Kern Central Credit Union was closed and liquidated by state regulators Friday due to inadequate capital, but members will be able to carry on business as usual, its former chief executive says, and accounts are safe.
Loans and deposits at the nearly $35 million-asset Bakersfield institution were taken over by the $75 million-asset Self-Help Federal Credit Union headquartered in North Carolina. Kern Central will operate under the business name Community Trust Credit Union, a division of Self-Help. Self-Help already operates six branches in California.
Carl Trejo, former president and chief executive of Kern Central, said all three branches will stay open and no employees will lose jobs.
“I’m very happy we had a very dark cloud lifted from us,” Trejo said.
Members can continue to write checks, use ATMs and carry on business without a hitch, he said, and no members lost money in the failure. Member accounts are federally insured up to $250,000.
Trejo, 58, has been with Kern Central for 24 years. He said he’ll remain employed as head of the Bakersfield division of Self-Help. Kern Central has two Bakersfield branches and one in Lamont.
The liquidation was not a surprise to Trejo, who said he’d been working for months to arrange for a takeover.
The credit union was launched in 1974 and counted about 8,400 members. Before taking over Kern Central, Self-Help had some 15,000 members, according to regulators.
Alana Golden, spokeswoman for the California Department of Financial Institutions, which ordered the closure, said Kern Central’s net worth ratio had declined to “an unsafe and unsound level of 3.1 percent.” A desirable number is 7 percent.
She added that the DFI determined “the credit union had no reasonable prospect for rehabilitating itself and returning to an adequately capitalized condition.”
Donna Severs, president and chief executive of Bakersfield City Employees Federal Credit Union, a 3,000-member, $26 million-asset institution, said she was shocked by the news.
“These are tough times, obviously, with the real estate market being what it is,” Severs said.
In addition, the National Credit Union Administration, which regulates at the federal level, is asking credit unions to put extra money into reserves. That eats directly into capital levels, she said.
Steve Renock IV, president and chief executive of Kern Schools Federal Credit Union, was also surprised by Kern Central’s liquidation.
Renock said Self-Help has a “very good reputation” for taking care of its members.
Kern Schools, with $1.7 billion in assets and more than 192,000 members, is the largest financial institution headquartered in Kern County. It is working to improve its own capital levels, which have fallen below 7 percent.
Renock said quality of consumer loans is starting to look a bit better of late. Mortgage quality leveled out in December, which was an improvement.
He expects 2010 to be “a challenging year,” but said Kern Schools will be fine.
Kern Central was the 15th credit union closed since the beginning of 2009, according to a list on the NCUA website. Seven of the failed institutions were in California.
It’s the second recent demise of a Bakersfield financial institution. San Joaquin Bank failed Oct. 16. Citizens Business Bank took over its loans and deposits.
Credit unions, unlike banks, are not-for-profit institutions whose board members are volunteers. Their bread-and-butter business includes cars loans, home equity lines of credit and other consumer-oriented business that has taken a beating in the global recession.
A press release from Kern Central said the operation will go forward as the second-largest community development credit union in California. Kern’s three branches will add to existing locations in Porterville, Modesto, Riverbank, East Palo Alto and East San Jose.
The NCUA was appointed as the “liquidating agent,” meaning Kern Central’s accounts were transferred to the NCUA before being assumed by Self-Help. The process took place during business hours with no lapse in operations.