The three are the $31 million LifeTime CU and the $53 million Allco, both of West Allis, and the $32 million First Security CU of Elm Grove. All three were among the 25 Illinois and Wisconsin CUs invested in Central States; the Wauwatosa, Wis., CUSO lost large sums on faulty subprime mortgage pools and ended up in a Milwaukee bankruptcy court and subsequently was liquidated this spring.
LifeTime, which lost $2 million in the first quarter on Central States write-downs, has already chosen $1.3 billion Landmark CU of New Berlin, Wis., as its merger partner. The merger is expected to be effective June 30.
The NCUA said it has asked both Allco and First Security to "consider the possibilities" of merger.
Both CUs have suffered loan losses in the first quarter, and maintained low net worth ratios in 2008.
NCUA policy forbids comment on the merger process, but the agency said that Allco and First Security "are undercapitalized per their 5300 reports and are subject to net worth restoration plan requirements."
LifeTime President/CEO William Kuter acknowledged the financial distress of his CU tied to the downfall of CSMC and suggested more CUs in metro Milwaukee with investments in the CUSO have also suffered losses. He said all of them were surprised last fall by the unfortunate events at the CUSO.
On LifeTimes' Web site (www.LifeTimecu.org), Kuter noted the "declining financial condition" of the CU in recent months, stressing, however, that its losses are not related to everyday operations. LifeTime could have put together a net worth plan with regulators but opted instead to merge with another credit union, he said.
"Faced with unexpected losses, LCU's board and management team faced two options: craft a net worth restoration plan with regulators or merge with another credit union," wrote Kuter.
"Since March, we've wrestled with which option is in members' best interests over the long term," he continued. "Pursuing a restoration plan would've resulted in lower returns on savings and deposits, higher loan rates and higher fees to members over the next five to seven years."
Ultimately, he concluded, "this was not acceptable."
Allco and First Security were also weakened by their Central States write-downs. Allco, which had a first-quarter loss of $146,000 and a net worth ratio of 2.7%, while First Security had a net worth ratio of 0.29%. First Security had a net loss of $2.3 million in the first quarter.
The $190 million Prime Financial CU of Cudahy has suffered a worse fate, having lost $8 million in 2008; it was seized by NCUA and state regulators in February and remains in conservatorship.
Also suffering a $2.3 million loss last year was the $280 million Guardian CU of West Milwaukee, which recently figured in a legal dispute over a breach of contract claim involving Richard Koenig, the former chairman of CSMC.
Asked for comment on the CSMC fallout, Brett Thompson, president/CEO of the Wisconsin Credit Union League, which was also a CSMC investor, said the problems of some small Milwaukee CUs hit harder by the Central States situation is atypical compared to the rest of the industry. Wisconsin CUs "performed very well last year," among the best in the U.S, he said.