Additionally, Patelco feels Cal State 9 members have been underserved and provide the credit union potential for growth.

Sterlent's package includes AT&T employees, a SEG of Patelco's that Hunter said he wants to strengthen this year.

"There are a lot of credit unions in California we would not be interested in, but these two fit our strategic plan, and we felt there was value for all sets of members," he added.

The California Department of Financial Institutions issued a cease and desist order against Pleasanton, Calif.-based Sterlent Feb. 20 after bad indirect HELOCs purchased from World Savings/Wachovia Correspondent Brokers Network caused net worth to plummet to 5.14% by year-end 2007 and into insolvency by March 31, 2008.

Rather than place Sterlent under conservatorship, the California DFI appointed NCUA liquidating agent, which rounded up Patelco to purchase and assume the $94.6 million Sterlent.

Neither NCUA Director of Public and Congressional Affairs John McKechnie nor Hunter would comment on whether the NCUA's share insurance fund was used to mop up any of Sterlent's HELOC mess before transferring to Patelco's balance sheet, citing the confidentiality of purchase and assumption agreements. However, Hunter had

previously told the Credit Union Times that the NCUA's priority was saving share insurance funds, given the exponential leap in charges to reserves so far this year.

NCUA Director of Examination and Insurance David Marquis told WesCorp's Future Forum audience on May 20 that at the time, the agency had already charged $215 million to NCUSIF. That's up from 2007′s year-end total of $40.8 million and more than the total of all charges in more than a decade.

Patelco, a SEG and community based state-chartered credit union, is experiencing the same economy and mortgage issues that are plaguing most California credit unions but with a twist: bankruptcies are up.

Really up, as in, increasing nearly 10-fold. Three hundred twelve Patelco members filed for Chapter 7 bankruptcy during first quarter 2008, compared to only 39 during the first three months of 2007. Collectors in the tarnished Golden State have reported that homeowners who bought high and are now significantly upside down in mortgages are finding it easy to prove insolvency.

Despite some recent losses, Patelco is one of the few California credit unions that has actually gained net worth in the last 12 months. With a net worth to total assets ratio of 9.74%, Patelco appears to be in a prime position to not only absorb its own loan losses, but any left over at Sterlent and Cal State 9.

"Like most credit unions I know in California, these are difficult times, and we're having some loan losses," Hunter said. "But, when you consider the scale of our losses relative to our capital, we think we're in good shape. There's no doubt these credit unions had financial problems, but we've done the math and do not see a significant problem for our capital."

"And after all," Hunter added with a chuckle, "there's no way the regulators would have approved it if there was any doubt."

Patelco's purchase and assumption of Cal State 9 was originally announced on May 22. Cal State 9, like Sterlent, also had experienced HELOC losses but to a much larger extent: By the time regulators took over, the credit union had racked up $250 million in HELCO delinquencies. However, that book of business was purchased by an outside buyer and was not inherited by Patelco.

Hunter said Patelco is keeping all branches open and available to members and will likely continue to do so because branch locations were a big plus in both deals.

Sterlent members will be folded into Patelco first, even though the process will be more difficult operationally, as Patelco's core system is Summit, while Sterlent uses Harland's Ultradata system. The Sterlent assimilation should be complete in a couple of months, Hunter said, with Cal State 9 folding in a couple of months after that.

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