Sterlent Credit Union Moves From Shaky Ground to Insolvency
PLEASANTON, Calif. -- The struggling Sterlent Credit Union here is now an insolvent financial institution.
The $98 million asset institution posted a net income loss for the quarter ending March 31 of $5.5 million. Sterlent has been operating under a cease and desist order from the California Department of Financial Institutions since Feb. 20.
At the end of the third quarter of 2007, Sterlent's net worth ratio was 6.08%. Although that earned an adequately capitalized rating, it was barely above the mark at which prompt corrective action is set in motion. At year-end, its net worth was 5.14%. Sterlent's net worth is now negative 0.29%.
With delinquencies at 3.76%, charge-offs for the quarter ending March 31 at $3.8 million, and a return on assets of negative 22.13%, the CU is either facing conservatorship, liquidation or forced merger. Sterlent has set aside $5.3 million for provision of loan and lease losses.
Credit Union Times called the California Commissioner of Financial Institutions office of William Haraf, and Bert McLane, financial institutions manager for the Department of Financial Institutions for comment. Alana Golden, spokeswoman for the DFI acknowledged the contacts via email, writing, "DFI and NCUA are working togetherto protect the interests of depositors through enforcement ofstate and federal laws."
Credit Union Times also left a request for comment with Sterlent CEO Sue Raines, which was not returned. Sterlent is state chartered and is federally insured by the NCUA. NCUA Director of Public and Congressional Affairs John McKechnie referred inquiries to the state regulator.
The cause of Sterlent's problems is the amount of indirect, outsourced real estate loans. The total adjustable rate of real estate outstanding at the end of March was $34.3 million, down 10.3% from the year-end figure of $38.2 million. Delinquencies for that category is $2.9 million. Delinquencies for all loan types is $3.1 million (two months and more), so loan problems are clearly related to real estate. The CU has virtually zero credit card or business loan delinquencies and shows no foreclosures on its latest financials.
Sterlent's percentage of indirect, outsourced loans outstanding-to-total loans remains at 45% for total loans of $83.2 million, some $41.6 million.
Like Cal State 9 CU, this dependence on loans not generated by the CU itself falls squarely into the category of loans via third-party vendors of which the NCUA has become more wary, issuing letters to CUs of new requirements for increased due diligence. The vendor source of Sterlent's program remains unknown at this time.
Raines was appointed Sterlent president/CEO in May 2007. She joined the CU as senior vice president of operations in May 2005. She began her career in the industry in 1998 working at The Golden 1 Credit Union, serving as vice president of real estate and equity lending.
Last January, Raines said via email that although the CU had experienced higher than usual delinquencies in its home loans in late 2007, the institution had adjusted its loan program in late 2006 and that the problems loans had been originated in previous years. She stressed that the CUs were secured by California properties and not classified as subprime. "We're confident we can work through this situation with the best interests of our members," she added. (CU Times, Jan. 16, 2008.)
Those comments preceded the Cease and Desist Order however, and the CU's filing shows a further deteriorating situation. Credit Union Times has learned that efforts are underway to broker a merger with a much larger, solvent institution.
One possible merger possibility is Patelco CU in San Francisco. Credit Union Times contacted Alison Jones, Patelco's senior vice president of marketing to inquire if such a merger was being negotiated. ""I'm sorry, but we can't comment on that at this time," responded Jones.