The third quarter financial data show that credit union industry is increasing its investments in long-term assets at the same time long-term interest rates have begun to rise.
Between September 30, 2012 and September 30, 2013, the net long-term asset to asset ratio for the industry rose by 275 basis points from 32.96 percent to 35.71 percent. The net long-term asset ratio for the industry as of September 30, 2013 is 522 basis points above the 10-year average of 30.49 percent.
Additionally, over the last year, the supervisory interest rate risk threshold to net worth ratio increased by 10.97 percentage points from 262.96 percent to 273.93 percent.
In addition, rising rates have caused the market value of the available for sale portfolio at credit unions to fall. Over the course of the last year, the credit union industry has gone from having an unrealized gain on its available for sale securities portfolio of slightly more than $2.6 billion at the end of September 2012 to an unrealized loss of $1.1 billion on its available for sale securities at the end of September 2013. Credit unions will only have to recognize these losses, if they sell these securities.
As NCUA Chairman Debbie Matz cautioned, credit unions "have been making longer-term investments to increase yield. If credit unions haven’t planned carefully, the value of those investments could decline when rates rise."
Thursday, December 5, 2013
Wednesday, December 4, 2013
Bill Would Grant Privately-Insured CUs Access to Federal Home Loan Banks
Rep. Steve Stivers (R – OH) introduced a bill (H.R. 3584) to amend the Federal Home Loan Bank Act authorizing privately insured credit unions to become members of a Federal Home Loan Bank; but only if the privately insured credit union meets all the eligibility requirements for federal deposit insurance.
However, the bill seems to be more directly targeted at American Mutual Share Insurance (ASI) of Dublin, Ohio, which is the only primary insurer of non-federally insured credit unions.
The number of privately insured credit unions has dropped by one-third over the last decade, from 212 institutions to 137 credit unions as of June 2013. Most of these credit unions are located in five states.
In this case, this trend is not the friend of ASI.
By granting privately-insured credit unions access to the Federal Home Loan Bank system, the bill hopes to make private insurance more attractive for state chartered credit unions that are currently federally insured. This would provide ASI with an opportunity to maintain a critical mass of credit unions to remain viable.
Read the bill.
However, the bill seems to be more directly targeted at American Mutual Share Insurance (ASI) of Dublin, Ohio, which is the only primary insurer of non-federally insured credit unions.
The number of privately insured credit unions has dropped by one-third over the last decade, from 212 institutions to 137 credit unions as of June 2013. Most of these credit unions are located in five states.
In this case, this trend is not the friend of ASI.
By granting privately-insured credit unions access to the Federal Home Loan Bank system, the bill hopes to make private insurance more attractive for state chartered credit unions that are currently federally insured. This would provide ASI with an opportunity to maintain a critical mass of credit unions to remain viable.
Read the bill.
Monday, December 2, 2013
Net Income Up $1.8 Billion in Q3
Earnings growth slowed in the third quarter for federally-insured credit unions.
Net income at federally insured credit unions increased $1.8 billion in the third quarter, a drop from the $2.2 billion increase recorded in the second quarter and the $2.1 billion increase recorded in the third quarter of 2012.
The credit union industry’s return on average assets ratio stood at an annualized 80 basis points at the end of the third quarter; but down slightly from a year earlier when it was 86 basis points.
Much of the year-over-year decline is due to continued downward pressure on net interest margins created by the current interest rate environment.
Net income at federally insured credit unions increased $1.8 billion in the third quarter, a drop from the $2.2 billion increase recorded in the second quarter and the $2.1 billion increase recorded in the third quarter of 2012.
The credit union industry’s return on average assets ratio stood at an annualized 80 basis points at the end of the third quarter; but down slightly from a year earlier when it was 86 basis points.
Much of the year-over-year decline is due to continued downward pressure on net interest margins created by the current interest rate environment.
Tuesday, November 26, 2013
Almost 59 Percent of Large CUs Rely on Fee Income to be Profitable
Credit unions are increasingly relying upon fee income for their profitability.
Almost 59 percent of all credit unions with at least $100 million in profits as of June 30, 2013 would have been unprofitable if it were not for the contribution of fee income.
For half of these credit unions with $100 million or more in assets, fee income represents at least 16.77 percent of total revenues. Total revenues is defined as total interest income plus total noninterest income minus total interest expenses.
For one quarter of these credit unions, fee income as a percent of total revenues is at least 23.66 percent.
The following table lists the twenty-five credit unions with the highest ratio of fee income to total revenues through the first six months of 2013. All twenty-five of these credit unions had fee income to total revenues ratio in excess of 40 percent.
Given the reliance on fee income for their profitability, a November 22 article by SNL noted that credit unions "could face tough choices should fees come under additional scrutiny by regulators or consumers."
Almost 59 percent of all credit unions with at least $100 million in profits as of June 30, 2013 would have been unprofitable if it were not for the contribution of fee income.
For half of these credit unions with $100 million or more in assets, fee income represents at least 16.77 percent of total revenues. Total revenues is defined as total interest income plus total noninterest income minus total interest expenses.
For one quarter of these credit unions, fee income as a percent of total revenues is at least 23.66 percent.
The following table lists the twenty-five credit unions with the highest ratio of fee income to total revenues through the first six months of 2013. All twenty-five of these credit unions had fee income to total revenues ratio in excess of 40 percent.
Given the reliance on fee income for their profitability, a November 22 article by SNL noted that credit unions "could face tough choices should fees come under additional scrutiny by regulators or consumers."
Monday, November 25, 2013
Minority CUs More Likely to be Problem CUs
Problem credit unions are disproprtionately minority credit unions.
A problem credit union has a CAMEL rating of 4 or 5.
According to a report issued by NCUA's Office of Minority & Women Inclusion, there were 805 credit unions (12 percent of the all federally insured credit unions) as of mid-year 2013 that self-identified as a minority financial institution.
The report noted that 107 minority credit unions had a CAMEL composite rating of 4 or 5.
As of June 30, 2013, there were 330 credit unions with a CAMEL rating of 4 or 5.
So while minority credit unions account for only 12 percent of all federally insured credit unions, they accounted for almost one-third (32.42 percent) of all troubled credit unions.
A problem credit union has a CAMEL rating of 4 or 5.
According to a report issued by NCUA's Office of Minority & Women Inclusion, there were 805 credit unions (12 percent of the all federally insured credit unions) as of mid-year 2013 that self-identified as a minority financial institution.
The report noted that 107 minority credit unions had a CAMEL composite rating of 4 or 5.
As of June 30, 2013, there were 330 credit unions with a CAMEL rating of 4 or 5.
So while minority credit unions account for only 12 percent of all federally insured credit unions, they accounted for almost one-third (32.42 percent) of all troubled credit unions.
Sunday, November 24, 2013
Northern Piedmont FCU Sues Employees of Failed CU
Northern Piedmont Federal Credit Union (Culpepper, VA) has filed a lawsuit against three employees of failed Lynrocten Federal Credit Union (Lynchburg, VA).
According to the complaint, Northern Piedmont entered into multiple loan-participation agreements with Lynrocten.
From 2009 through 2011, Northern Piedmont wired more than $3 million to Lynrocten. Court documents further state Northern Piedmont has subsequently lost “at least $1,695,793.24.”
According to court documents, Northern Piedmont states it learned from NCUA investigators that only one loan allegedly supporting the loan-participation agreements was legitimate.
Read the story.
According to the complaint, Northern Piedmont entered into multiple loan-participation agreements with Lynrocten.
From 2009 through 2011, Northern Piedmont wired more than $3 million to Lynrocten. Court documents further state Northern Piedmont has subsequently lost “at least $1,695,793.24.”
According to court documents, Northern Piedmont states it learned from NCUA investigators that only one loan allegedly supporting the loan-participation agreements was legitimate.
Read the story.
Friday, November 22, 2013
Polish Combatants CU Liquidated
The Ohio Division of Financial Institutions has liquidated the Polish Combatants Credit Union of Bedford, Ohio, and appointed the National Credit Union Administration as liquidating agent.
The Division of Financial Institutions made the decision to liquidate Polish Combatants Credit Union and discontinue its operations after determining the credit union had no prospect for restoring viable operations.
Polish Combatants Credit Union served 52 members and had assets of $120,450, according to the credit union’s most recent Call Report. Chartered in 1957, Polish Combatants served Polish veterans of World War II.
Polish Combatants Credit Union is the thirteenth federally insured credit union liquidation in 2013.
Read the press relase.
The Division of Financial Institutions made the decision to liquidate Polish Combatants Credit Union and discontinue its operations after determining the credit union had no prospect for restoring viable operations.
Polish Combatants Credit Union served 52 members and had assets of $120,450, according to the credit union’s most recent Call Report. Chartered in 1957, Polish Combatants served Polish veterans of World War II.
Polish Combatants Credit Union is the thirteenth federally insured credit union liquidation in 2013.
Read the press relase.
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