End Of The Tunnel Appears Near For Big Problem CUs

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LOS ANGELES – A growing number of troubled big credit unions are reporting positive income for 2010, while others are slashing losses, an indicator of an improving economy, especially in the so-called Sand States.

Kinecta FCU, which lost $71.3 million in 2009, broke into the black last year with a $14.6 million net. Nearby Wescom Central CU went from a $93.6 million loss to a $2.7 million net. North Island CU a $52.4 million loss to an $11.5 million net. Schools Financial CU turned a $9.2 million 2009 loss into a $1.1 million net for 2010. BECU erased a $38.4 million 2009 loss with a $60.3 million net for 2010. Florida’s Grow Financial FCU went from an $18.3 million loss to a $3.6 million net.

It all comes down to improved loan portfolios, despite efforts by these giants to close branches, lay off workers and trim other expenses the past two years, according to Keith Pipes, executive vice president lending and financial services for Wescom, a one-time $4 billion Pasadena, Calif., credit union. During 2010, Wescom reduced its charge-offs by 34% to $61 million, and its delinquencies by 45%, enabling it to cut its provision for loan losses for 2010 by almost two-thirds, to $47.5 million.

That has put the giant credit union on the path back to health, pushing its net worth ratio all the way back up to 4.8%. “I think we have established a sustainable level of profitability,” Pipes told Credit union Journal yesterday.

“We may not see the light at the end of the tunnel yet, but at least we know we’re headed in the right direction,” said John Tippets, president of North Island CU, a one-time $1.7 billion San Diego credit union.

Other credit union giants are reporting lesser losses. Suncoast Schools FCU trimmed its losses from $77 million for 2009 to $29.9 million for 2010. Nevada FCU cut its losses from $32 million to $4.2 million. Desert Schools FCU in Phoenix reported an $18.9 million loss for last year, after an $81.3 million loss the year before. Kern Schools FCU in Bakersfield, Calif., had a $12.8 million loss for 2010, after a $40.6 million loss for 2009.

Many of the big credit unions are being held back by the NCUA assessments. Utah’s America First CU, which reported a $15.9 million loss for 2009, would have broken into the black for 2010 but an $11.5 million assessment paid to NCUA erased all of its net. Nevada FCU paid NCUA $1.6 million, which would have reduced its $4.2 million in red ink.

Some credit union giants reported blockbuster years. Navy FCU more than doubled its net income to $568.9 million, despite a $72.5 million NCUA charge, a 1.3 return-on-average assets. North Carolina SECU reported $229 million in net income, up from $175.9 million for 2009 and equivalent to a 10.7 ROA. Pentagon FCU reported lower net income, $71.4 million, down from $133.5 million, even after a $28.7 million NCUA charge.


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