PLEASANTON, Calif. — Sterlent Credit Union here appears to be feeling the bite of the real estate downturn and is losing money, losing members, and may be facing regulatory action.
Figures for year-end 2007 are not yet available, but at the end of the third quarter 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.
In just 12-months Sterlent's net worth-to-total assets went into free fall. The CU suffered a staggering 28% drop in net worth to total assets of 6.08% from 8.49% the year before. Sterlent's assets are $107.7 million
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What looks to be the cause, based on an analysis of the CU's 5300 Call Report is the amount of indirect, outsourced real estate loans. Sterlent's percentage of indirect, outsourced loans outstanding to total loans is 45%, so almost half of its total loan amount of $84.7 million–some $38.5 million–came from indirect loans.
Sterlent's total loan delinquency at the end of September 2007 was $3 million with $2.9 million stemming from indirect lending in the Other Real Estate Fixed Rate/Hybrid Balloon category. There was $1M in foreclosures at the end of September. Year-end numbers are likely to be worse, given current market conditions.
The return on average assets has deteriorated, going from -0.21% in September 2006 to an abysmal -4.07% in September 2007 while the peer average is 0.71%. Membership is declining, too, with the slump taking its biggest hit in September 2006 at -14.32% then leveling somewhat in June 2007 at -0.89% and bumping badly again in September 2007 at -1.52% while peers posted 3.12%.
The CU has virtually zero credit card or business loan delinquency and is also selling off or cashing in its investments.
Sterlent's net income also switched direction, going from positive to negative. In September 2007 it was $-3.4 million, versus $292,162 at the end of 2006. The CU put aside $2.7 million as allowance for loan losses in September 2007 and only $402,592 in September 2006.
Sterlent CU is also vulnerable for its 586 HELOCs, which total $39 million. Yet the CU barely has a first mortgage footprint, recording only 62 first trust deeds, all of which are current. It also falls squarely into the category of loans via third-party vendors of which NCUA has been wary. The vendor source of Sterlent's program is unknown.
NCUA Director of Public and Congressional Affairs John McKechnie remarked that at press time, "Sterlent is under normal supervision. NCUA is closely monitoring the situation at the credit union."
President/CEO Sue Raines did not return a call seeking comment, e-mailing that she was tied up in meetings all week. Raines sent the following comment to Credit Union Times: "Sterlent Credit Union has experienced higher than usual delinquencies in our home loan program during the later part of 2007. While we had adjusted our loan program in late 2006, anticipating adverse market conditions, we began to experience increased loan delinquencies in the second quarter of 2007, from loans made in prior years, which we attribute to the downturn in the real estate market.
"It's important to understand that our home loans were made to very creditworthy borrowers, secured by California properties," Raines stressed; "these are not classified as "sub-prime" loans. We have a team in place working on our delinquencies and are working closely with our members to accommodate them with workout loans in every way we can. We're also in close communication with our regulators to keep them updated on our loan situation and the steps we're taking to meet our members' needs. These delinquencies have not impacted our ability to serve our members in any way. We're confident we can work through this situation with the best interests of our members in mind."
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