LARGO, Fla.-Small CUs face the same problems as large credit unions, it's just that in some cases, the problems get bigger the smaller the CU.
"It's not a lot different," said Linda Reynolds, CEO of Pinellas CU. "We have issues with unemployment. We have issues with members turning in their keys to a car."
The $70-million CU currently has had 10 repossessions. "We try to liquidate them as soon as possible because they are a depreciating asset," Reynolds explained. "In previous years we may have had no more than 10 to 15 in the entire year, and rarely more than three at a time."
In response, Pinellas FCU is making every attempt to offer "workout" solutions to the member, including extension agreements if the member is able to pay any reasonable amount, Reynolds noted. But some members are voluntarily surrendering the vehicle before they are even 30 days delinquent, she said.
"They have assessed their financial situation and determined they cannot afford the car and cannot sell it in today's market," Reynolds said.
Pinellas FCU has not adjusted its underwriting standards "because we haven't determined that they are deficient," Reynolds said. "Primarily the loans were good when they were made but the member's life circumstance has changed. That is an inherent risk all lenders take; however, today's economy has heightened that risk somewhat."
Reynolds said she has begun seeing more volume in used cars than in new cars, and is also involved in indirect lending. "We established our own internal relationship with specific dealers in the area who had been our member's primary source for purchasing autos," Reynolds said. "The portfolio has performed very well, and we believe it is because we scrutinize every deal thoroughly prior to closing."
Given its size, Pinellas FCU has not been an active first-mortgage lender, which has turned into a positive. But for the first time since Reynolds joned Pinellas FCU in 1996, she has seen three home equity loans go bad this year. "To us, that seems significant. It's not anything to become overly alarmed over for us, but times are very different."
The credit union has not modified or frozen outstanding equity lines "as yet." "We do not have a large portfolio of equity lines of credit loans on the books," she said. "We have reviewed our entire equity loan portfolio with an eye toward property value in the current market and reported to our board the findings in relationship to risk."
The CU is well capitalized at 18.51% as of Sept. 30. Another change the 12,000-member CU is seeing is that its financial counselor/director of lending has becomevery busy. "These days a lot of people are getting referred to her," Reynolds said. "People are realizing they aren't going to make ends meet. We recommend they come in."
Many members have come in requesting a loan to help them pay their bills. "A loan is not the answer," Reynolds said. "The staff refers them to the financial counselor. She pretty much keeps her calendar full right now. She used to counsel five or six a month. Now she sees three or four a week. Some she can help. Some she refers to Consumer Credit Counseling. Some will have to claim bankruptcy."
Reynolds said the credit union's members are "generally good people, hard-working," but are struggling in a time when "everything has gone up."
"We're seeing members being pinched, from a budget standpoint," she said. "They want to honor their obligations. A lot of people have told me their employer has cut their hours, or cut their pay. People were worried, and we've responded, telling them 'your money is safe here.'"
Pinellas FCU is also planning a new member promotion. Reynolds, acknowledging "We're all competing for the same loan," said PFCU has launched several strategies to build loan volume, beginning with bids to recapture financing from other lenders. "When a member pays off a loan with us we make contact with them and ask about the service they received and determine if they got financing elsewhere and make an attempt to recapture any financing that the dealers have placed elsewhere," she said.
PFCU is further reviewing credit bureau files to identify members who have financed vehicles elsewhere "so we can make them aware of our rates and the convenience and cost savings of biweekly payroll deductions."
Though most CUs are experiencing some erosion in ROA, Reynolds said Pinellas FCU is lucky because "we had an ROA of three when this first started, which is unheard of. We are at two right now. I expect my ROA to drop further as we continue to experience tough economic times. However, I am doing everything possible to sustain a strong ROA by exercising good stewardship over my members' money."
She said it is monitoring expenses and delaying purchases of items such as "flat-screen TVs for each branch."
Looking forward, Pinellas FCU is planning as part of its "growth strategy" a new branch. "By mid-2009, we'll have a new branch in a new location that hopefully will bring in more members."
Like others, Reynolds sees opportunity for credit unions. "It can be," she said. "It's certainly not one you would orchestrate and wish for. But every time you get lemons, you can try to make lemonade."
