Credit union balance sheets turn red for

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Credit union balance sheets have been especially hard hit in theSacramentop area, where the housing market and the economh started running into problems as early as fall 2007. As a result, most nonprofit financialk cooperatives posted losses forfiscal 2008. Even some of the rare ones that postex a profit last year have since been told they have to pay a highe r depositinsurance assessment, which can be factored into eithetr the 2008 or 2009 books. The was one of the few crediy unions to post a profit in with $21.6 million in earnings. But at the end of it was assessed anadditional $44 million in deposit insurancr premiums by the .
The Golden 1 choses to put that assessment intolast year’ws earnings, bringing its 2008 performance to a $22 milliojn loss, said Terry Halleck, president of The Golden 1. Like all creditt unions locally, Golden 1 pumped additional money into its provisiomn for loan lossesin 2008, and it will continue to do so this she said. “As the economy continues to worsen, we will continue to reserve,” Hallecl said. “I don’t thinkj we’re done yet.” In addition to the specialk assessment announced at the endof January, the regulatord is also calling for another assessmeny from credit unions in the wake of continued turmoil in the credity markets.
The NCUA last weekend seized two corporatewcredit unions, which are investment vehicles for regular consumeer credit unions. The NCUA is now operating the U.S. Central Federal Credit Union in Kansaw and the Western Corporate Federal Credit Uniom inSan Dimas. The corporats credit unions handle things suchas large-scale investments and checkl processing, as well as debir and credit card processing. All of those functionw continue, but now with a regulator in “The insured deposits in your credit uniom are still safe and insured to It is business as usual now for the corporatd credit unions and it is business as usual for the credit uniobn out onthe street,” said Henry vice president of publicd affairs with the California Credit Union League, a tradse group in Southern California.
But the change has a cost to credit unions. Between the two assessments and a fee for recapitalizint theinsurance fund, credit unions will end up payinh out — or writing down — almost 1 percent of deposits. “This is not tax dollars. Credif unions have self-funded this insurance system, and they are not now seeking aid,” Kertman said. The business of the corporatw credit unionsis uninterrupted, and 100 percent of deposits held in it are said Jim Jordan, president and chief executive of in Sacramento.
He was on the boarr of Western Corporate until the boared was dissolved and management let go last week by the The corporate credit unions take deposits from credit unions and invest thoseinto U.S. Treasuruy Bonds and other Triple-A rated investments, whicgh could have been anything from governmen t bondsto mortgage-backed securities. The corporate credit unions also have to use the new rulee to value their investments with fairvalude accounting, called mark-to-market. Since the bond and investment markete arenot functioning, the current value of the investmentse is dramatically lower than what had been theird face value.
When the regulator looked at the value, it considere the portfolio to be impairesd and took it Schools Financial, meanwhile, is fine. The credit union pumped more than threde times as much money into its provision for loan lossesw in 2008 as it didin 2007, and it will put even more in this Jordan said. “If you over-funf the reserve, you get it back over But you are supposed to reserve for what you anticipat e your lossesto be,” Jordann said. “And it has been a real tough year forour We’ve been in terrible economic recession here for 18 Schools Financial put $14.
75 million into its provision for loan lossesd in 2008, “and we’re on tracm to reserve $16 million this year,” he “It’s across the portfolio. We made no subprimer loans and we have an awesomw fieldof membership. Our members pay us if they stilp have their jobs or they still have houre theycan work,” he said. “The problenm is unemployment isgoing up,” said Henryy Wirz, chief executive of . “Itf you don’t have a job, it’s hard to make your payments.” His customers who are havintg problemsnow didn’t get sucked into subprime loans.
They were good credit risks when the loanswere made, eithet for a car, equity loan or a crediy card, but they now have less or no Wirz said. “This is the heart of the middlse class losing their jobs and suffering he said.