How Have CU Farm Loans Performed?

Yesterday, I wrote about the level of farm lending at credit unions. Today, we will review how farm loans have performed at credit unions.

As of June 30, 2013, credit union reported slightly less than $14.2 million in delinquent farm loans. A loan is deemed delinquent, if it is 60 days or more past due. The delinquency rate was 0.62 percent.

Four credit unions accounted for over 40 percent of the industry's total delinquent farm loans.

• Greater Oregon (OR) had $1.9 million in delinquent farm loans (65.2 percent of its farm loan portfolio).
• North Star Community (ND) had $1.5 million in delinquent farm loans (3.45 percent of its farm loan portfolio).
• Whitefish Community (MT) had almost $1.3 million in delinquent farm loans (35.3 percent of its farm loan portfolio).
• Amplify (TX) reported $1 million in delinquent farm loans (97.2 percent of its farm loan portfolio)

Credit unions reported only $286,000 in net farm loan charge-offs through the first six months of 2013.

The strong performance of the agricultural loan portfolio at credit unions is not surprising given the strength in the farm economy. The U.S. Department of Agriculture reported that net farm income is forecasted to be $120.6 billion in 2013, up 6 percent from 2012’s estimate of $113.8 billion. After adjusting for inflation, 2013’s net farm income is expected to be the second highest since 1973.

Credit Union Agricultural Lending

This week I am at the National Agricultural Bankers Conference and thought it would be interesting to look at credit unions engaged in agricultural lending.

As of June 2013, there were 297 credit unions reporting at least one agricultural loan on their books. These credit unions reported holding 19,671 farmland and agricultural production loans with a value of almost $2.3 billion.

Credit unions had slightly more than $2.1 billion in agricultural loans that counted as member business loans and $175 million in agricultural loans were to nonmembers.

Approximately $1.3 billion of the loans were farmland loans, while $986 million of the loans are for agricultural production.

During the first six months of 2013, credit unions originated $227 million in farmland loans and $536 million in agricultural production loans.

There were four states, which reported credit union ag lending in excess of $100 million -- North Dakota ($659.5 million), Indiana ($604.9 million), Minnesota ($421.9 million), and Wisconsin ($183.9 million).

The credit union with the most farm loans on its books is privately-insured Beacon Credit Union in Wabash, Indiana. The credit union has almost $446 million in agricultural loans. The next largest credit union ag lender is Central Minnesota Credit Union in Melrose, Minnesota with almost $269 million in farm loans.

There were 46 credit unions that had a material exposure to agricultural lending. Material exposure is defined as having at least $5 million in outstanding agricultural

The table below lists the 10 credit unions with the most agricultural loans.

$22 Million Business Loan Participation

I received the following e-mail yesterday morning from LPC Services regarding a $22 million member business loan participation from a credit union. (click on image to enlarge)



A $22 million participation is a large business loan.

It does beg the question -- should a loan of that size receive a taxpayer subsidy?

More on Quorum FCU's Timeshare Lending

TimeshareLeaks.com has recently dug into the timeshare loans made by Quorum FCU of Purchase, New York.

TimeshareLeaks.com has looked at Quorum's relationship with Diamond Resorts International, The Berkley Group, and Bluegreen Corp.

From the public SEC filings of Diamond Resorts International and Bluegreen Corporation's parent company, BFC Financial, we are able to see the extent of Quorum's lending to the timeshare industry.

For example, the August 10-Q filing for Diamond Resorts International noted that Diamond Resorts had an $80 million credit facility through Quorum, which initially started as a $40 million credit facility dated on April 30, 2010. As of June 30, 2013, only $26.3 million of the $80 million funding facility was still available.

Bluegreen Corporation had entered into a $30 million credit facility with Quorum FCU. As of June 30, 2013, slightly less than $10.4 million of the credit facility was still available for borrowing.

Interestingly, the credit union only has $65.5 million in net worth, as of June 2013.

It appears that Quorum FCU is both overly exposed to a single borrower and also a single industry.

It does make you wonder if Quorum has been granted a waiver by NCUA Region I Regional Director from the aggregate loan to one borrower limit.

Patent Trolls and Privacy Notices

While the banking and credit union industries are going to disgree regarding the issues of taxation and expanded business lending authority for credit unions, there are a number of issues that we can come together to work on that benefits both banks and credit unions.

The latest examples are two joint trade association letters that were sent to Congress regarding patent trolls and privacy notices.

The trade groups wrote House Judiciary Committee Chairman Bob Goodlatte (R-Va.) commending his bipartisan Innovation Act to restrain “patent trolls” -- non-practicing entities that bring abusive patent litigation against banks and other businesses. Goodlatte’s bill would enhance pleading standards to make it harder to bring frivolous patent infringement claims, allow waivers for costly fees to investigate a patent’s validity and limit discovery costs borne by targeted business. The trade groups urged Goodlatte to add provisions that would distribute liability more equally between suppliers and end users. They also recommended that the validity review process be expanded to patents filed since 2011, and they suggested additional changes to address the concerns of targeted businesses. Read the letter.

Additionally, bank and credit union trade groups wrote Senate Majority Leader Harry Reid (D-Nev.) and Senate Minority Leader Mitch McConnell (R-Kent.)about bringing up legislation (S. 635) regarding redundant privacy notices. The letter stated: "As you know, Gramm-Leach-Bliley requires all financial institutions to annually provide their customers with annual privacy notices,... even if there has been no change to the policies in the prior 12 months. S. 635 would change this by eliminating the annual notice requirement if the institution has not “changed its policies and practices” in the prior 12 months and shares information with third parties in accordance with specified GLBA requirements. In addition, S.635 also ensures that even if there is no change in the company’s privacy policies, consumers will still have electronic access to the institution’s current policies. In brief, we believe this common sense measure would reduce the significant costs institutions incur providing unnecessary disclosures and more importantly give our customers a break from redundant notices."

Read the letter.

Mayfair FCU Placed into Conservatorship

The National Credit Union Administration today assumed control of service and operations at Mayfair Federal Credit Union in Philadelphia.

Chartered in 1936, Mayfair Federal Credit Union serves a low-income community in Philadelphia. Mayfair Federal Credit Union has 1,527 members and $14.3 million in assets, according to the credit union’s most recent Call Report.

The credit union reported a delinquent loan ratio of 14.08 percent as of September 30, 2013. The delinquent loan ratio was up from 9.46 percent in June 2013.

Mayfair Federal Credit Union is the fourth federally insured credit union placed into conservatorship during 2013.

Read the press release.

Michigan Credit Union Buys Bank Branch and Deposits

Credit Union Journal is reporting that Honor Credit Union of St. Joseph, Michigan is purchasing the Decatur branch of Edgewater Bank and its 850 customers and $14 million in deposits.

The credit union has a community charter serving 14 counties and was able to qualify all of Edgewater Bank's Decatur branch customers for membership because they resided in the community.

The terms of the deal were not disclosed.