Losses Continue to Tarnish Golden State’s CUs

SAN DIEGO – Credit unions throughout California continued to report large losses in the second quarter, with no relief in sight.
 
Among the red ink reported this week: North Island CU, a $12.4 million mid-year loss; Sterlent CU (being merged into Patelco CU), a $12.4 million mid-year loss; Kinecta FCU, a $10.6 million mid-year loss; Wescom CU, a mid-year loss of $10.9 million; Visterra CU, a $6.7 million mid-year loss; Valley FCU, a $5.8 million loss; Kern Schools CU, a $5.6 million mid-year loss; Alliance CU, a $4.1 million loss; Kaiperm FCU, a $4 million loss; and, American First FCU, a $3.9 million loss at mid-year.
 
Also reporting losses over $1 million were: California Coast CU (which is being merged into First Future CU), a $2.4 million loss at mid-year; Heritage Community CU, a $2.1 million loss; Commonwealth Central CU, a $2 million loss; Operating Engineers FCU, a $1.9 million loss; Travis CU, a $1.7 million loss; and, Santa Clara County FCU, a $1.4 million loss.
 
“The economic environment in California has definitely worsened in the last few months,” said Dwight Johnston, head of economic and market research for WesCorp FCU. He cited the rise in negative economic indicators, such as unemployment, recently pegged at 6.9%, home foreclosures, loan delinquencies and inflation. “We’re continuing to see a number of credit unions having to add to their loan loss reserves, and thus not make money,” said Johnston.
 
“Credit unions aren’t immune to the market,” said Daniel Penrod, senior industry analyst for the California CU League. “As the mortgage market continues to struggle there will be a spillover to credit unions.”
 
With mortgage delinquencies still climbing, Johnston predicted a continued rise in home foreclosures in the coming months and more pain for credit unions. “We think it’s going to stay pretty rough, until at least through the end of the year,” he told The Credit Union Journal yesterday.
 
The upside, he said, is that California credit unions generally are highly capitalized and many are using the state’s downturn to carve out increased market share on mortgages and other loans.
 
In addition, Penrod noted that recent travails by banks such as locally based IndyMac have caused an influx of deposits into credit unions. “The deposit has actually been very strong,” he said. “There’s been a flight to quality and a flight to safety, causing a significant amount of growth.”
 
Many large California credit unions apparently have dodged the worst and reported robust earnings for the first six months of the year. This list includes: Chevron FCU, $46.1 million in net income at mid-year; Star One CU, a $29.9 million net for the first half; San Diego County CU, a $26.2 million net; Schools First FCU (formerly Orange County Teachers FCU), $22.8 million in net income; The Golden 1 CU, almost $17 million; and, Lockheed FCU, a $17.1 million net for the first half.