After Heavy Loan Losses, Credit Unions Prepare for Worst

While commercial Banks get most of the press when it comes to souring loans and dwindling capital levels, many credit unions are dealing with the same issues and reported heavy losses, with some taking heavier hits than others.

North Island Credit Union reported a first quarter loss of $59.4 million. This is on top of its 2008 full year net loss of $50.2 million.

The county? fourth largest credit union with $1.5 billion in assets said it? taking a more conservative approach to setting aside reserves for problem loans, and paying special attention to real estate-related loans where the loan to value exceeds 100 percent.

?y planning for the worst case scenario, those reserves are set aside and eliminate the likelihood of future large transfers,?said Jack Lewis, chairman of the board.

Due to all the red ink North Island is bleeding its capital ratio, or retained earnings divided by total assets, which was 2.68 percent as of the end of March. That now classifies the credit union as significantly undercapitalized.

Unlike Banks, credit unions can? sell stock to raise capital, and have to get it by generating profits. North Island has had a few months of profits, and as of April boosted its capital ratio to 2.81 percent, said co-CEO Geri Dillingham.

In addition to closing three branches and laying off about 100 people in recent quarters, North Island is also looking at novel strategies such as leasing out some of its Kearny Mesa headquarters building, Dillingham said.

Mission Federal Credit Union, the area? second largest credit union with $1.9 billion in assets, had to restate its 2008 results, taking a $22.9 million loss instead of the previously reported $5.6 million net profit.

CFO Ron Araujo said Mission, and all local credit unions, will likely have to do the same because of having to pay millions to replenish the industry? insurance fund, and because all hold shares with Western Corporate Federal Credit Union, a corporate credit union that provides such services as investments and check-clearing to smaller, retail credit unions.

When the industry? regulator, the National Credit Union Administration, put Westcorp and another major corporate credit union, U.S. Central Federal, into conservatorship in March, that wiped out all the capital investments of the smaller credit unions.

In Mission? case, the write-off of the capital was $9 million.

Mission is also increasing its loan loss reserve balance, especially for real estate-related loans. For the first quarter, it put aside an additional $12 million, and that caused it to report a net loss of $4.2 million in the first quarter.

On a positive note, Mission still has a nice capital cushion at 8.45 percent, meaning it? well-capitalized, but that? down from 9.22 percent in December.

California Coast CU, the third largest credit union with $1.8 billion in assets, took a $5.2 million net loss in the first quarter, following its 2008 net loss of $50 million.

CEO Marla Shepard said the loss wasn? a surprise since the credit union budgeted a 2009 net loss of $6 million due to its problem loan portfolio. Cal Coast reported its delinquent loans past due more than 60 days at March 31 totaled $22 million. In the first quarter, it put aside nearly $14 million into its reserves, bringing the balance to $35.6 million.

?e projected the first three to four months of the year would be the toughest, and that we?l look better in the second half of the year,?Shepard said.

Cal Coast has reduced some expenses through its merger in 2008 with First Future Credit Union, and closed three offices during the quarter to bring its total branches to 25, but has not had to do layoffs, Shepard said.

On the plus side, Cal Coast is seeing heavy demand for mortgage refinancings and new mortgages, but auto loan demand remains weak.

???p>PacWest Bancorp Feels The Pain:

San Diego-based PacWest Bancorp, parent of Pacific Western Bank with $4.5 billion in assets, is well-positioned to ride out the recession better than most thanks to a $100 million capital infusion from a private equity group. But the lousy economy is still impacting the bank? bottom line.

As of March 31, PacWest reported $186 million in nonperforming assets, including $47.7 million in real estate owned. That meant 4.69 percent of its loan portfolio was having problems, up from 2.6 percent at the end of last year, and only 0.96 percent as of last March.

PacWest reported net income of $1.4 million for the first quarter, compared to $9.6 million for the like quarter of 2008.

The big capital infusion in January helped propel Pacific Western? Tier 1 leverage capital ratio at March 31 to 10.76 percent, up from 10.43 percent as of Dec. 31, and is more than double the minimum ratio to be categorized as a well-capitalized bank.

???p>Small Change:

Bank of Internet USA reported net income of $2.6 million for the March quarter, compared to $1 million in the like quarter a year ago. For the savings bank? nine months, it had net profit of $3.5 million compared to $2.4 million for the like period of fiscal year 2008. BofI said it would have had even higher profits if not for having to take a $7.9 million hit on the sale of its Fannie Mae preferred stock ?California Coast Credit Union hired Todd Lane as chief financial officer ?Seacoast Commerce Bank named Rick Visser as chief credit officer ?JPMorgan Chase Bank said it made $6.8 billion in new loans in California during the past quarter, including $4.5 billion in mortgages, most of it refinancings.

Send any news on local financial companies to Mike Allen via e-mail at mallen@sdbj.com. He can be reached at 858-277-6359.