PHOENIX – It would seem that the state’s two largest credit unions, Desert Schools FCU and Arizona FCU, would share the same gloomy outlook as the region’s devastated economy has pushed each deep into the red, Desert Schools to the tune of $49.5 million and Arizona Federal a $41.9 million loss through the first three quarters of the year.
But executives at Desert Schools, the state’s biggest credit union, see the light at the end of the tunnel, even after recording a $32.2 million loss for the third quarter. Almost all of the third quarter losses were related to the increase in allowance for loan losses and the $3.2 billion credit union hopes that should cover all additional charge-offs for the rest of this year.
“That is the story as far as net income performance,” said Steven Jordan, assistant vice president of finance, who waxed positive about a leveling off of delinquencies and loan losses. “We are optimistic,” he told The Credit Union Journal yesterday.
Just down the street at Arizona FCU, where losses were $5.6 million in the third quarter, CEO Ron Westad is pessimistic. “We’re working hard, but it’s still more of the same,” said the credit union CEO, who has closed branches, trimmed jobs and run off more than $400 million in assets over the past 18 months to cope as losses have mounted to $150 million during that time. But the local economy, which has shed 130,000 jobs, is working against him and he sees losses continuing in the future. “Nothing different,” is how he summarized the near future.
The difference in outlook, according to Desert Schools’ Jordan, may have something to do with the make-up of each credit union’s loan portfolio.
It may also be an issue of capital, as in net worth. Even with the losses, Desert Schools still had net worth of around 8% at Sept. 30. Arizona Federal had net worth of 2.5%, qualifying it is critically undercapitalized under NCUA’s minimum capital rules.
