Navy Federal prepares for takeover of troubled West Coast credit union
Monday, September 27, 2010
Vienna-based Navy Federal Credit Union on Oct. 1 plans to expand its West Coast operation, adding 19 branches and 60,000 members when it begins the process of taking over the troubled USA Federal Credit Union in San Diego.
USA Federal ran into financial trouble in the dismal California economy, seeing many of its loans go bad as members struggled with unemployment and foreclosures. Federal regulators urged the credit union to find a partner. Navy Federal, which in 2007 enlarged its field of membership from the Navy and Marine Corps to all Defense Department employees, opted to step in partly to help achieve its long-term goal of gaining a bigger share of the military market.
"Specifically, [USA Federal has] a presence on Air Force and Army bases in Japan and Korea, and that's a terrific fit for us," said Cutler Dawson, Navy Federal's president and chief executive.
He added that the credit union plans to open at least 10 branches annually across the country during the next five years, including several in the Washington area. "We're keen to serve where military people are."
Navy Federal, the largest credit union in the nation with more than $43 billion in assets and 3 million members, is pressing ahead even though it has yet to receive final approval from the National Credit Union Administration. On Friday, the credit union, which already has 14 branches and 300,000 members in San Diego, will add the Navy Federal nomenclature to the USA Federal branches as it begins merging computer systems and administrative structures. Once the merger is complete by Dec. 31, Dawson said, the USA Federal signs will come down.
The deal between the two nonprofit organizations involved no shareholders, no stocks and no exchange of money. Both boards approved the merger, with federal regulators having the final say. Navy Federal assumes the assets and debts of USA Federal.
"We were a troubled credit union on the West Coast victimized by the recession and dislocation of the housing market, upside down values, unemployment and people not able to make loan payments," said Mary Cunningham, the credit union's president and chief executive. As a result, she added, it wound up under "regulator watch."
The number of credit unions operating in the United States has dropped to 7,445 this year from 10,316 in 2000, largely because of mergers and failures, according to the Credit Union National Association.
Dawson of Navy Federal said the credit union has grown over the years from a series of mergers, and is open to consolidating with other troubled institutions in the future.
The credit union has 500,000 members in the Washington region, which will be a key area in its growth plan. Navy Federal will open a branch in the Pentagon in November, Dawson said, and others throughout suburban Maryland and Northern Virginia over the next few years.
In the meantime, he said, all USA Federal employees would not only be retained but would receive a bonus. Moreover, members, he said, would benefit from Navy Federal's vast resources.
"One of the advantages we have is we have presence all over country," Dawson said. "We have some areas that do better, and that allows us the luxury to work with people who are having difficulties."