Year Witnessed an Uptick in Federally Insured CU Failures
The year started out on a good note, with the NCUA finally resolving the much-publicized Norlarco Credit Union mess, selecting Ft. Collins, Colo.-based Public Service Credit Union's bid to purchase its assets and assume its shares on Jan. 24. The NCUA took over the $290 million Norlarco in May 2007, and along with it, took on the numerous lawsuits filed by Florida homeowners over bad construction loans. PSCU has $623 million assets and 76,000 members.
The agency also killed two birds with one stone July 1, when San Francisco-based $4.1 billion Patelco agreed on a P&A of both Cal State 9 and Sterlent, after many of its peers passed on the bid opportunity once they saw what was on the books.
Neither Patelco CEO Andy Hunter nor NCUA spokesman John McKechnie would comment on the extent to which the NCUSIF had to mop up the mess at Cal State 9 and Sterlent, both suffered significant loan losses, before Patelco would accept the deal. However, Hunter said both credit unions fit into Patelco's strategic plan.
"In terms of Cal State 9, their field of membership includes college students and employees, and they have branches on or adjacent to several campuses. We find that attractive because we're trying to attract Gen Y," Hunter said. Additionally, Sterlent's package included AT&T employees, an existing SEG of Patelco. Hunter said improving SEG relations with AT&T was underway before the P&A opportunity came up.
Sept. 29 also marked the end of last year's $91 million Kaiperm Federal Credit Union takeover, when $5.5 billion Alliant Credit Union completed an assisted merger with the troubled Kaiperm. Alliant said the strategic complement between the two institutions was worth absorbing Kaiperm's millions in losses.
"Year-to-date, Alliant has grown $650 million in assets, so this isn't about growth for us, just a good fit and a win for both groups of members going forward," said Frank Weidner, Alliant's senior vice president of member services.
Alliant, which counted on United Airlines as its single sponsor until expanding to serve SEGs in 2000, is headquartered in Chicago, home to United. However, the credit union's largest concentration of members is actually in California's Bay Area, Weidner said. San Francisco International Airport is a major hub, and the airline's maintenance operations are located there.
Kaiperm's employer-based membership was also attractive to Alliant, which chose health care as a target SEG industry back when it expanded its field of membership.
St. Luke Baptist Federal Credit Union of Laurelton, New York, kicked off a string of small credit union failures, with the announcement of its liquidation on May 3. The insolvent credit union served 162 members and had $49,734 in assets. The $1.2 million Father Burke Federal Credit Union in New York followed shortly thereafter and was liquidated May 12.
Meriden F. A. Federal Credit Union of Meriden, Conn., followed on July 16, with the NCUA liquidating $337,968 in assets.
July 28 brought the liquidation of New London Security First Federal Credit Union of New London, Conn. The agency paid off 80% of account balances within a couple of days but required an extra month to sort out the rest, thanks to New London's manual accounting processes-one of only 104 nonautomated, federally insured credit unions left-and some criminal activities that necessitated the liquidation.
The NCUA encountered another turn of events shortly thereafter, when it placed the two-year-old, $461,000-asset Port Trust Federal Credit Union of Charleston, S.C., into liquidation Aug. 5. However, just three days later the $178 million CPM Federal Credit Union of North Charleston, S.C., agreed to purchase and assume Port Trust's assets.
The NCUA returned to California and mid-sized credit unions during the third quarter, with the $257 million Valley Credit Union placed into conservatorship on Sept. 3, and the $149 million High Desert Federal Credit Union, headquartered in Apple Valley, Calif., on Oct. 16. High Desert remains in conservatorship.
Other liquidations to round out the year included the $388,000 Interfaith Federal Credit Union of East Orange, N.J., on Sept. 17; the $6 million N&W Poca Division Federal Credit Union of Bluefield, W.V., on Oct. 3; and the Dec. 5 announcement that the NCUA had been named receiver-liquidator for the $2.9 million West Hartford Credit Union in Farmington, Conn., following the State of Connecticut Department of Banking decision to close the credit union.
The $50 million Postel Family Credit Union, of Wichita Falls, Texas, purchased the assets and assumed member shares of the $1.8 million TEXDOT-WF Credit Union of Wichita Falls, Texas, on Oct. 3.
The NCUA stepped up its NCUSIF reporting to close out the year, reporting extensively on the fund during its Oct. 16 board meeting and pledging to provide follow-up reports in November and December. Year-to-date insurance losses totaled $137.2 million to close out the third quarter.
Twelve of the 13 failed federal credit unions were involuntary liquidations, of which four were purchase and assumptions, and one was an assisted merger. In a bad sign of things to come for 2009, the number of problem code 4 and 5 credit unions rose from 211 at year-end 2007 to 246 as of Sept. 30, according to the board report. These institutions represent 2.08% of total insured shares; however, 64% of problem code credit unions have fewer than $10 million in shares, suggesting the trend of small credit union failures may continue next year.
The NCUSIF is expected to end 2008 with a 1.28% equity ratio based on estimated 6.85% annual insured share growth, the report concluded.
On Nov. 20, the NCUA Board authorized an overhead transfer rate of 53.8% to cover NCUSIF expenses associated with insurance-related functions for 2009. The overhead transfer rate increased from 52.0% for 2008 due to additional time being spent on insurance-related functions.