Wescom's financial problems showed up on its NCUA report back in the third quarter of 2007, when it first posted a negative return on assets. In the past 12 months, the country's 12th largest credit union has lost $150 million in assets, posted a 2007 year-end net loss of nearly $35 million and is operating with a $10.9 million net loss so far this calendar year. The usual SoCal suspects now have fueled the losses: sinking home values, rising foreclosures, high fuel costs and lost jobs, which have resulted in increased delinquencies, charge-offs and bankruptcies.
However, second-quarter financials posted recently on the NCUA's Web site (www.ncua.gov) showed some improvement. Wescom stabilized its net worth, seeing a slight rise to 7.29%, and reduced its net losses by more than half compared to first quarter's losses. And, Wescom still continues to enjoy a robust net margin, which increased second quarter to 4.84% of average assets.
"We're seeing some positive trends, in part, as a result of the initiatives we put into place during the first half of 2008," Williams said. "On the balance sheet side, we've been able to maintain our margins. That's never been our problem. Using [asset liability management] techniques, we had hedged appropriately for long-term assets, like our mortgage portfolio, so there's never been any challenges on the margin side."
Wescom's mortgage portfolio has never stopped growing despite the losses, and the credit union saw a healthy $41 million gain in its real estate loan portfolio in the second quarter alone. Williams said the activity is both refinancing and new purchases. And, apparently, members are choosing Wescom's plain vanilla mortgage offering of traditional 20% down, 30-year fixed mortgages.
Despite the encouraging revenue flow, Williams said he's preparing his credit union to withstand even more economic struggles among its membership.
"My first job in consumer credit was in the late 70s, and back then, the prime rate was 20.5%. Today, people can't even believe that actually happened," he said. "But in my 30-year career, we've never seen anything like this. I don't see loan losses declining significantly over the next six months, and I think our members are in for tough times ahead."
Delinquencies are across the board, in real estate and consumer lending, particularly auto loans. However, Williams said his direct and indirect auto loans are defaulting at pretty similar rates, but Wescom decided last year it would no longer use indirect lending as a membership tool, offering it as a service for existing members instead. Wescom's membership growth numbers have slowed as a result, he said.
Wescom's Southern California community charter includes five of the worst foreclosure metro areas in the country: San Bernardino/Riverside, Orange County, Los Angeles, San Diego and Ventura are all included on RealtyTrac's Top 20 foreclosure list.
Variable-rate mortgage resets are adding as much as an extra $900 to monthly mortgage notes, and gas prices are also a big factor, with some Wescom employees paying an extra $350 per month in gas to commute to work, Williams said. The CEO said commuting and childcare expenses are so high it's driving a trend in which some couples decide it's better to keep one parent at home.
The branches, which Williams said are earmarked for consolidation due to small deposit and membership bases, a lack of growth and proximity to other branches, will close on Sept. 12. Job eliminations occurred primarily in branch operations. However, the credit union also streamlined some other operational departments and cut redundant positions. For example, Williams said, one origination department will serve both Wescom's internal real estate department and its mortgage CUSO.
When Wescom eliminated 113 positions this past January, all but 20 affected employees accepted open positions elsewhere in the credit union. While Williams said he doesn't expect as many to stay this time, he does have plenty of open positions that fit affected employees' existing skill sets.
Sunday hours, which had just been honored a couple of months ago by the Marketing Association of Credit Unions as a MACQUEE runner-up, have been discontinued in all but in-store branches.
Williams said his relatively new check cashing business isn't contributing to the credit union's losses. In fact, Wescom is experiencing a 50% success rate in convincing payday advance customers to open an "Easy Start Savings" account, funded by a substantial rebate on payday loan fees.
"We weren't sure what to expect, but we were hoping it might assist them with their next financial need and avoid the next payday loan," Williams said. "But we're finding they don't want to touch it, because in many cases, they've never had a savings account before, and they want the money to accumulate. We find that encouraging because if they take the money out to avoid the next payday loan, that's great; but they're more or less just covering daily expenses, it's not a long-term solution."
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