PHOENIX – The $1.7 billion Arizona Federal Credit Union recorded a nearly $116 million net loss and placed $174.5 million in loan loss provisions as of December 31, 2008, resulting in an undercapitalized 4.75% ratio.
AFCU began 2008 with almost 11% capital. What happened?
According to President/CEO Ron Westad, his institution's commitment to serving the underserved backfired when the real estate market turned south.
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"Our member demography is a lower income and a younger membership base, and so where we are at currently is reflective of our commitment to serve these individuals, as they've been the ones hardest hit by this economic downturn," he said.
In Arizona, the real estate bust has resulted in lost construction, retail and hotel/resort jobs, typically filled by young and poor workers.
AFCU has always managed higher delinquency and charge off rates as a consequence of serving that market, Westad said, but was able to offset credit risk by being more diligent in managing interest rate risk and following other asset liability management strategies. Historically, AFCU's combined delinquency and charge off ratio had run as high as 4% without affecting the bottom line. As of December 31, that ratio stood at 13.04%.
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