RENO, Nev. — After some nine months of agonizing over how to save Clear Star Financial CU, employees of the once-$175-million CU went from the agony of uncertainty, to certain catastrophe, to the joy of salvation in just one roller coaster of a day.
That day was Sept. 25, which started out with a staff meeting in which leadership again went over the red numbers in the credit union's balance sheet. It ended with regulators walking in the door and abruptly announcing the credit union was no more, and then just five minutes later, the entrance of staff from St. Joseph, Mich.-based United FCU. United FCU's bid had been accepted by state and federal regulators as part of a purchase and assumption.
Over the first three quarters of 2009 Clear Star Financial had shrunk to $141 million in assets from $175 million, had seen net worth decline to 4.1% at mid-year, reported losses of $820,000 ($217,861 worth of membership capital shares and $196,300 in paid-in capital with WesCorp, as well as $405,537 for the CU's share of NCUA's corporate stabilization plan).
"We were very aware by May or June that our delinquencies were significantly up to a point that unless there was a major economic turnaround, our capital would erode to an extremely dangerous point by fall," said Lynn Lundahl, COO of Clearstar, who now is president of United FCU's Nevada region. "A primary contributing factor to this was indirect lending. We were already having problems with that portfolio, and maybe we could have sustained that, but then the market and the economy fell apart, and that affected the rest of the loan portfolio. And maybe we could have sustained even that, but we had just built two new beautiful, state-of-the-art branches, which had already eaten up some of our capital."
That one-two-three punch, Lundahl said, made it impossible for the credit union to rally.
Clearstar had been partnering with Credit Union Direct Lending (CUDL) for its indirect lending. "We are not doing any finger pointing. CUDL provides a wonderful service, and it was a wonderful partnership," Lundahl said. "We just didn't have the capital to see it through."
Indeed, the problem goes well beyond the indirect lending program. "Clearstar was predominantly a school employees credit union up until about two years ago when it got a community charter," noted United's Duane Nelson. "They just weren't prepared for what was coming."
That's why United isn't sour on continuing to provide indirect lending to Clearstar's membership, but it will be migrating to United's own in-house indirect lending program.
