Letter: Meltdown’s Impact on Small Credit Unions
The Editor’s Column in the Sept. 12 issue (“Dirty (Couple) Dozen Data Dumps”) was very interesting.
The decline in the number of small credit unions is very visible. I just finished an analysis of the local credit unions in my service area, and I think I have found some interesting information that may explain what is happening. I looked at the last five year period, June 2007 to June 2012. This period covers the time from just before the financial meltdown to just after the recovery has begun.
The declining loan portfolio coupled with a big decline in loan rates has significantly reduced loan income and investment income. The larger credit unions have offset that decline with more noninterest income. The main sources of noninterest income are courtesy pay and NSF fees, debit and credit card interchange and commissions for selling real estate loans to the secondary market. Smaller credit unions have low checking penetration so they don’t get much courtesy pay/NSF fees or interchange revenue. The smaller credit unions don’t originate or sell many real estate loans so they haven’t benefited from the refinance boom in real estate. In almost every case, the smaller credit unions have been unable to offset the decline in loan and investment income with noninterest income. The loss of income and the corporate resolution costs have eroded capital.
The decline in capital has been offset by a similar or greater decline in assets so the capital ratios still look good. But a 9% capital ratio doesn’t mean much if it is maintained by shrinking assets and shrinking capital.