result, Bay Gulf added $850,000 to its ALL in December and restated its 2009 financials to show a $2.1 million loss for the year. “It’s just huge,” DeMare told Credit Union Journal yesterday. “Our allowance for loan losses account is just so significant in terms of the amount of our loans.”
The supervisory order cites Bay Gulf for operating without adequate polices for accounting for troubled debt restructures and loan modifications. Bay Gulf, which reported an $823,706 loss for the first quarter of 2010, has modified about 700 loans, according to DeMare. Of those 66% are still active, 14% have been paid off and 20% have been charged off.
Under the supervisory order, the Florida Office of Financial Regulation also directed the now-$140 million credit union to increase its net worth ratio, which declined to just 5.2% at the end of the first quarter. The order directs Bay Gulf to increase net worth to 7% within 10 quarters. NCUA also is reviewing the credit union’s net worth restoration plan.
But as with all credit unions, Bay Gulf has few options to add net worth. “There isn’t a lot we can sell,” said DeMare. “We have to raise our capital by holding our expenses to a bare minimum and reducing our loan losses.”
The credit union, chartered to serve the large federal employees population in Tampa, including the Veterans Administration operations, is broadly exposed to the real estate troubles of Florida’s Gulf Coast because it also serves the area’s Realtors, mortgage brokers, auto dealers and recreational vehicle dealers.
