Even if they don't have direct exposure to the housing market, California's credit unions are feeling the economic woes affecting their nearly 10 million members.
"The member may have a credit card and an auto loan from the credit union, then went and got in trouble with an exotic loan from someone else," said Daniel Penrod, an analyst for the California and Nevada Credit Union Leagues, a trade group.
"The credit union might not have been part of the disease, but it's dealing with the symptoms," he said.
Pasadena's Wescom Credit Union, the seventh-largest in California, recently 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.
Dealing with similar problems, Kinecta Federal Credit Union of Manhattan Beach, founded in 1940 to serve Hughes Aircraft employees, lost $10.6 million in the first six months of the year.
Wescom and Kinecta officials say that their institutions remain solid and that adding aggressively to provisions for losses -- a prudent policy for the long run -- contributed to the recent negative earnings.
Many other credit unions adopted similar strategies last year as housing woes hurt the economy, Penrod said.
Overall, he said, 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.
Liquidating Cal State 9 and another failed Northern California credit union, Sterlent, cost the National Credit Union Share Insurance Fund more than $200 million in July.
That triggered the record $225-million loss for the fund, the credit union equivalent of the Federal Deposit Insurance Corp. for banks and thrifts, which insures 7,972 state-chartered and federal credit unions.
At the end of August, the insurance fund had $7.43 billion, or 1.24% of all insured deposits, which is considered a healthy level, said National Credit Union Administration spokesman John McKechnie.
