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
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