NCUA Offers Clarity on West Texas Merger Procedures
The NCUA itself, responding to queries from Credit Union Times, outlined some of its procedures drawn from Region IV with the Sept. 30 conservatorship of the $78 million West Texas CU of El Paso and takeover by another Texas CU.
In that case, the NCUA explained that it finally awarded West Texas to the $5 billion Security Service FCU of San Antonio after months of scrutiny and bidders meetings. It initially invited potential suitors based on size and those it felt could "handle the addition of the 'failed' credit union's balance sheet and inherent problems."
"We don't want to resolve one problem by creating another," said the NCUA in a statement, noting the agency solicits suitors by looking "at the capital structure, complexity of the balance sheet, delinquency and loan-loss and earnings performance."
For the bidders meeting, "We initially try to limit the geographic area as closely as we can yet still obtain a manageable group of interested bidders," the regulator said. "Some well-capitalized credit unions may not meet all of the criteria we are looking for in a continuing credit union."
With West Texas, the NCUA said it was unsuccessful "in obtaining a bid at our initial merger meeting" reportedly last April because "none of the local El Paso credit unions provided a bid, which forced us to broaden our search for a merger partner. So we conducted another merger meeting inviting additional credit unions that fit our requirements.'
Once NCUA examiners "conducted the second merger meeting and secured an acceptable proposal, we did not announce that decision until the transaction was finalized," which the agency said is normal procedure.
"We don't announce the winning bidder earlier because they can always withdraw their proposal, requiring us to go to the secondary bidder to complete the merger or P&A," continued the statement. "If we announce a winning bidder, and they withdraw their offer, we would have to start the whole process over again. The reason for the long lead time in the process is a result of not always being able to obtain an acceptable bid from the first merger meeting, as was the case at West Texas."
CEOs from healthy CUs in the Midwest and Alaska who have emerged as successful suitors in Nevada and California said the NCUA is looking farther afield than in the past to find suitable candidates.
Gary Easterling, president/CEO of the $941 million United Federal Credit Union of St. Joseph, Mich., which on Sept. 25 was awarded the failed $141 million Clearstar Financial CU of Reno, Nev., said he had been in talks with the NCUA over the summer "because we are a healthy credit union with 12.5% capital ratio and have multistate experience."
The long distance from Nevada apparently was not viewed as a negative, said Easterling, maintaining that United's record of having branches in North Carolina, Arkansas, Ohio and Michigan through its servicing employees of the Whirlpool Corp. of St. Joseph was a positive factor.
Like other CEOs, Easterling maintained that an "anomaly" exists with many more troubled credit unions being handled by the agency in distressed areas like the sand states as compared to the rest of the nation where economic problems are less severe.
"Every situation is unique," said Easterling, but the NCUA apparently lacks the same kind of concentrated experience of the FDIC, for instance, as it deals with this year's 98 bank failures as of early last week.
These "are not normal times," observed Easterling, but credit unions like his that are able to step in and take over a troubled credit union demonstrates the industry's diversity and ability to tackle these kinds of problems.
As for the NCUA's description of Security Service's acquisition of West Texas, John Worthington, senior vice president of the cooperative, said for credit unions "that have not been through a merger or acquisition with the NCUA, it may be perplexing to try to understand how it all works."
Nonetheless, Security's experience with the NCUA over the years, including mergers in Colorado, are consistent with a general pattern. Worthington also said that Security's purchase and assumption deal for West Texas fits a strategy of expanding its overall military footprint, including "adding new members and new business at the U.S. Army Base at Fort Bliss."
Another recent successful NCUA suitor with a geographic reach has been the $4.1 billion Alaska USA Federal Credit Union, Anchorage, which completed a merger of a second failed California CU in San Bernardino County on Sept. 29.
Alaska USA management said it too was probably selected because of its healthy capital position, making it the favorite to merge the failed $85 million Members' Own Federal Credit Union of Victorville, Calif., located 10 miles from its June NCUA acquisition of High Desert CU of Apple Valley.