SAN DIEGO - More California credit unions, large and small, are reporting losses for the first quarter of 2008, what some are calling “collateral damage” from the subprime meltdown.
Losses continued at some large credit unions: Wescom CU reported a $7.8-million first quarter loss; American First CU a $2.2-million loss, Kaiperm FCU, a $2.1-million loss; and E1 Financial CU a $810,000 loss, for example.
But losses are just emerging at other credit unions for the first time, including Kinecta FCU, a $3-million loss; Kern Schools FCU, a $4.8-million loss; and North Island CU, a $13.6-million loss for the first quarter, due in large part to an increase in loan-loss reserves and a decision to take the loss in one quarter, rather than spread it out over several quarters.
And dozens more are reporting red ink for the first time: Heritage Community CU ($1.5 million); Alliance FCU ($1.3 million); Santa Clara County FCU ($836,000); Commonwealth Central CU ($660,000); AltaOne FCU ($264,000); and a $485,000-loss at California Coast CU, which recently agreed to merge into First Future CU.
Mary Cunningham, president of San Diego’s USA FCU, which eked into the black for the first quarter after large losses last year, said her members are being affected by the overall economic conditions, with some who have subprime or other troubled mortgages with other lenders having trouble paying credit card, auto or other types of loans with her credit union.
“It’s a very expensive collateral damage that a lot of credit unions are experiencing. We should have anticipated that what was happening in the subprime market was going to have some impact on us,” said Cunningham.
More CUs are shifting significant funds to their allowance for loan loss, erasing any net income and causing a loss for the period. Some credit unions, like USA FCU, made the move in the last quarter, leading them to report large losses for 2007.
What is confounding the accounting, said Cunningham, is that many credit unions in Southern California don’t have enough experience with losses on mortgages or home equity loans to enable them to accurately reserve for an economic downturn such as the current one.
North Island CU, for example, which normally reserves around $2 million for loan losses, increased its loan-loss reserve 10 times to $15.9 million for the first quarter, according to Kim Reedy, chief financial officer for the $1.8-billion credit union. “We started looking at this in December, and decided to put two to three years worth of reserves up front,” Reedy said. “Instead of doing this over two, three of four quarters, we decided to take it all in the first quarter.”
“This is a tough economic cycle,” said Gerri Dillingham, chief operating officer for North Island CU. “It’s one that is being consumer driven. It’s a little different than past economic cycles.”
After reporting a $5.8-million loss for 2007, USA FCU broke back into the black slightly for the first quarter, a net of just $34,900, but Cunningham expects to take further hits for the year and to report another loss for 2008. She said it’s particularly tough for her to take as last year was the first time in her 34 years in credit union management that her credit union reported a loss.
A rebound in the Southern California market is not expected any time soon. “Overall, I don’t think we’ve hit bottom,” said Daniel Pendord, a researcher with the California CU League. “We’re looking at an economy that is still slow, with a lot of people waiting on the sidelines to see what may happen before they move (to sell or buy a home), and waiting to make major purchases.”
The red ink was not confined to California, however, as dozens more CUs are reporting big losses for the first quarter of 2008.
Also falling into the red for the first quarter were: Arizona CU, which went from a $9.2 million net for 2007 to a $12.8-million loss for the first quarter; GTE FCU, which went from a $3.2-million net for 2007 to an $8.2-million loss for the first quarter; Suncoast Schools FCU, which went from a $1.9-million net to a $6.4-million loss for the first quarter, and Texans CU, which went from a $3.7-million net for 2007 and a $1.1-million loss for the first quarter of 2008.
Bucky Sebastian, president of GTE FCU in Florida, attributed his credit union’s $8.2-million first quarter loss to the deteriorating real estate market in the state’s Gulf Coast, forcing him to move millions of additional dollars in loan-loss reserves. “You know, the rest of the country may be in a recession, but we’re in a depression,” said Sebastian.
One of last year’s biggest losers, Cal State 9 CU, which was taken over by regulators last year, racked up another huge loss for the first quarter, of $53.3 million, following last year’s $61.6 million loss.
Some of last year’s losers broke back into the black. Allco CU eked out a $42,000 net after a $5.9-million loss for 2007; Allegacy FCU reported a $1.2-million net after losing $7.6 million for 2007; Centris CU had a $486,000 net for the quarter after a $6.1-million loss for 2007; Denali Alaskan FCU earned a $3.3-million net after losing $4.3 million last year; and CommunityAmerica CU had a $1.1-million net after a $7.6-million 2007 loss. (c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com http://www.sourcemedia.com
