In separate moves, two of the struggling sand state credit unions, the $851 million Arrowhead Central CU in California and the $370 million AEA FCU of Yuma, Ariz., found themselves suffering more of the recession's fallout this month, prompting a spinoff of branches, deep cuts in loans and staff reductions.
The retrenchment of Arrowhead of San Bernardino, aimed at raising 80 basis points to its net worth ratio, was highlighted by the sale of five High Desert and Big Bear branches to the $3.9 billion Alaska USA FCU of Anchorage, which itself is bent on expanding its Southern California footprint.
And AEA, which has been under NCUA scrutiny for months and operates in a low-income area of the state with 20%-25% unemployment, said it is closing a downtown branch in mid-April while it pares its 180-employee payroll by 10% and makes further cuts in its loan portfolio following losses and high delinquencies.
AEA management conceded it also has put out feelers about a possible merger but has more recently abandoned the idea, choosing instead go it alone. That is based on the notion that "no one wants an underperforming loan portfolio, and we think we know how to fix our problems," said Denise McGregor, executive vice president.
The Arizona CU lost $25.9 million last year and its net worth ratio has been at 2.9%, according to the NCUA.
As for Arrowhead, its net worth ratio dropped from 7.56% to 3.44% between December 2008 and December 2009. Its ROA was negative 4.87% as of year-end.
Under its proposed agreement with Alaska USA, subject to regulatory and member approval, Arrowhead is shedding five branches and member accounts in Victorville, Apple Valley, Barstow, Hesperia and Big Bear, to the Anchorage CU.
According to Larry Sharp, president/CEO of Arrowhead, the CU has cut operating expense by 40%, reduced its staff by a fifth to 400, down sized the loan portfolio in three areas-autos, home equity and RVs. These moves, he said, have already triggered a decline in delinquencies as "this economy is still hurting with 14% to 15% unemployment," said Sharp.
Though Arrowhead suffered a $45 million loss last year on top of $29 million in 2008, Sharp said the last few months have seen "the right things happen for us" in a return to profitability.
"Our first two month's earnings are $1.028 million, and our estimate for the first quarter is $1.3 million," projected Sharp.
Arrowhead's pull back has included the closing of four branches and the sale of a small insurance CUSO allowing the "the credit union to end up on a more mature footing," maintained Sharp, noting that in dealing with the NCUA on the CU problems "we have spoken out when we needed to." Separately, Arrowhead also closed its specialized auto repossession re-sale lot, Arrowhead Motors, in early January.
In a press statement, Arrowhead said with the sale of the five branches to Alaska USA, the credit union would see an increase in its net worth ratio from 3.44% to about 4.5%.
"This action, coupled with our recent trend of profitability, will have an overall positive effect on our financial condition," said Sharp.
For Alaska USA, the acquisition of the five branches represents a further penetration into southern California's high desert area east of Los Angeles. This area has experienced the worst of the California housing collapse but yet, to the Anchorage CU, holds a huge potential for future growth, officials have said.
Under NCUA bidding procedures last year, Alaska USA was the successful acquirer of the $85 million Members Own FCU of Victorville and the $110 million High Desert FCU of Apple Valley.
In the case of Arrowhead, however, Dan McCue, senior vice president-marketing at Alaska USA FCU, said negotiations on the five branch sale "have been directly with Arrowhead" and not with the NCUA.
NCUA officials in Washington have stressed that the branch sale to Alaska USA still needs regulatory and member approval. Arrowhead has projected that once cleared, transfer of member accounts would become effective June 6.