Wescom (Pasadena, California)

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Pasadena's Wescom Credit Union, the seventh-largest in California, recently (summer 2008) closed 11 of its 55 branches to cut costs. The action followed losses totaling $34.9 million in 2007 and $10.9 million in 2008's first half as delinquencies surged on home equity loans, credit cards and auto loans.
Wescom Chief Operating Officer Jane Wood said the home equity loans "weren't risky when we made them. They only became risky when housing prices fell more than anyone was predicting," wiping out the equity behind the loans.
Wescom officials say that their institution remains solid and that adding aggressively to provisions for losses (a prudent policy for the long run) contributed to the recent negative earnings.
Overall, credit unions are maintaining solid capital or net worth, an indicator of their ability to withstand losses, but loan delinquencies have more than doubled over the last two years, as has the percentage of loans recorded as uncollectable.
The National Credit Union Share Insurance Fund, the credit union equivalent of the Federal Deposit Insurance Corp. for banks and thrifts, insures 7,972 state-chartered and federal credit unions.
At the end of August 2008, the insurance fund had $7.43 billion, or 1.24% of all insured deposits, which is considered a healthy level.
An institution's capital ratio (net worth divided by loans and other assets) should be above 7% for it to be considered well capitalized, but many credit unions are in the 9% to 10% range.
The trouble is, adding to reserves reduces capital. Wescom made a one-time addition of $12 million to its loan-loss provisions, which gave it a capital ratio of 7.2% at the end of June, just above the "well capitalized" benchmark.
Consumer credit unions generally didn't make dicey mortgages during the housing boom. Nonetheless, some are paying a price after venturing well beyond their traditional offerings (plain-vanilla home and auto loans and credit cards) to offer a broader array of financial services, including commercial loans.
These depositor-owned institutions, like community banks, have been pressured in recent decades as national lenders turned their core business lines (credit cards, first mortgages and auto loans) into mass-market commodities, reducing profits. That tempted credit unions to move into riskier areas, such as home equity lines of credit and auto loans made through used-car dealers.
With rising unemployment compounding the effect of tumbling home prices, more than a third of California's 485 federally insured credit unions lost money in the first half of 2008, and three were seized by regulators.
The number of money-losing credit unions nationwide as well as in the state has surged about 75% from last year, according to the National Credit Union Administration, a federal regulator.
With some so-called corporate credit unions )institutions that act as backup sources of funding for the credit unions used by consumers) having problems with mortgage-backed bonds they own, Congress passed and President Bush signed legislation raising the amount that a quasi-governmental entity can lend to credit unions to $41 billion, up from $1.5 billion.