Here is an article that will appear in the Tampa Bay Business Journal this Friday (March 6, 2009)
The boards of directors of two of the biggest credit unions in the United States, and the two market leaders in the Tampa Bay area — Suncoast Schools Federal Credit Union and GTE Federal Credit Union — have signed a letter of intent to merge the two credit unions.
If finalized, it would be the biggest merger ever of two credit unions, according to the Credit Union Journal , a trade publication.
Tom Dorety, president and chief executive of Suncoast Schools, and Wendall “Bucky” Sebastian, chief executive of GTE, said the proposed merger is subject to satisfactory due diligence review and regulatory approval. A final decision on whether to go ahead with a merger is still months away, Sebastian said, as the boards of each credit union review financial information and develop a business plan. If regulators approve, GTE members also would likely be asked to ratify the plan.
No decision has been made on a name or management for a combined organization, Dorety said. The letter of intent came after exploring the value of a merger to members.
“It provides them immediately with greater access to services. It enables us to have more resources to deliver products and services to members, and to do expansions more quickly in the future,” Dorety said.
While some economies of scale would result, no layoffs or branch closing are expected. The footprints of the two credit unions are unique with GTE stronger to the north and east of the Bay area and Suncoast stronger to the south of the Bay area. There are a few branches within a couple of miles of each other, but those happen to be each credit unions’ busiest branches, Dorety said. “What we expect is the combined entities will have more ability to grow,” Sebastian said.
Losses played no role
Combined, the two credit unions would have $7.8 billion in assets, based on their assets as of Dec. 31, and nearly 675,000 members, according to reports filed with the National Credit Union Administration. The combined organization would be the 5th largest credit union in the United States, Sebastian said.
The merger comes on the heels of each of the credit unions’ huge 2008 financial losses in the fallout from the mortgage meltdown and credit crisis. Suncoast Schools lost $76.7 million and GTE lost $27.5 million last year, reports filed with the NCUA said.
The losses did not play a role in the merger discussions, both executives said.
“If these were boom times, I think we would still be talking about this and making the same decision,” Dorety said.
Credit unions nationally reported a consolidated loss of $2 billion for the fourth quarter, the first quarterly loss ever for the industry, the NCUA said.
Suncoast, with $5.9 billion in assets and 471,441 members as of Dec. 31, is the seventh largest credit union in the United States. Headquartered in Tampa, it operates 50 full-service branches in 15 Florida counties.
GTE, with $1.9 billion in assets and 203,376 members as of Dec. 31, also is headquartered in Tampa and operates 38 branches in Florida, one in Louisiana and one in Maine, according to its Web site.
Wednesday, March 4, 2009
Friday, February 13, 2009
Tampa Bay Business Journal - Revision of the Rules
Tampa Bay is a hotbed for credit union activity. We have four credit unions over $1B and competition exists. Here's an article that appeared in the local Business Journal:
As credit union losses mount and their capital erodes, the CEO of GTE Federal Credit Union wants to revamp the institutions.
Statewide figures won’t be released until late February, but credit unions in Florida are expected to report a collective loss for the 2008 fourth quarter, similar to the loss reported in the third quarter ended Sept. 30 when 187 Florida credit unions lost a combined $32.3 million, according to the National Credit Union Administration. The red ink swelled as credit unions set aside more money for loans that could go bad.
In response, GTE chief executive Wendell “Bucky” Sebastian is proposing a new kind of financial services cooperative charter that he said would better suit some credit unions. The plan has attracted growing interest since Sebastian unveiled it in November, as regulators and lawmakers look for ways to bolster financial service institutions hit hard by the mortgage meltdown and credit crisis.
Still, Sebastian conceded, the plan hasn’t yet caught fire with legislators.
A new framework
The idea is to establish “federal financial service cooperatives” with no lending restrictions and with the ability to accept outside capital, which credit unions currently cannot do. In return, the cooperatives would agree to cap CEO compensation and would pay corporate-rate taxes on income in excess of operating expenses, dividends and reserves.
Credit unions’ tax-exempt status has been a sticking point for many bankers for years.
The key, Sebastian said, is the new cooperatives would remain not-for-profit and member-owned, aligning the interests of top executives with those of their customers.
“There would be no motivation to raise fees or sell a product the customer doesn’t need,” Sebastian said. “We would not do anything that disadvantages the customer because they are our member-owners.”
No credit union would be mandated to accept the new charter, but the proposal is an option that might make sense for some credit unions that are interested in doing more commercial lending or that want to raise capital, said Chip Filson, president of Callahan & Associates, a Washington-based credit union research and consulting firm.
“The measure of an institution’s viability isn’t a one-year profit or loss,” Filson said. “It would be hard to be operating in Florida or southern California and not be impacted by events there.”
Well capitalized
Losses eat into a credit union’s capital, which comes primarily from retained earnings. But Filson said Florida credit unions remained well-capitalized at the end of the third quarter with $4.4 billion in total capital, or nearly 11 percent of their $42.1 billion in total assets.
Credit unions are considered “well-capitalized” at a capital ratio of 7 percent or higher, Sebastian said.
GTE, with $1.9 billion in assets, had a fourth quarter loss of $5.6 million and lost $27.5 million for all of 2008. Only Suncoast Schools Federal Credit Union, with $5.9 billion in assets, posted bigger losses — $24.8 million for the quarter and $76.7 million for all of 2008 — in the fallout from a land fraud case in Lee County.
“While we lost money, we were well-reserved,” with almost 8 percent of total assets in reserve, Sebastian said. A slowdown in lending, driven in part by less loan demand, boosted the reserve ratio, he said.
Nationwide, credit unions are lending for real estate, credit cards, auto loans and student loans, Filson said. And, Filson said, the biggest credit unions in the Tampa Bay area, including Suncoast, GTE and Grow Financial FCU, are actively rewriting and modifying loan terms when members make a good faith effort to repay the loans.
mmmanning@bizjournals.com 813.342.2473
As credit union losses mount and their capital erodes, the CEO of GTE Federal Credit Union wants to revamp the institutions.
Statewide figures won’t be released until late February, but credit unions in Florida are expected to report a collective loss for the 2008 fourth quarter, similar to the loss reported in the third quarter ended Sept. 30 when 187 Florida credit unions lost a combined $32.3 million, according to the National Credit Union Administration. The red ink swelled as credit unions set aside more money for loans that could go bad.
In response, GTE chief executive Wendell “Bucky” Sebastian is proposing a new kind of financial services cooperative charter that he said would better suit some credit unions. The plan has attracted growing interest since Sebastian unveiled it in November, as regulators and lawmakers look for ways to bolster financial service institutions hit hard by the mortgage meltdown and credit crisis.
Still, Sebastian conceded, the plan hasn’t yet caught fire with legislators.
A new framework
The idea is to establish “federal financial service cooperatives” with no lending restrictions and with the ability to accept outside capital, which credit unions currently cannot do. In return, the cooperatives would agree to cap CEO compensation and would pay corporate-rate taxes on income in excess of operating expenses, dividends and reserves.
Credit unions’ tax-exempt status has been a sticking point for many bankers for years.
The key, Sebastian said, is the new cooperatives would remain not-for-profit and member-owned, aligning the interests of top executives with those of their customers.
“There would be no motivation to raise fees or sell a product the customer doesn’t need,” Sebastian said. “We would not do anything that disadvantages the customer because they are our member-owners.”
No credit union would be mandated to accept the new charter, but the proposal is an option that might make sense for some credit unions that are interested in doing more commercial lending or that want to raise capital, said Chip Filson, president of Callahan & Associates, a Washington-based credit union research and consulting firm.
“The measure of an institution’s viability isn’t a one-year profit or loss,” Filson said. “It would be hard to be operating in Florida or southern California and not be impacted by events there.”
Well capitalized
Losses eat into a credit union’s capital, which comes primarily from retained earnings. But Filson said Florida credit unions remained well-capitalized at the end of the third quarter with $4.4 billion in total capital, or nearly 11 percent of their $42.1 billion in total assets.
Credit unions are considered “well-capitalized” at a capital ratio of 7 percent or higher, Sebastian said.
GTE, with $1.9 billion in assets, had a fourth quarter loss of $5.6 million and lost $27.5 million for all of 2008. Only Suncoast Schools Federal Credit Union, with $5.9 billion in assets, posted bigger losses — $24.8 million for the quarter and $76.7 million for all of 2008 — in the fallout from a land fraud case in Lee County.
“While we lost money, we were well-reserved,” with almost 8 percent of total assets in reserve, Sebastian said. A slowdown in lending, driven in part by less loan demand, boosted the reserve ratio, he said.
Nationwide, credit unions are lending for real estate, credit cards, auto loans and student loans, Filson said. And, Filson said, the biggest credit unions in the Tampa Bay area, including Suncoast, GTE and Grow Financial FCU, are actively rewriting and modifying loan terms when members make a good faith effort to repay the loans.
mmmanning@bizjournals.com 813.342.2473
Sunday, February 8, 2009
Corporate Credit Union Stabilization Program
Following is the text from a letter written to the NCUA Board, addressed to the Chairman, about the Proposed Corporate Credit Union Stabilization Program. We must make every attempt to mitigate the severe negative impact this Program will have on Credit Unions.
Thank you for the opportunity to comment on the NCUA’s current ANPR on the Corporate Stabilization Program. I have discussed the proposal with a number of colleagues and listened intently on a conference call yesterday, conducted by the Credit Union National Association. With the uderstanding that there may be some minor legislative changes necessary, I’d like to suggest that the Agency consider the following points brought forth by a respected colleague:
Place US Central Credit Union into Federal Conservatorship, immediately, and do the following:
1. Charter a New US Central Federal Credit Union and appoint new officials (professionals and volunteers).
2. Authorize the Central Liquidity Facility to borrow money on their existing line of credit from the US Treasury in an amount needed to purchase all of the US Central Credit Union’s investments at book value. This assumes that the investments were AAA rated when purchased, are performing and will pay par at maturity.
3. Give the present US Central Credit Union one year in conservatorship to let its natural person credit union members find new vendors or other Corporates to provide those services presently available from US Central.
4. After one year liquidate the present US Central CU. Let all of the reserves, if any, remaining when US Central liquidates be transferred to the new US Central Federal Credit Union.
5. The New US Central Federal Credit Union holds their purchased securities (from US Central Credit Union) and allows them to mature and be redeemed. If the NCUSIF pays the New US Central Federal Credit Union’s operating expenses, its balance sheet will consist of cash, investment and notes payable to the CLF.
6. The New US Central Federal Credit Union simply ignores the AICPA’s various FASB rules. It will be a government owned and operated facility. As such, it does not need a Certified CPA Audit.
7. Once The New US Central Federal Credit Union has “cashed in” all of the investments at their maturity then determine a final loss, if any. Natural Person Credit Unions would then either pay the deficit, after enjoying the time value of money for years; or NCUA could charge a premium on an annual basis starting immediately; or charge the loss to the NCUSIF and bill additional premiums. We believe each of these options will be less costly than the current proposal.
Thank you for your time and consideration.
Comments?
Thank you for the opportunity to comment on the NCUA’s current ANPR on the Corporate Stabilization Program. I have discussed the proposal with a number of colleagues and listened intently on a conference call yesterday, conducted by the Credit Union National Association. With the uderstanding that there may be some minor legislative changes necessary, I’d like to suggest that the Agency consider the following points brought forth by a respected colleague:
Place US Central Credit Union into Federal Conservatorship, immediately, and do the following:
1. Charter a New US Central Federal Credit Union and appoint new officials (professionals and volunteers).
2. Authorize the Central Liquidity Facility to borrow money on their existing line of credit from the US Treasury in an amount needed to purchase all of the US Central Credit Union’s investments at book value. This assumes that the investments were AAA rated when purchased, are performing and will pay par at maturity.
3. Give the present US Central Credit Union one year in conservatorship to let its natural person credit union members find new vendors or other Corporates to provide those services presently available from US Central.
4. After one year liquidate the present US Central CU. Let all of the reserves, if any, remaining when US Central liquidates be transferred to the new US Central Federal Credit Union.
5. The New US Central Federal Credit Union holds their purchased securities (from US Central Credit Union) and allows them to mature and be redeemed. If the NCUSIF pays the New US Central Federal Credit Union’s operating expenses, its balance sheet will consist of cash, investment and notes payable to the CLF.
6. The New US Central Federal Credit Union simply ignores the AICPA’s various FASB rules. It will be a government owned and operated facility. As such, it does not need a Certified CPA Audit.
7. Once The New US Central Federal Credit Union has “cashed in” all of the investments at their maturity then determine a final loss, if any. Natural Person Credit Unions would then either pay the deficit, after enjoying the time value of money for years; or NCUA could charge a premium on an annual basis starting immediately; or charge the loss to the NCUSIF and bill additional premiums. We believe each of these options will be less costly than the current proposal.
Thank you for your time and consideration.
Comments?
Sunday, January 18, 2009
Super Regulator on the Way
A strategic focus requires that we look at outside forces that may impact our ability to Serve Members’ Changing Financial Needs. Today, one of our most vulnerable areas is the Political & Regulatory climate. Within the next few days we will see history made, with the swearing in of Barack Obama as the 44th President of the United States of America. It is exciting to see history made.
With the big change in the balance of Congressional Power, it is likely that more regulations are on the way. And, I am concerned that a consolidation of regulatory agencies is very likely. I expect to see at least one proposal in the New Year that will suggest something like Homeland Security for Financial Services – a Super Regulator.
At this point there seems to be a split in Congressional focus: “Mortgage Crisis” and “Auto Industry Crisis.” Our political leaders seem determined to blame someone and punish them, as with the S&L Debacle from the 1980s (De-regulation). US Taxpayer money is being directed into the capital accounts of Banks and loans have been extended to the “Big Three” auto manufacturers. Again, more regulation of the financial services industry is on the way.
Oil prices will not be resolved quickly, although world prices have declined by nearly 30%. My guess is that over the next ten years, Americans will move closer to work and drive smaller, more fuel efficient cars.
What’s next?
What are the Strategic Implications for credit unions? Dispite the lack of legislative activity, we must continue to build relationships with our Legislative Delegation at both the Federal and State level. This begins in the local races. With regard to the specific issues mentioned above, we should expect to see an emphasis on mass transit, including light rail. This will take a decade to deal with – it’s strategic. Our members will likely move away from SUVs and buy more fuel efficient (probably hybrid) cars. There should be less Gridlock in Washington. Let’s hope that’s a good thing.
Let me re-emphasize, from the perspective of the financial services industry, and the credit union industry in particular, it is not farfetched that a super-regulator is on the way. This will create a very different environment for our industry. I expect to hear more talk about a Homeland Security type approach to the regulation of financial services. That would likely lead to the end of the NCUA and change the credit union industry in negative ways.
You can see it is not an easy road ahead. But will be challenging to help credit unions continue to make a difference in the lives of Americans.
With the big change in the balance of Congressional Power, it is likely that more regulations are on the way. And, I am concerned that a consolidation of regulatory agencies is very likely. I expect to see at least one proposal in the New Year that will suggest something like Homeland Security for Financial Services – a Super Regulator.
At this point there seems to be a split in Congressional focus: “Mortgage Crisis” and “Auto Industry Crisis.” Our political leaders seem determined to blame someone and punish them, as with the S&L Debacle from the 1980s (De-regulation). US Taxpayer money is being directed into the capital accounts of Banks and loans have been extended to the “Big Three” auto manufacturers. Again, more regulation of the financial services industry is on the way.
Oil prices will not be resolved quickly, although world prices have declined by nearly 30%. My guess is that over the next ten years, Americans will move closer to work and drive smaller, more fuel efficient cars.
What’s next?
What are the Strategic Implications for credit unions? Dispite the lack of legislative activity, we must continue to build relationships with our Legislative Delegation at both the Federal and State level. This begins in the local races. With regard to the specific issues mentioned above, we should expect to see an emphasis on mass transit, including light rail. This will take a decade to deal with – it’s strategic. Our members will likely move away from SUVs and buy more fuel efficient (probably hybrid) cars. There should be less Gridlock in Washington. Let’s hope that’s a good thing.
Let me re-emphasize, from the perspective of the financial services industry, and the credit union industry in particular, it is not farfetched that a super-regulator is on the way. This will create a very different environment for our industry. I expect to hear more talk about a Homeland Security type approach to the regulation of financial services. That would likely lead to the end of the NCUA and change the credit union industry in negative ways.
You can see it is not an easy road ahead. But will be challenging to help credit unions continue to make a difference in the lives of Americans.
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