Worst May Be Over as Sand State Credit Unions Wait for the Dust to Settle
Maybe, say those CEOs who've been in the trenches all year watching their brethren in Nevada, Arizona, Florida and California succumb to in-state and out-of-state takeovers engineered by the NCUA or state regulators.
"Look, when you have WesCorp and all those charge-offs all year, you have to be concerned about more failures but I think since Ensign everyone is getting things under control," observed William Ferrence, president/CEO of the $515 million Boulder Dam CU. Boulder Dam is one of the largest Nevada CUs and is faring well above average with 9% capital and a lid on loan losses.
Ferrence was making reference to the NCUA's corporate assessment and the agency's Nov. 14 conservatorship of $98 million Ensign FCU. Like three other Nevada failures, capping the state's grim year, an out-of-state suitor, the $772 million EDS CU of Plano, Texas submitted the winning bid to take over Ensign in a NCUA purchase/assumption deal.
"You have to remember that we have been building reserves for 70 years for something like this but who could ever have imagined the situation could get so serious," said Ferrence who considered his CU, on the outskirts of Las Vegas, fortunate. "We sit fat and happy out here in Boulder City."
Brad Beal, president/CEO of the $783 million Nevada FCU, second largest, echoes Ferrence of Boulder Dam that perhaps "we may be bouncing along the bottom" of the cycle now while the Nevada economy "continues to languish."
The troubled CUs particularly in the Las Vegas market continued to draw sharp regulatory and public scrutiny. For one, the state's largest, the $883 million Silver State Schools CU, this month was reporting capital of 4.29% considered well below NCUA standards with the CU losing $36 million over the first nine months.
The Silver State management has been steadfastly mum all year about discussing its financial condition, making only brief acknowledgements of loan losses with published reports showing delinquencies now reaching 6.69% of the total portfolio. The president/CEO of Silver State, David Rhamy, is a past chairman of WesCorp and the Nevada Credit Union League.
Nevada FCU's Beal added, "Our own delinquencies, foreclosures and loan losses have stabilized over the last few months albeit at high levels....At least the economic 'free fall' seems to have leveled out."
And so the lessons learned by CUs for 2009 "are essentially finance 101 revisited: capital, liquidity and sound risk management are keys to survival," and while banks and CUs suffered "those who strayed from those principles are suffering most," maintained Beal.
The Nevada FCU CEO professed no interest in switching to private insurance, though some of the largest CUs in Las Vegas are with American Share Insurance of Dublin, Ohio. Among ASI clients is Silver State.
"There is no substitute for federal deposit insurance," argued Beal. He added, "Given that we are surrounded by economic uncertainty, the certainty provided by the full faith and credit of the United States government is vital to our members."
But ASI backers point out there was no run following the Oct. 24 purchase and assumption of $147 million Cumorah CU, an ASI client that was taken over by another ASI member, the $575 million Credit Union 1 of Rantoul, Ill.
ASI management in Ohio stated that the transition has gone smoothly, and there has been no need to increase assessments for any financial or "cosmetic" reason though this was the first major loss of its kind in years and a jolt to the system.
ASI will post a loss for the year forecast President/CEO Dennis Adams. In comparing the firm's plight to the NCUSIF's state, he noted that ASI's equity ratio remains at 1.42% as reported earlier this month and after accounting for the Cumorah failure.
In addition, on Sept. 25 the $940 million United FCU of St. Joseph, Mich. wound up the successful NCUA bidder for the failed $144 million Clearstar Financial CU of Reno, which got into serious trouble on faulty indirect loans.
That was preceded by the first Nevada out-of-state takeover in August by America First FCU of Utah assuming control of Community FCU of Las Vegas.
The Nevada failures came about the same time the out-of-state trend was picking up more sand state steam with the $4.1 billion Alaska USA FCU of Anchorage completing a Sept. 29 merger with the failed $85 million Members' Own FCU of Victorville, Calif. That CU was located 10 miles from High Desert CU of Apple Valley, Calif., also a NCUA takeover deal by Alaska USA in June, each aiding the bid by the Anchorage CU to expand its reach into the lower 48.
The situation in Arizona, particularly hard-hit Phoenix, was equally dire for many CUs closing branches and laying off employees, as they moved one step ahead of regulators.
So far NCUA or industry insiders have not revealed any regulatory shopping under way by out of-state suitors in Arizona. But there have been a number of troubled CUs in Arizona with the $1.5 billion Arizona FCU capturing the December headlines with its $42 million loss for the first nine months and the planned closing Jan. 30 of eight metro Phoenix branches.
The retrenchment underscored Arizona FCU's campaign to fix its balance sheet and also signaled the CU's exit from in-store branching, which once was held as a primary member-growth area.