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

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.

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