SAN DIEGO (8/27/08)--Credit unions in San Diego have the capital to weather the economic storm, according to Daniel Penrod, California Credit Union League analyst. Delinquencies at San Diego credit unions increased to 0.83% in 2008 from 0.48% in 2007. “Even though that number seems like a large jump, banks would kill for that number,” Penrod told News Now. “Below 1% is phenomenal.” In March, San Diego credit unions had capital levels of 10.30%. Six percent is the minimum that the National Credit Union Administration requires to be capitalized, and 7% is considered well-capitalized, he added. “I doubt you’ll see a fallout from San Diego credit unions,” Mary Cunningham, CEO, USA FCU, San Diego, told News Now. “It’s been tough, but we have good capital levels.” San Diego is one of the “hot pocket” boom areas, along with other areas in California, Florida, Arizona and Las Vegas that are being hurt by the tremendous devaluing of homes, she said. The San Diego Union-Tribune recently featured credit unions in an article about the local impact of the housing meltdown. In the beginning of the market turmoil, San Diego struggled more than other areas in the state. But San Diego credit unions might actually be leaders in becoming financially strong again. “They peaked earlier, and will come out earlier and stronger,” Penrod told News Now. USA FCU posted a $5.7 million loss last year and decided to “get ahead of the freight train” by dealing with the loss head-on. USA beefed up its reserves--taking the loss immediately would position itself to do better this year, the credit union reasoned. “Not all credit unions in San Diego did that,” Cunningham acknowledged. Credit unions who beef up their reserves aren’t interested in having losses trickle in, Penrod said. “They’re looking two to four quarters ahead. They have the money now and are putting it away now.” The challenge for credit unions is not to have a knee-jerk reaction to losses by pulling loan programs that members need. Some financial institutions are risk-averse and tighten belts when the going gets tough, Cunningham said. “You have to make sure you know what the risks are,” she said. It’s also important for a credit union’s board to be comfortable dealing with losses. “Posting losses every month will rattle even the most steady board. We don’t want a board to overreact and tighten credit and do a disservice to members. That played a lot into our decision [to beef up reserves],” she said. Credit unions are affected by the subprime housing market troubles, though credit unions didn’t offer the “liar loans” many consumers are trapped by. “Members were still enticed to go elsewhere and get [subprime loans],” Penrod said. Wall Street expects another large bank to fail, and if it does, credit unions will have an opportunity to tout their strength. Potential members will see the wisdom of credit unions and their conservative lending practices, he added. “The key is that, even with the economy, they’re still lending money, and their loans are very strong,” he said.