Construction Loans Doom Utah CU
RIVERDALE, Utah -- Members of Intermountain Credit Union will be meeting on Oct. 28 to vote on whether or not to merge with America First Credit Union. The "emergency" merger is the result of a number of failed real estate loans that have left Intermountain facing insolvency.
Rex Rollo, executive vice president/chief financial officer for America First, said the situation stems from the tightening of credit and a slowdown in the real estate market. Specifically, construction loans were made to members who were either unwilling to go forward in building houses when the value unexpectedly and substantially decreased or who were unable to get long-term financing.
"So the loans came back on the credit union," Rollo said, adding that Intermountain's small size also came into play. Intermountain Credit Union has assets of about $40 million and a membership of about 7,200.
"It was a handful of factors that came together," Rollo said.
Rollo said neither ARM resets nor subprime lending played a role. Jeff Blackburn, Intermountain CEO, said, "We were very cautious in our lending practices." According to NCUA filings, the Intermountain's first-mortgage adjustable-rate and hybrid/balloon delinquencies on loans less than five years old were 48.15% as of June 2008. Total delinquent real estate loans were 36.98% of total real estate loans.
After showing no increase in two-to-six month delinquencies on first-mortgage adjustable-rate and hybrid/balloon loans less than five years old in their reports to the NCUA as of June and October of 2007, the $40 million Intermountain's delinquencies in this category grew to $518,834 as of December 2007, then to more than $1.5 million (196.4% increase) in March 2008 and to more than $5.2 million (238.4%) as of June 2008.
An analysis of delinquency and net charge-offs shows that delinquent loans spiked during the first quarter of this year. Blackburn said that was when the credit union began to see that people were having a hard time finding financing. "At that point, we started seeking help," he said.
When Intermountain Credit Union determined that it had insufficient income or capital, which slid some to 8.15%, to stay afloat, the credit union requested the merger.
Rollo said America First agreed because of its belief in the credit union movement. "We have been aggressive in helping small credit unions with equipment, training, software and some of our manpower and money to assist them as they try to grow and survive. We didn't want to take them over, but we want to provide services to as many people as we can through the credit union cooperative effort. The emergency merger was necessary to make the help happen," he said.
Intermountain Board of Directors unanimously approved a proposition to merge with America First Credit Union on July 31. The NCUA and the State Department of Financial Institutions have also approved the merger.
If the action meets the members' approval, the administrative staff, membership and assets of Intermountain Credit Union will be fully integrated into the operations of America First Credit Union.
Blackburn said America First has offered jobs to all of Intermountain's employees.
The merger is not expected to impact America First's finances or operations but will expand the products and services that can be offered to Intermountain's members.
America First Credit Union is Utah's largest credit union and the nation's twelfth largest credit union with assets of $4.4 billion. It ranks sixth in credit union membership with 473,000 members.