Credit union, sunk by auto loans, gets a new direction

Car loans gone sour sank Reno's Clearstar Financial Credit Union.

The acquirers of the failed credit union think the long-term future of the northern Nevada economy, as well as Clearstar's membership base of teachers and other school employees, paint a far brighter future.

Clearstar was acquired by United Federal Credit Union of St. Joseph, Mich., after Clearstar's board requested that state regulators declare their institution to be insolvent.

The state appointed the National Credit Union Administration, the administrator of federal deposit insurance for credit union members, as the receiver of Clearstar. NCUA, in turn, paid United Federal an undisclosed sum to merge with Clearstar.

Clearstar's branches re-opened as usual last Monday morning, and the change was mostly transparent to its 16,000 members. Deposits up to $250,000 per account were insured by NCUA.

The credit union, which aggressively purchased auto loans written by dealers during this decade's boom years, saw the loans weaken as borrowers lost their jobs in the recession.

"Loans that were good when they were made turned into bad loans," said Lynn Lundahl, previously the chief operating officer of Clearstar and now Nevada regional president of United Federal Credit Union.

The credit union had $2.3 million in delinquent loans on its books at mid-year, and posted a loss of $2.9 million in the first half of the year. Its assets totaled $141 million at the time of the merger.

George Burns, commissioner of the state Financial Institutions Division, said regulators began carefully monitoring Clearstar's condition about a year ago as its portfolio of auto loans began to weaken.

"They made valiant efforts to correct the weaknesses," Burns said.

Lundahl said Clearstar undertook major cost-cutting and tightened its lending standards as it sought to regain its footing.

The credit union's efforts also were being watched closely by executives of United Federal, a $1.1 billion, 95,000-member credit union with branches in Michigan, Arkansas, North Carolina and Ohio.

Duane Nelson, United's chief operating officer, said the Michigan credit union won a place on the list of financially strong and well-managed credit unions considered by the National Credit Union Administration as buyers of failed institutions.

United was drawn to Clearstar because of the long history of population growth in northern Nevada.

"There aren't a lot of people moving to Michigan, but people are moving to the Southwest," said Nelson.

United also was attracted by the stable employment of the membership of Clearstar. The institution, known as the Reno Teacher's Federal Credit Union when it was launched in 1949, continues to have a strong underpinning in the educational community. Its membership today is open to people who live, work or attend school in 13 northern Nevada counties.

United won bidding overseen by NACU among the credit unions interested in acquiring Clearstar.

John McKechnie, director of public and congressional affairs of NACU, said United "purchased all assets and assumed almost all

liabilities from Clearstar Financial Credit Union. NCUA has maintained a few outstanding contracts held by Clearstar Financial Credit Union, and is in the process of reviewing them to determine their disposition."

Nelson said the 10-member team from United that was in Reno last week to oversee the merger with Clearstar and its 40 employees don't expect to make any significant changes for several months.

"We're not trying to bring Michigan's culture to Nevada," he said.

The institution's failure appears to have been the first by a state-chartered credit union in the history of Nevada, although federally chartered credit unions in the state have failed, said Burns.

In fact, state regulators learned as they worked with Clearstar that Nevada law didn't specify a mechanism for officials to close an insolvent credit union on their own.

That lead to the unusual step in which the Clearstar board's requested that the state declare the credit union insolvent and appoint a receiver.

The all-volunteer board, Burns said, ensured that the transition was orderly.

"l have to commend the board of Clearstar Financial," he said. "They did the right thing for their members."