LAS VEGAS — For credit unions in the so-called "sand states" — Nevada, Arizona, California and Florida — their financial foundations are much like a sandcastle lapped by an approaching surf.
In this issue Credit Union Journal launches a series examining how some of the hardest hit credit unions are coping, and whether they will recover.
The rapid rise and even faster fall of real estate markets has devastated natural-person CUs and corporates alike. While CUs point with pride at not having made subprime loans, many members got the loans elsewhere, and CUs have taken an indirect but very real hit due to a collapse in many mortgage-backed securities. The two largest corproates, U.S. Central and WesCorp, are in conservatorship, and each quarterly 5300 filing seems only to bring more red ink. While the damage to numerous individual credit unions is significant, the silver lining is that the industry's overall numbers are relatively healthy. Daniel Penrod, industry analyst for the California and Nevada CU Leagues, said the key questions to ask are: what is a credit union's net worth, and what is the CU's ability to absorb losses?
"Credit unions have shown great resiliency because they have retained high net worth on an individual and collective basis," he assessed. "As we look at things unfolding, the corporate stabilization impairment versus actual losses are inseparable because of the way they are structured. The best way to see how a credit union performed versus the market is to look at third quarter 2008 and back. Before the corporate stabilization, credit unions were still growing and stable. More importantly, they were capitalized to absorb the economic downturn." According to Penrod, even after the effects of the corporate stabilization plan were accounted for, credit union capital levels remained high. California CUs collectively are at 10%, which he pointed out is 3% above the "well-capitalized" threshold by NCUA of 7%.
Still, there is a significant difference between the collective numbers and the problems individual CUs are facing. In the coming weeks and months, Credit Union Journal will spotlight several of those that have moved well below 7% capital-not to castigate the CUs, but rather to give them a chance to explain what steps they are taking to turn the ship around and serve their members going forward.
The Members' Own FCU, Victorville, Calif., $89 million in assets, 11,273 members, whose $3.2 million allowance for loan losses accounted for most of its $3.6 million net loss before a $550,021 NCUSIF stabilization expense was thrown on top.
With a net worth ratio of just 1.32% ("Critically Undercapitalized"), Members' Own CEO Mary Kassel told CU Journal her credit union continues to actively seek a merger partner.
