PASADENA, Calif. - Wescom Credit Union here will consolidate 11 branches, discontinue Sunday hours in most locations and further reduce its workforce, the latest sign of how Southern California’s slow and even reversing mortgage market is affecting some credit unions.
At mid-year the $3.6-billion credit union reported a loss of $10.9 million, after posting a $35-million loss in 2007. Wescom has $250 million in capital.
Darren Williams, CEO of the 315,000 member CU throughout Southern California, told Credit Union Journal it is “difficult to quantify” exactly how many employees will be laid off as part of the planned reduction.
“Between the 11 branches that will be consolidated into nearby branches and reducing Sunday hours, the worst-case scenario impacts a little more than 100 positions,” he explained. “We previously faced a workforce reduction earlier in 2008. It did not involve branch consolidation, but we wanted to become more streamlined and productive throughout the operation. It involved 110 positions, but through attrition, it was achieved with only 20 actual layoffs.”
Stopped Filling Vacancies
Beginning in July, knowing another reduction was pending, Wescom stopped filling vacancies, according to Williams.
“Obviously, those employees who are facing layoffs would be the first candidates for the open positions,” he said. “We have a pretty young workforce at Wescom. We have some part-time employees, some college students, so we have turnover. Ultimately, the workforce reduction will impact about 100 positions. We know the number of employees affected will be much lower than 100, but it probably will be more than 20.”
Williams is citing Southern California’s housing market for the balance sheet pressures.
“We have been a large real estate lender for years, but we’ve seen parts of Southern California that have been hit very hard with declining home values,” Williams observed. “Some of our loans are secured by homes with lower values.”
In many cases, home equity loss is a “psychological” factor more than a true hardship, Williams assessed. If someone bought a house 10 or 15 years ago, and the value went up earlier this decade before declining over the last two years, then the actual impact to the pocketbook is negligible.
“But when consumers lose $150,000 in equity in their homes, and they bought at a high level, they have balances that exceed the current market value of their homes. That is more than just psychological, it affects consumers in a lot of ways.”
Wescom did not participate in subprime mortgage loans or the “alternative real estate market,” but it is seeing a spillover effect, Williams said.
The first sign of trouble, came when members began missing car loan and credit card payments.
Value Is Disappearing
“Even though our mortgage loans are traditional, when value is disappearing, we are seeing rising delinquencies. We had gone eight or nine years without a single loss on a real estate loan, which is probably true of most lenders in Southern California,” Williams explained. “We are working with members to try to keep them in their homes. We are dealing with a number of members who received a loan from a discount lender and want to refinance with us, but with the assessed values being down, we can’t always help out,” Williams said.
Rising unemployment in the region, as well as high energy prices, also are playing a role in hurting Southern California consumers, Williams added.
Wescom serves a seven-county market from San Diego in the south north to Santa Barbara, an area that includes many neighborhoods that have been hit by significant numbers of foreclosures.
According to Williams, it is “Hard to say with any certainty where we are in the cycle. If we are at or near the bottom, it probably will take some time before we see any rebound. The last cycle of depreciation in Southern California took place in the early 1990s, and it took four or five years for values to come back to normal levels.”
Wescom CU Vital Statistics
Assets: $3.6 billion
Membership: 346,710
Mid Year 2008 Losses: $10.9 million
2007 Losses: $35 million (c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com http://www.sourcemedia.com
