MIRAMAR, Fla. – State regulators said yesterday they issued a cease and desist order against Eastern Financial Florida CU, the ailing credit union giant, for unsafe and unsound practices as it struggles to dig out from under the state’s growing mortgage crisis.
The March 25 order from the Florida Office of Financial Regulation and consented to by the $1.7 billion credit union details 15 practices the credit union must cease and desist and directed it to raise its diminishing capital level, establish an effective management team and deal with problem loans.
The once-high-flying credit union has seen its assets fall from $2.4 billion over the last two years while reporting losses of $68.9 million for 2007 and $40.2 million for 2008. Net capital declined to 6.5% at year-end 2008, under NCUA’s 7% floor for well-capitalized.
Eastern Financial, the state’s third largest credit union, has not had a permanent CEO since last February’s departure of Stephen McGill amid growing losses. The state ordered the credit union to evaluate all of its executive positions for weaknesses and to hire additional executives, including a permanent CEO.
"We are addressing the concerns quickly and fixing them so we can come out of this recession sooner than other financial institutions," said a credit union spokesman. "We are very proud of the work that our staff has already done to mitigate the impact of the depressed Florida and United States economy."
The state regulator ordered Eastern Financial to charge off any permanent impairment to more than $70 million of collateralized debt obligations it holds, as well as to obtain final appraisals on an undeveloped condominium project called Palladio Terrace that is in foreclosure.
The regulator also cited the credit union for not having enough core deposits to ensure it can meet funding obligations; not possessing adequate loan underwriting standards; carrying an excessive level of concentrations of member business loans; and not having adequate oversight to prevent violations of the Bank Secrecy Act.
Eastern Financial has flown through major crises before, most especially the 1991 bankruptcy and eventual liquidation of its chief sponsor Eastern Airlines, which prompted it to adopt a multiple group charter, and it now serves more than 1,500 select groups.
