Navy Federal Is Sending Team to Discuss USA Federal Merger

The world's largest credit union, the $40 billion Navy Federal Credit Union, confirmed last week its interest in acquiring the ailing $634 million USA Federal Credit Union of San Diego.

The prospective merger, marked by Navy Federal's participation at an upcoming conference slated for this week in San Diego, comes as the NCUA publicly acknowledged the serious problems at the California CU. The credit union began last spring soliciting bids from suitors, including Navy Federal.

In a brief statement, the NCUA said the agency “concurs with USA Federal's decision to pursue a merger. USA Federal is under prompt corrective action as required under the Federal Credit Union Act.” Following its traditional practice on potential mergers in process, the NCUA had no comment about the bidders meeting.

In sending an executive team to San Diego, officials of Navy Federal acknowledged the its keen interest in becoming a bidder based on its Department of Defense footprint and military field of membership in San Diego. Navy has 350,000 members and 14 branches in the San Diego market. USA Federal, which serves the Naval Training Center in San Diego, has a membership of 61,000 worldwide, with branches in California, Japan and Korea.

USA Federal has experienced a disastrous past 12 months, plunging from 6.62% net worth as of June 30, 2009, to only 2.76% as of June 30, according to NCUA data. The CU posted an $11.6 million net loss as of June 30. It lost $16.8 million last year. Both its delinquency and charge-off ratios have doubled during the last year to a combined ratio of 10.20%.

Regarding the merger talks, a Navy Federal spokeswoman said the consolidation idea was broached at least two months ago by USA Federal's President/CEO Mary Cunningham, who declined to comment on the merger discussions.

Apart from USA Federal, Navy Federal officials have also acknowledged their possible interest in a merger with the NCUA-conserved $156 million Keys FCU of Key West, Fla., which also serves a military complex. That CU has been under conservatorship for nearly a year and for a time was being partnered with the $505 million Dade County FCU of Miami, which later dropped its merger deal.

Meanwhile, the NCUA's overall policy on mergers of troubled CUs was coming under new scrutiny last week following a separate July 31 conservatorship in Utah of the $139 million Family First FCU of Orem.

NCUA watchers, including CEOs of the nation's largest and healthiest CUs on the East Coast and in the Midwest, expressed puzzlement at NCUA policies on Family First and on the $808 million Arrowhead Central CU of San Bernardino, Calif., in which no bids were awarded.

Asked whether changes are afoot in how the NCUA manages involuntary mergers, John McKechnie, director of public and congressional affairs, stressed that each conservatorship case is different and that “typical considerations in a decision to conserve vs. award a bid include overall financial condition of the credit union, loan portfolio and compatibility of field of membership.”

Commenting specifically on the failure of Family First, McKechnie said the NCUA's regional office had recommended a conservatorship “in order to gain full operational control of Family First, to complete a thorough review of all loan portfolios, to develop a more complete understanding of the Family First franchise value, and to ultimately mitigate the NCUSIF loss.”

Conservatorships, said McKechnie, “are undertaken in an effort to preserve member assets and maintain uninterrupted service if possible.” ? –jrubenstein@cutimes.com

Correspondent-at-Large Heather Anderson contributed to this article.