Kinecta Lays Off Workers as Earnings Fall

One of the credit unions laying off workers last year was Kinecta Federal Credit Union of Los Angeles, which like others making job cuts has had tightening liquidity, falling loan originations and rising loan loss provisions.

Kinecta said it laid off 84 workers, and its WARN Act letter showed that they all worked at its operations center in El Segundo in Los Angeles County.

California’s Employment Development Office published a list of WARN Act notifications last week that erroneously stated it received a notice from Kinecta saying the credit union had laid off 215 workers Nov. 6. The office on Monday released the original letter and a list of jobs cuts sent by Kinecta that showed the planned number of layoffs was 86. The agency mistakenly included a list of jobs not affected by the layoffs to come up with the larger number.

Kinecta said it was able to absorb three of those people in other positions at the credit union, reducing the actual number of layoffs to 84. Kinecta’s letter said the workers remained on the payroll through Jan. 5.

Kinecta said it had 792 full-time and 30 part-time employees as of Dec. 31, or the equivalent of 807 full-time employees, including those laid off. NCUA data showed Kinecta cut the equivalent of 22 full-time jobs from September 2022 to September 2023, plus another six full-time employees by Dec. 31, excluding those laid off.

Kinecta emailed CU Times a comment from President/CEO Keith Sultemeier:

“Kinecta is evolving to better serve our community and members, and this journey has involved difficult decisions,” Sultemeier said. “We want to express our deep appreciation for the dedication and contributions of all our employees. For those who were impacted, we offer our empathy and support, and we’re committed to assisting with a smooth transition as we shape our new path forward.”

Positions cut included 18 mortgage loan consultants, four dealer relationship representatives, eight underwriters and seven loan processors.

Besides its operations center, NCUA data showed Kinecta has its headquarters and 24 branches in the Los Angeles area, four branches in New York, one in New Jersey and one in Boca Raton, Fla.

Like other credit unions that were laying off workers last year, Kinecta has been stressed by tighter liquidity, a steeper drop-off in loan production and a bigger drop in earnings than other credit unions.

• Earnings: Net income was $12.5 million from January through September, down 43.4% from a year earlier. Its annualized return on average assets was 0.25%, down from 0.45% for the first nine months of 2022. Low net interest margins explained the low base of ROA, and a big increase in loan loss provisions explained the drop. ROA for all credit unions was 0.76% for the first nine months of 2023, down from 0.88% a year earlier.

Non-interest expenses did not set Kinecta apart from other credit unions.

Its employee pay and benefits were about on par with others in the credit union movement. Employee pay and benefits were $73.4 million from January through September, down 5.2% from a year earlier. Pay accounted for an annualized 1.48% of average assets for the nine months, below the credit union average of 1.53% for the same period.

Other overhead rose 7.5% to $65.9 million for the nine months, or 1.30% of average assets, which was also below the U.S. average of 1.41%.

Kinecta’s net interest margin (NIM) was a far bigger factor in earnings. Its NIM was 2.67% for the first nine months of 2023, only 5 basis points lower than a year earlier, but it was significantly below the 3.03% average for all credit unions. Share certificates have grown to account for 41% of its total shares, compared with 24% nationally.

• Liquidity: Kinecta’s loan balance grew 9.5%, matching the national average. But shares fell 4.2% in the 12 months ending Sept. 30, compared with a 0.8% gain for all credit unions. As a result, Kinecta’s loan-to-share ratio stood at 103% on Sept. 30, up from 90.3% a year earlier and well above the 84.7% average for all credit unions.
• Originations: Total loans originated from January through September were $1.1 billion, down 56% from a year earlier, compared with a 30% drop for all credit unions.

First mortgages fell 27% to $493.9 million, compared with a 47% drop nationally.

Consumer loans fell 71% to $457.8 million. That basket, which includes auto loans, personal loans and credit cards, fell only 23% nationwide.

Based on Kinecta’s loan portfolio trends, auto loans were a major factor. They stood at $916.3 million on Sept. 30, down 10.7% from a year earlier. Nationally they rose 6.5% for all credit unions.

Residential real estate rose 5 percentage points to account for 57% of Kinecta’s loans on Sept. 30, well over 44% average for all credit unions. Meanwhile, auto loans fell 3 percentage points to account for 16% of its loans — half the 32% share for all credit unions.

However, loan quality was holding up — at least through September.

Kinecta’s September delinquency rate was far below the 0.53% average for all credit unions, and its net charge-off ratio was on par with the 0.55% credit union average.

Kinecta had $25.1 million loans that were at least 60 days delinquent as of Sept. 30. The 0.43% delinquency rate was up from 0.33% a year earlier. Pre-pandemic September rates were 0.35% in 2018 and 0.25% in 2019.

Net charge-offs were $24.5 million from January through September, up more than five-fold from a year earlier and generating a net charge-off ratio of 0.57%, up from 0.13% a year earlier.

With that, Kinecta provisioned $23.6 million in the first nine months of 2023 for loan losses, up from just $488,397 a year earlier. The increase in provisions was much larger than the U.S. trend, but the amount was on par with the year-to-date average for all credit unions.

Kinecta’s net worth ratio stood at 8.40% Sept. 30, slightly better than a year earlier. The credit union average was 11.02% in September, up from 10.60% a year earlier.