No Substitute for Retained Earnings
Having just read Suncoast Schools FCU CEO Tom Dorety's letter to the editor in the Feb. 3 issue, it makes one wonder how did the likes of Navy FCU and Pentagon FCU manage to grow capital? It seems both did it the old-fashioned way, through retained earnings. Now, one would think with assets north of $5 billion Suncoast Schools has reached an economy of scale. You would be wrong.
As CEO of Suncoast, Dorety has not shown a profit since 2007. During 2009 SunCoast has lost over $483 Million in assets. In 2009, SunCoast lost over $77 million in income, and it has lost over $84 million in capital. With a net worth ratio of a mere 6.04%, it is in a hard way. Dorety's answer to his plight is to beg permission from the NCUA to raise alternative capital. The real answer is to adjust the Suncoast business model and reduce operating expenses.
Glendale Area Schools FCU has the same field of membership as Suncoast. Both credit unions are located in the sand states. Suncoast reports a delinquency ratio exceeding 5.0%. At GASFCU the ratio is 1.23%. Suncoast reports a charge-off ratio of 3.15%; GASFCU reports 0.50%. Operating expenses to average assets at Suncoast is 2.59%. At GASFCU it is 1.12%. Suncoast reports an operating expense to gross income ratio of 40.09%, while at GASFCU it's 26.46%. As a result, Suncoast has a net worth ratio of 6.04%, compared to GASFCU at 8.72%. Suncoast's reported negative income of $76 million in 2008, while GASFCU reported positive income of $3 million.
To grow capital, Suncoast should immediately begin closing some of its 50 branches. Or convert to a bank. GASFCU can no longer afford NCUA assessments to support poorly performing credit unions.
Glendale Area Schools FCU