How Healthy Was Women’s Southwest Federal Credit Union?

On October 31 2012 the National Credit Union Administration announced the liquidation of Women’s Southwest Federal Credit Union (WSFCU) of Dallas, Texas. NCUA states that it made the decision to liquidate WSFCU “after determining the credit union was insolvent and had no prospect for restoring viable operations.” A key question is whether the deteriorating health of this credit union was a recent phenomenon. Our analysis suggests it wasn’t.

According to the NCUA call report data and the agency’s publically-available statement, the “credit union served 743 members and had deposits of approximately $2 million. The credit union was originally chartered as Feminist Southwest Federal Credit Union in 1974, at the time of closure WSFCU served numerous select groups centered primarily on women’s advocacy, interest, and affiliation. The credit union also served an underserved area in Dallas and other affinity groups.”

After analyzing the health of this credit union using our HealthScore method, it would appear that it had persistent long-standing problems. The chart below, which compares ten years of credit union score calculations to the industry average, illustrates this conclusion.

Women's Southwest Federal Credit Union
Women’s Southwest Federal Credit Union

Of course, in the grand scheme of things this was truly a very small credit union whose failure barely registered. Its size and relative obscurity made the story easy to miss. However, we should not ignore two critical concerns drawn from the WSFCU failure. Our first concern is that new credit unions chartered to serve “underserved” areas continue to be approved for operation. Our suspicion is that these credit unions will suffer a similar fate, a suspicion based not only on the performance of credit unions such as WSFCU, but also on the fact that larger credit unions granted underserved field of membership segments find them to be costly to support and have begun inching away from their commitment to market service. Clearly underserved-focused credit unions need a better business model given the unique risks associated with the charter type.

Another, perhaps greater concern is that we calculate over 600 credit unions (as of second quarter data) that have a similar comparison disparity to the industry’s broader HealthScore. That these credit unions seem to continuously ignore opportunities for survival, such as through merger with better-capitalized credit unions, seems a disservice to member-owners. One can appreciate the determination any management team has to overcoming poor performance and health, but at a certain point allowing long-term underperformance such as that illustrated above is far from admirable.

We certainly don’t wish for any credit union to perform poorly, let alone to find itself mired in the process of forced liquidation. We do wish, however, that those credit unions with chronically poor financial health or challenging markets use the experience of WSFCU as motivation to find solutions for health and service improvement that allow for members to retain their voice. Forced closure and liquidation is not it.


    1. Sheryl,

      I appreciate your comments. My contention is that this credit union failed because it was perpetually unhealthy – a situation that began before the timeframe covering the embezzlement. The fact that the credit union was allowed by its board to perform this way as long as it did was a disservice to the membership. I believe the board’s allowance lead to its failure. Based on performance alone the board should have removed the CEO some time ago, and had it done so the damage caused by this reckless CEO would have been minimized.

      As for the underserved charter connection, while I never stated in my post that it failed because of its charter I remain convinced that credit unions solely focused on underserved charters have a more difficult time attaining a level of health sufficient to sustain operations. I have have worked with a few credit unions that had issues with internal fraud. Each is still here because their financial health allowed them to withstand incurred losses. If a credit union is in a poor position of health and is confronted with embezzlement, the chances of recovery are much less assured. Credit unions with pure underserved charters, as I mentioned in my original post, tend to be less healthy than industry peers which means diminished ability to withstand financial hits. That pretty much describes the WSFCU situation.

      Note that I am not against the concept of serving underserved markets. In fact, I believe doing so is a core credit union responsibility. We cannot, however, turn a blind eye to the very real challenges inherent in underserved charters.


      1. As a member of the credit union, I was not told anything about the embezzlement, bankruptcy, or closure, so all I know comes from what I read on the Internet. And I read there that she fooled the Board and lied to it. I do not know if there were clear CEO performance issues. I know that WSFCU had been in existence since the ’70s and merged a couple of years ago with another credit union (the one to which I had originally belonged). I’m just really angry at what happened and how it was handled (no communication from either WSFCU or the CU to which member accounts were transferred), even though individual members did not lose our funds. But my anger is primarily directed at the CEO who committed this fraud and caused the closure of the last women’s/feminist credit union in the U.S., a loss for all women.

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