Chetco Update

Eleven months have elapsed, since NCUA placed Chetco Federal Credit Union of Harbor, Oregon into conservatorship on September 23, 2011.

However, the following two slides show that the financial picture at Chetco continued to deteriorate after being conserved by NCUA.

For the third consecutive quarter, Chetco FCU reported a negative net worth position and it has been critically undercapitalized for four consecutive quarters.

In addition, Chetco reported that over $68 million of its loans or 25.6 percent of its loan portfolio was 60 days or more past due at the end of the second quarter. Almost half of its loans ($33.5 million) were 12 months or more past due, as of June 2012.

Given it financial picture, it is highly unlikely that Chetco will be restored to viability. The time has come for NCUA to end its regulatory forbearance and to close Chetco.

No Plans for Texans

On February 17, I posed the question -- "What Is NCUA's Plan for Texans Credit Union?"

Based upon a February 23 letter NCUA Chairman Debbie Matz sent to Eric Sandberg of the Texas Bankers Association (see below, click to enlarge the image), beyond removing culpable management and the board of directors, NCUA is not in any hurry to resolve this failed credit union.

Chairman Matz wrote that NCUA does "not have any plan to merge this credit union at this time and ... has set no timeframe for completing this resolution process."

So, Texans will for the foreseeable future be among the walking dead.

What is NCUA's Plan for Texans Credit Union?

This is a question being asked by credit union officials and bankers. Read Texas Bankers Association's letter to NCUA Chairman Matz.

As background, Texans Credit Union (Richardson, Texas) was placed into conservatorship by NCUA on April 15, 2011. During the third quarter of 2011, the credit union became critically undercapitalized. In November 2011, Texans received special capital assistance from NCUSIF in the form of $60 million in subordinated debt; otherwise Texans would have been insolvent. Even after the capital assistance, Texans was still critically undercapitalized at the end of the fourth quarter.

It appears that NCUA is engaged in regulatory forbearance. I know there are some within the credit union industry who believe that this capital infusion and forbearance is good news and if given enough time, the NCUA-controlled Texans might experience a turnaround. (read Chip Filson's latest commentary).

However, allowing an insolvent credit union or bank to continue to operate as a fully functioning depository institution is unfair to its competitors.

Moreover, the odds are that this forbearance will fail and it will only raise the cost of Texans' resolution to the NCUSIF.

But time may be running out for Texans Credit Union.

According to the Federal Credit Union Act and NCUA's regulation, the NCUA Board must place a credit union into liquidation if it remains “critically undercapitalized” for a full calendar quarter, on a monthly average basis, following a period of 18 months from the effective date the credit union was first classified “critically undercapitalized.”

If the ultimate outcome is liquidation, credit union officials should ask NCUA why it did not move sooner and how much more did the delay add to the losses of the NCUSIF.

Also, from what I've heard, NCUA has rejected bids for Texans from credit unions. As I understand it, the obstacle to getting the deal done was that the acquirer wanted NCUA to enter into a loss sharing agreement and NCUA refused to enter into such an arrangement.

I don't understand NCUA's resistance to a loss sharing arrangement. Many of FDIC's transactions involving failed banks included such arrangements.

If NCUA is worried that it can't fetch a good price for Texans, it should expand the pool of potential bidders. There are probably some banks that would be interested in bidding for Texans.

ASI Provides More Capital Assistance to Silver State Schools CU

Privately-insured Silver State Schools Credit Union received a capital injection from its insurer, American Share Insurance (ASI).

According to the Las Vegas Review-Journal, ASI provided $4.4 million in capital assistance in December to Silver State Schools CU. ASI had previously provided $22 million in capital assistance to this troubled credit union.

Over the last three years, Silver State Schools Credit Union has reported losses of almost $80.7 million.

Without this capital assistance, Silver State Schools Credit Union would be insolvent.

Breaking News: Texans CU Receives $60 Million in Capital Assistance

It appears that NCUA provided Section 208 assistance to Texans Credit Union (Richardson, Texas) during the fourth quarter.

Texans is reporting $60 million in subordinated debt, which is counted as net worth.

Even with the capital assistance, the credit union is critically undercapitalized.

Without the capital assistance, Texans Credit Union would be insolvent with a net worth of minus $44.7 million.

NCUA to Engage in Capital Forbearance

According to a report appearing on CUNA News (Tuesday, October 25), NCUA is advising its examiners to temporarily engage in capital forbearance due to the possible inflow of deposits.

The guidance was issued to examiners in preparation of Bank Transfer Day.

CUNA News reported that NCUA told its examiners that the inflow of new funds could depress the net worth ratios of credit unions. The agency, according to the news report, noted that the call report allows credit unions alternative ways to calculate their net worth ratios.

If anyone has seen this guidance from NCUA, please forward it to me so that I can publish the document.

Regulatory Forbearance

The NCUA Board on April 29 voted to extend a waiver permitting corporate credit unions to continue using their November 30, 2008, capital level to determine regulatory compliance with capital-based requirements and limitations in NCUA's corporate credit union regulations.

NCUA’s decision to provide regulatory forbearance deals with the fact that several provisions setting regulatory limits and requirements are based on corporate credit union capital. The capital positions of corporate credit unions have been severely impaired by losses from mortgage-backed security investments and equity investments in U.S. Central. To ensure uninterrupted service to natural person credit unions, NCUA is permitting corporate credit unions to operate with their capital levels reported on November 30, 2008.

The NCUA Board also established a new termination date for the extansion of the waiver, which is one year after the final corporate credit union rule is published in the Federal Register. So, NCUA will engage in regulatory forbearance for at least another year.

The following two tables report the core capital and total capital ratios for corporate credit unions as of November 30, 2008 and January 31, 2010 (click on images to enlarge).