Space Coast Merger Helped Pull Eastern Financial From the Brink

One of the industry’s biggest mergers occurred in Florida in 2009. It was brought on by a depleted net worth that stemmed from millions of dollars in commercial real estate losses.In July, Eastern Financial Florida Credit Union merged into Space Coast Credit Union to create a $3.2 billion cooperative with 360,000 members. The move came nearly two months after Eastern Financial was placed in conservatorship by the NCUA. 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.As of Sept. 30, Space Coast had $15 million in charged-off real estate loans, up from $8.4 million in June, according to NCUA data. Total loans charged off were nearly $58 million, up from $37 million in June. Member business loans less unfunded commitments totaled $179 million and real estate loans reported as business loans were down to $151 million from $175 million.The Melbourne, Fla.-based Space Coast did not waste any time assuming control of Eastern Financial’s loan portfolios and operations. The Miramar, Fla.-based CU’s lending production had nearly stalled prior to the conservatorship, Space Coast spokeswoman Meredith Gibson said at the time. Members now have access to a new express service that shortens the time it takes to apply for a car loan application and open a checking account. Credit cards and membership applications were now available over the phone.Space Coast also made some changes with some of Eastern Financial’s branches. One closed, another moved to a bigger facility and Saturday hours were cut at four others. Gibson said several of the branch changes were in place before the June merger. Eastern Financial’s Lake Asbury branch closed on Sept. 4. The branch was acquired after the credit union merged in a small credit union in 2007, but it never grew beyond serving 200 members, Gibson explained. In another premerger move, Eastern Financial’s Pembroke Pines branch was set to relocate to a larger facility with more amenities in October. Eastern Financial now has 29 branches.Looking ahead to 2010, Gibson said there will be a continued focus on rebuilding the lending production that was impacted by Eastern Financial’s financial condition.“[Space Coast] is a leading auto and mortgage lender in the area we served prior to the merger, and we have already introduced our products and efficient lending processes to the EFFCU market, already resulting in increased loan production,” Gibson said.Indirect vehicle lending has already been reintroduced, Gibson noted. Additional mortgage loan officers have also been hired and plans are in place to bring in more, she added. Members may not see any new branches in 2010. Because Eastern Financial had already established relationships with most of the key employers in the market, the development of new select employee groups will not be a significant focus next year.Like many other CUs, Eastern Financial found itself in a contentious situation with a member and mortgage payments. Kathleen Soto, a member of the CU for several years, complained to the Florida Office of Financial Regulation over claims that some of her mortgage payments were not applied correctly. In October, Soto provided Credit Union Times with a spreadsheet of her payment history that showed several payments were not applied toward her mortgage balance. Soto worked with several Eastern Financial employees to resolve the matter. However, the complaint ended up on the desk of Robert Hayes, bureau chief of the Florida OFR. At last check, Soto said the investigation was closed after an audit of her account concluded that every payment was posted correctly. Soto said she recently filed for Chapter 7 bankruptcy.“Other than telling me everything was posted correctly, not much is new,” Soto said. “According to my records, only one of the payments was correct.”Gibson had previously said Space Coast “has maintained a consistent focus on addressing the financial pressures of members who are negatively impacted by current economic conditions” and, as of October, had processed modifications for more than $80 million of mortgage balances.–[email protected]