Financial crisis hits Washington-area credit unions

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The financial downturn is putting the squeeze on local credit unions, pushing more than a fifth of the area’s 135 credit unions into the red for the first six months of 2008, according to an analysis of data from the National Credit Union Administration.

Average net income locally was down 56 percent from a year ago, driven by a 24 percent spike in delinquencies and a 16 percent bump in loan-loss provisions.

Credit unions are similar to banks, except that they are nonprofits, serve specific groups and are more consumer-oriented.

Their deposits are federally insured by the NCUA, the credit union equivalent of the Federal Deposit Insurance Corp. In October, the NCUA temporarily increased the amount covered to $250,000 per person, per institution through the end of 2009, after which it is scheduled to return to the normal amount of $100,000 per depositor, per institution.

The Washington area is a relative hotbed of credit unions. It has the nation’s largest credit union, Vienna-based Navy Federal with $34.7 billion in assets, and the third largest, Alexandria-based Pentagon Federal with $12.2 billion in assets.

Six credit unions claim more than $1 billion in assets. The median is $31 million.

Auto loans make up the biggest slice of local credit union lending, followed by first mortgages, lines of credit, other real estate loans, credit card loans and business loans.

For many local financial institutions, mortgages are a major culprit in their credit problems.

In this area, 78 credit unions have first mortgage loans or lines of credit in their portfolios. Mortgages and lines of credit make up an average of 21 percent of assets at those organizations — and in some cases they are a much bigger share.

At Kensington-based Lafayette Federal Credit Union, for example, real estate loans constituted more than 70 percent of its assets, though net income has not suffered over the past year.

Many other credit unions have not been as fortunate, and since the federal bailout package for financial institutions was signed into law last month, the National Association of Federal Credit Unions has been lobbying to get equal treatment with banks for government assistance.

Fred Becker, NAFCU’s chief executive officer, sent a letter Oct. 28 to Treasury Secretary Henry Paulson, urging him to include credit unions in all aspects of the Troubled Asset Relief Program “to ensure that credit unions are not inexplicably and unfairly constrained in their ability to resolve … the challenges they now face.”

Ironically, one of the credit unions hit hard by delinquencies in its mortgage portfolio is Treasury Department Federal Credit Union, which was $336,771 in the red during the first half of the year. It remains to be seen whether the organization will seek or receive help from its namesake.

The credit union suffering the highest loss was Manassas-based Synergy One Federal Credit Union, which has $199.9 million in assets and can serve anyone who lives, works, attends school or practices religion in Prince William County. It posted $947,257 in losses during the first two quarters of this year, driven by a $1.1 million loan-loss provision and a 136 percent surge in delinquencies. Credit card loans were the largest source of delinquencies at $928,027.