“The NCUA Board has not approved a merger of Eastern Financial Florida Credit Union with Space Coast or any other institution at this time,” McKechnie said. “During any conservatorship, NCUA does not confirm or deny merger applications; merger, liquidation or return to member control are all options we consider. The least costly option for the NCUSIF will be determined, and a decision will be made.”

The completion date of the merger has not been finalized, said Space Coast, which will be the surviving credit union. Should the merger go through, the consolidated credit union will have more than 350,000 members, have $3 billion in assets and have more than 60 branches and 150 ATM locations. Space Coast spokeswoman Meredith Gibson said no personnel decisions were made within its intent agreement regarding layoffs but “a thorough assessment of operations will present a logical solution to staffing.”

“[Eastern Financial's] core operations and product offerings are strong. The current situation was caused by problematic lending and investment decisions,” Gibson said. “A merger, if finalized, can provide an enhanced service offering and greater strength for the members of both credit unions.”

For the past year, Eastern Financial has struggled to recover from a series of bad real estate loans. A net income loss of $113 million buckled the 70-year old financial institution. According to NCUA call report data, the credit union's foreclosed real estate loans fluctuated from $205,000 in December 2007, more than quadrupled to $893,935 in March 2008 and then decreased to nearly $754,000 in June that same year.

By September, however, foreclosed real estate had increased to $1 million and rapidly escalated to $12.6 million at the end of December 2008. The credit union also charged off nearly $68 million in loans at the end of last year, up from $23 million in December 2007. Eastern Financial also took a $30 million loan hit after the default on a condominium project.

On March 19, the Florida Office of Financial Regulation issued a cease and desist order against Eastern Financial for a series of “unsound and unsafe” practices. After reviewing findings from an Oct. 6, 2008 report of examination, the OFR concluded that the credit union was engaging in 15 unsound and unsafe practices, including not possessing adequate loan underwriting standards or a loan review program that evaluates risks and excessive concentration in member business loans (CU Times, April 15, 2009).

The credit union was approached by the NCUA in January about a possible alliance with Eastern Financial, Gibson said. A CEO of an out-of-state credit union confirmed with Credit Union Times that it was also approached by the regulator. The NCUA has “asked every large credit union in the Southeast” about a merger, he said.

“It's a normal procedure,” the CEO said of the NCUA seeking out potential credit union merger candidates. “As a courtesy, NCUA will look for partner credit unions in the area.”

“There's really nothing I can share,” said Linda Charity, director of the division of financial institutions at the Florida OFR, which issued a cease and desist order in mid-March against Eastern Financial.

Eastern Financial would not comment either, sticking by an April 7 statement that said OFR is “working closely [with the CU] on a roadmap to address the issues facing us.”

Both credit unions grew up together in Florida. Eastern Financial was originally chartered in 1937 to serve Eastern Airlines. Space Coast formed in 1951 as Patrick Air Force Base Credit Union. It has since grown to become one of Florida's largest credit unions.

Historically, Space Coast has not sought to expand through mergers, said Doug Samuels, president/CEO.

“Although the credit union has merged with a few smaller credit unions in its 57-year history, growth has been achieved through continuous improvement and expansion of the services offered to members,” Samuels said. “What was of interest were our operating efficiencies, our strong member base, and our branch and member service offerings.”