Economy takes heavy toll on local credit unions
| Saturday, Feb 06 2010 12:00 PM
Last Updated Saturday, Feb 06 2010 12:00 PM
Fifty-three million dollars sounds like a lot of money to lose in one year.
And it is, when you consider what the number says about the local economy. It's how much money, in total, the nine remaining, Kern-based credit unions reported losing last year.
The only year that came close to such a loss was 2008, when Kern's credit unions as a group lost some $31 million.
Credit union officials say the real story is the downturn in the economy -- layoffs and declining home values that led borrowers to default on their car loans, mortgages and credit card debt.
Credit unions are now focused on cutting costs and making only the most prudent loans. Even so, they do not expect to recover in a meaningful way until employment picks up significantly across the region.
"I think what we are experiencing ... is a situation of adapting to a long, recessionary economy," said Robert Boland, president and CEO of Ridgecrest-based AltaOne Federal Credit Union.
Having expanded perhaps too quickly when the economy was strong between 2005 and 2007, he said, AltaOne has frozen wages and hiring, as well as tightened its lending standards and income-verification practices.
"That doesn't mean we can't lend," Boland said. "We're still making good loans to good members."
As a representation of the institutions' collective financial performance, 2009's year-end tally is somewhat misleading. It reflects not just actual losses on bad loans but also preventative measures taken to protect against possible problems down the road.
In an effort to cope with increasingly worrisome loan portfolios, credit unions have tucked millions of dollars into loan loss reserve funds set up to cover potential future write-offs of loans. That money comes off the bottom line, and it contributed heavily to the red ink in 2009.
It also can be argued that the losses were partly beyond the credit unions' control. Some of them lost their investments when two out-of-state corporate credit unions were shut down by regulators.
One local credit union ultimately succumbed to the tough economy. State regulators shut down Kern Central Credit Union last month because of worries about its solvency. Its 2009 losses were not included in the $53 million total.
On the other hand, two local credit unions -- Bakersfield City Employees Federal and Safe 1 -- posted 2009 year-end profits of $45,000 and $1.5 million, respectively.
Donna Severs, CEO and manager of Bakersfield City Employees Federal Credit Union, credited her institution's good fortune to its stable, closed membership of city and transit system workers, a group that has avoided widespread layoffs. Another big factor was its decision to pull back from real estate lending a few years ago, she said.
"We've just tried to be real careful," Severs said. "So has everyone else -- I don't want to gloat. There but for the grace of God go us."
DeAnn Straub, president and CEO of Kern Federal Credit Union, attributed the institution's nearly $5 million 2009 loss to a first-quarter loss of about $8 million, much of that stemming from its exposure to a corporate credit union that failed. She said another big factor in the credit union's year-end loss was its members' inability to keep up with their car loans.
She nevertheless expressed pride in the fact that the institution was able to keep enough cash on hand to end the year with a capital ratio of 8.34 percent. That net worth-to-assets level, though below the 2006 level of 11.25 percent, signals that Kern Federal remains healthy.
"We'll continue to build that capital," Straub said, "so as we face these kinds of issues in the future, we'll have that cushion to be able to absorb them much better."
The lion's share of the county's credit union losses came from Kern Schools Federal Credit Union, the county's largest financial institution with assets exceeding $1.5 billion. It reported losing $40.6 million in 2009.
The credit union is making progress to stabilizing its finances. It has raised its loan loss reserve to $50.9 million -- more than five times the total just three years before.
President and CEO Steve Renock said he plans to institute a wide-ranging cost-cutting campaign, the details of which he would not provide.
"We're reviewing all our expenses to make sure we're prudent," he said.
Officials at the California Credit Union League noted that Kern's pain is shared by others.
"I would say what you're seeing in Kern County and Bakersfield is very reflective of what's been happening, you know, throughout the whole state," said Rita Fillingane, the league's director of research and information.
The group's senior regulatory analyst, Chris Collver, said credit unions' financial condition should raise no alarm, and that will turn around just as soon as does the economy as a whole.
"We're all in the boat," he said, "just kind of waiting to see."
