SAN DIEGO – More California credit unions, large and small, are reporting losses for the first quarter of 2008 – losses some are calling “collateral damage” from the subprime meltdown.
Losses continued at several large credit unions: Wescom CU reported a $7.8 million first quarter loss; American First CU, a $2.2 million loss, Kaiperm FCU, a $2.1 million loss; and E1 Financial CU a $810,000 loss, for example.
But losses are just emerging at other credit unions for the first time: Kinecta FCU, a $3 million loss; Kern Schools FCU, a $4.8 million loss; and North Island CU, a whopping $13.6 million loss for the first quarter.
And dozens more are reporting red ink: Heritage Community CU ($1.5 million); Alliance FCU ($1.3 million); Santa Clara County FCU ($836,000); Commonwealth Central CU ($660,000); AltaOne FCU ($264,000); and California Coast CU (a $485,000 loss) which has agreed to merge into First Future CU.
Mary Cunningham, president of San Diego’s USA FCU, said more and more credit unions are shifting significant funds to their allowance for loan loss, erasing any net income. Some credit unions, including USA FCU, made the move in the last quarter, causing large losses for 2007. What is confounding the accounting, said Cunningham, is the fact many credit unions in Southern California do not have enough experience with losses on mortgages or home equity loans to enable them to accurately reserve for an economic downturn like the current one.
North Island CU, for example, which normally reserves approximately $2 million for loan losses, increased its loan loss reserve 10 times to $15.9 million for the first quarter, according to Kim Reedy, chief financial officer for the $1.8 billion credit union. “We started looking at this in December, and decided to put two to three years worth of reserves up front,” he told The Credit Union Journal yesterday. “Instead of doing this over two, three or four quarters, we decided to take it all in the first quarter.”
“It’s a very expensive collateral damage that a lot of credit unions are experiencing. We should have anticipated that what was happening in the subprime market was going to have some impact on us,” said Cunningham.
After reporting a $5.8 million loss for 2007, USA FCU broke back into the black slightly for the first quarter – a net of just $34,900 – but Cunningham expects to take further hits for the year and to report another loss for 2008. She said it is particularly tough for her to take as last year was the first of her 34 years in credit union management that her credit union reported a loss.
A rebound in Southern California is not expected any time soon. “Overall, I don’t think we’ve hit bottom,” said Daniel Penrod, a researcher with the California CU League. “We’re looking at an economy that is still slow, with a lot of people waiting on the sidelines to see what may happen before they move (to sell or buy a home), and waiting to make major purchases.”
