Texans CU Reins in Business Lending After C&D Losses
According to data from NCUA, Texans' member business loans granted grew from $104 million at the end of first quarter 2007 to $289.7 million by the end of the third quarter, a 179% increase. Business loan purchases during same period increased from $19.4 million to $113.9 million, a 487% spike.
Since year-end 2007 through the end of the first quarter 2008, the credit union's member business loans dropped from $311.2 million to $15.6 million, a 95% plunge.
Texans CEO David Addison told Dallas Business Journal "Yeah, we quit making [C&D loans], but my board's pretty happy about that."
Matthew S. Davis, executive vice president at Texans, told Credit Union Times, "Texans is currently at our regulatory cap for MBLs and therefore are not originating new ones." He added that since the business lending cap is set by regulation, "management responded appropriately."
"We are telling members that request an MBL that Texans wants to serve all of their financial services needs, including providing them with funding for their businesses," Davis said. "However, at this time, we are unable to as we are at our regulatory cap for MBLs. We refer many of them to other financial institutions that are able to accommodate their immediate need."
Asked if he expected the MBL portfolio to recover and whether Texans will continue its MBL program, Davis said, "Texans is committed to providing its members with the financial services they desire, including business lending and cash management services. Once we fall below the regulatory cap, we will be able to make additional MBLs."
Two hours after making the above comments last Thursday, Davis sent an e-mail to Credit Union Times. In the later communication he said, "I would also like to clarify that we are still making business loans. We are not originating a significant volume of them as we are being very prudent in these very uncertain economic times. The cap issue is less of an issue than it was to us in 2006 or 2007 as we have stopped making any sizeable C&D loans."
"Our MBL program is quite complex. We have member, regulatory and market factors that drive decisions on a daily basis. We have expert staff with decades of business lending experience managing all of these elements effectively."
Davis said the CU is "absolutely" safe and sound. "Our capital ratio continues to be north of 9%, well above any industry minimum standards and in the range considered 'well capitalized' by the banking and credit union industry."
Total delinquent loans to assets for the credit union stand at 4.25%, placing it in the 100 percentile of its peers (over $500 million in assets), which averaged 0.56%. Member business loan delinquencies (more than two months) reached 7.6% at the end of the first quarter 2008. Total foreclosed real estate skyrocketed from $11.1 million at the end of the first quarter 2007 to $83.6 million by the end of the first quarter 2008, representing a 653% increase.
The real hit came at end of third quarter 2007 when total delinquencies (two months or more) on fixed-rate first mortgages hit $13.7 million, up over 3,500% over the previous quarter. And for end of third quarter 2007 total delinquencies (two months or more) on adjustable-rate first mortgages hit $29.5 million, up 535% from previous quarter. C&D loans are included in delinquent real estate figures, according to NCUA.
The knocks to the business lending portfolio have also helped to drive the credit union's return on assets down to negative 0.22%, versus the peer average of 0.73%.
While Texas Commissioner Feeney could not comment as to whether the agency had taken formal or informal regulatory action against the credit union citing confidentiality, he did tell Credit Union Times, "We're working closely with Texans to address their C&D loans." Feeney confirmed those accounted for a good percentage of the failed loans at the credit union.
He added that his agency is also working with NCUA, which the federal regulator confirmed. When asked whether formal or informal regulatory action has been taken against the credit union, NCUA stated that no formal action has been taken.
"I'm not sure I would say this is a trend in Texas, but I would say it's fairly consistent with what's been happening across the country," Feeney said. While he admitted the credit union has had some trouble with its C&D loans, he said it was fairly new to the business so the scenario is not critical.
Texans' business seemed to be soaring along. Loan income more than doubled from the end of first quarter 2007 to the end of second quarter, jumping from $21.5 million to $44.3 million, and from second quarter to third quarter it jumped 54% to $68.3 million. By the end of the fourth quarter 2007, it grew by another 35% to $100 million.
However, loan income plunged 75% from end of
2007 to end of first quarter 2008, from $100 million to $22.6 million.
At the same time, in 2007, from the end of the first quarter to end of the third quarter the allowance for loan and lease losses grew by 52%, from $7.7 million to $11.7 million. "Other reserves" plummeted from $2.2 million at the end of the first quarter 2007 to a negative $1.5 million at year-end, a 168% drop. Other reserves continued to deteriorate in 2008, moving from negative $1.5 million at year-end to negative $2.4 million at the end of first quarter 2008.
Overall, the credit unions net worth still stands at 9.17% as of March 2008, but net worth growth was negative 2.24% annualized. Loan growth was a negative 7.29% annualized. As of end of the first quarter 2008, Texans CU showed $104.4 million in unfunded commitments on C&D loans and $16 million in other unfunded member business loans.
The credit union has also been hit with lawsuits alleging the credit union is avoiding paying out on loans and is defaming former employees, according to Dallas Business Journal.
"Texans had a suit against a borrower to enforce the terms of a loan," said Executive Vice President Davis. "The legal response of this borrower included many false statements about their relationship with Texans, including ones that indicated Texans was not disbursing loan payments according to the terms of our agreements. This statement was and is false. As you know, statements of all kinds are made by defendants in legal suits."