PHOENIX - Officials of Arizona FCU were notifying the credit union’s 220,000 members last week of the financial health of the institutions in the face of a $42.5-million mid-year loss, almost $30 million of it in the second quarter.
A notice by President Ron Westad posted on the credit unions’ website did not disclose the size of the loss, but says Arizona FCU has experienced increased loan losses, which are backstopped by “multiple layers of protection,” including continuing high-income streams and federal deposit insurance.
“We thought it was important to be proactive, rather than wait for people to come to us and ask questions. We wanted to put it up front,” said Randy Baldwin, chief financial officer for the $1.8-billion credit union.
Arizona Federal is just one of several large credit unions in the state–once one of the hottest economies in the country–that are reporting large mid-year losses. Others are: First CU, a $4.1-million loss; SunWest FCU, a $1.9-million loss; Altier CU, a $1.4-million loss; Deer Valley CU, a $1.2-million loss; Arizona Central CU, a $950,000 loss; Tempe Schools CU, a $740,000 loss and Tucson Old Pueblo CU, a $635,000 loss. But with the national economy faltering, the misery among CUs is not restricted to Arizona but is spreading nationwide. Arizona Fed’s Baldwin attributed his credit union’s large losses to rising delinquencies and charge-offs–mostly mortgages–in the hard-hit Arizona markets, where declines in home prices have rivaled California, Nevada and Florida as the worst in the country. Delinquencies for the credit union rose to 3.4% at mid-year, while charge-offs soared to over 6%. Over the past year, net capital has declined from over 10% to 8.2%.
“It’s a perfect storm of financial and economic issues across the country,” said Baldwin, former president of Tucson Old Pueblo CU, who was brought in to Arizona Federal in an upper management shake-up just three months ago. In fact, credit unions all over the country are reporting dismal financials for the first half (see related story).
“It’s all real estate,” said Thomas Randle, president of $240-million Sarasota Coastal CU, which reported a $1.1- million mid-year loss. He said property values have plunged by 50% in his market, Florida’s Gulf Coast, prompting many borrowers to just walk away from mortgages.
“Jingle mail,” is what he called members who leave the keys to their homes off at the credit union and walk away from their mortgages. “I don’t think there’s a profitable credit union or bank in southwest Florida, at least that’s what the press is reporting,” said Randle. William DeMare, president of Bay Gulf CU, located in nearby Sarasota Coastal, said his credit union’s problems began last year with an ill-fated indirect auto loan program, and have been exacerbated this year by the plummeting real estate market. “In my gut I think we’ve hit bottom, but I think it’s going to be some time before we’re able to climb out,” he said.
“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, like 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 analysts for the California CU League. “As the mortgage market continues to struggle there will be a spillover to credit unions.”
Matt Davis, chief marketing officer for Texans CU, said most of his CU’s $8.8 million in losses were caused by member business loans made for commercial real estate. He said the saving grace is that most of the losses came outside the $2.2-billion credit union’s core Dallas market and they are still hoping to recover some of those losses when some of those markets rebound. “The good news is that delinquencies have actually gone down from the first quarter to the second quarter. And we’re very confident that will continue.”
Bob Doby, CFO of Allegacy FCU, said a large portion of their losses come from charge-offs and high loan loss provisions on a pool of home equity lines of credit of about $53 million representing 6.8% of the $1.2-billion credit union’s total loan portfolio. “We consider the loss at this time to be very manageable since the majority of our loans are located in North Carolina–a state thus far that has not seen dramatic increases in mortgage delinquencies,” he said.(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com http://www.sourcemedia.com
