SAN FRANCISCO-Are some of California's largest credit unions turning the corner?
At first blush the $14-million in losses recorded by Patelco Credit Union here during 2009 seem nothing more than another indicator of what a tough year it was.
Yet in Q4 2009, the $3.7-billion Patelco booked net income gains of $2.3 million in October, $10.3 million in November, and $2.6 million in December, which management said surpassed performance expectations by 60%.
Patelco CEO Kenneth Burns told Credit Union Journal the November figure was aided by a $6.5-million gain from sale of investments, but said he was pleased with the positive earnings achieved throughout the final quarter of 2009. He noted Patelco closed the year with a "well-capitalzied" ratio of 9.02%.
"January's net income was $4.3 million, so we started this year on a positive note, also," he added.
Burns said there has been no single line item that is contributing to the improved finances.
"We focused on a number of things, none of which your readers will find to be magical," he said. "We controlled our operating expenses and reduced our cost of funds. I want to give credit to my team for the credit risk process. We have seen a marked improvement in charge-offs. We made significant process changes to when we called members, how often we called, in holding people accountable for their commitments to pay, and weighing the order of magnitude of delinquencies."
In the case of real estate loans, Patelco created a loan modification division for members who were having trouble making their payments and provided assistance to those qualified. To date, Patelco has underwritten more than $100 million loan modifications for members, approximately 70% of which is represented by mortgages.
Given the difficult economic environment, the fact many Patelco members were struggling to make ends meet and with unemployment remaining high, Burns said the credit union's corporate objective remains net worth preservation. "It was already over 8%, so we were not in restoration mode, but because we were incurring losses we wanted to put the credit union in the position of profitability by Q4 2009, which we did successfully."
The second objective - which Burns said Patelco is still working on because net loans declined last year due to selling the bulk of its fixed-rate mortgages to Fannie Mae - is to return to a net growth mode in loans.
"Our third goal is operational efficiency. We are looking not only at cutting and controlling costs but improving efficiency, which is not necessarily the same as cutting costs. Those are the main three objectives, with many initiatives underneath," he said.
Looking back, Burns noted Patelco began 2009 at $4.2 billion in assets and ended the year at $3.7 billion. "Shrinking the balance sheet has helped shore up net worth, which is now over 9%. We charged off and put into allowance for loan losses pretty aggressively in 2008 and first half of 2009. In doing that, we have smoothed out the amount we have had to put into the allowance."
