New-Fangled Bits and Bytes Might Help
The NCUA is making efforts to streamline that can often go unnoticed when so many other compliance issues have been hitting credit unions. Some, such as Dodd-Frank requirements, are beyond the agency’s control. Others like the CUSO and participations rules are seemingly in perpetual limbo, lurking in a corner for a year or more.
The NCUA made it easier for low-income credit unions to become business lenders as part of the Obama administration’s efforts for drought relief and expanded the definition of a fleet for the purposes of business vehicle loans.
In one of its most recent moves, the agency’s Office of Small Credit Union Initiatives reached out to small credit unions that were still filing their 5300 Call Reports manually and offered to buy them computers. The computers were nothing fancy, just IBM T500 laptops purchased after the NCUA examiners’ lease contract was to be renewed. The machines came out in 2008 and sell for around $350 used. The NCUA is also offering training and support. Fourteen credit unions took the deal.
Myers explained that these credit unions took the NCUA up on its offer, and four others that qualified for low-income credit union reimbursement grants bought their own computers.
Myers also pointed out that Bank Secrecy Act filings must be filed online as of May, but that small credit unions received an extension to May 2013. Internally, the NCUA is floating a date for ending paper filing of 5300 Call Reports as well, though it’s not been made public yet.
The initial outlay isn’t huge and in the next year or so the direct expense to the agency will likely end up paid for, according to Bill Myer, head of the NCUA’s OSCUI, because of the ability to file electronically and greater consistency in reporting.
Yes, some credit unions still pull out the old ledger books and green eyeshades and handwrite figures in. The credit unions that received the computer donations ranged from $53,000 in assets to nearly $10 million in assets. It’s difficult to believe that a credit union of any size doesn’t have a computer, and even more difficult to fathom how a $10 million operation runs efficiently when entries are being done manually.
Truth is it’s wasteful of their members’ resources as well as the NCUA’s, which are funded by all federally insured credit unions. If a credit union files on paper, its examiner then has to spend the time doing the data entry and if there are errors in the data, it means a phone call or two to the credit union to straighten it out.
One anonymous commenter to CUTimes.com supported assistance to smaller credit unions but decried the redistribution of wealth without oversight. The agency is tasked with keeping the entire industry safe, and it’s much easier and less time consuming to do that with electronic records. The NCUA was already redistributing the wealth by poring over paper logs–or in some cases doing the credit unions’ books for them. This computer give-away is actually a cost savings.
Myers said the only criteria for receiving the laptops were that the credit union was small and did not already file electronically. There were no financial health requirements. I took a sampling of the 14 credit unions receiving the laptops: the smallest, the largest and one in the middle of about $1.5 million.
The $10 million credit union appeared relatively healthy with a positive net income, reporting 0% delinquencies and 21% capital. Why can’t a $10 million credit union with 21% capital afford a computer? About half of loans were in mortgages, and no indirect loans or participations reported, which can be considered more risky than others, to justify the extra capital cushion.
The smallest credit union had just $53,000 in assets. It had just $8,500 loaned out, primarily in unsecured loans. After reporting 30% delinquencies in Sept 2011, it reported 0% for the last two quarters. At that small a credit union, it could just be that one member caught up on their payments.
However, it also had negative net income over the last three quarters. The credit union’s capital was 29% and climbing, but ROA was a negative 10.75%. Again, you see an incredibly high capital ratio held against very little risk–other than missed opportunities. Perhaps the members would be better served by keeping the books electronically so the credit union could better track all the moving pieces of its business. This is a truly small credit union and the computer would account for roughly one-third of its net worth.
Another credit union that received one of the donated computers also had negative net income for the last five quarters, and net worth dropped from 18% a year ago to 17%. Loan delinquencies were 2.8% and climbing over the last year though still half of its peer group. ROA was negative but still not as low as its peer group. The shining light for this credit union might be its positive membership growth over the first half of 2012 despite its 87% market penetration.
However, if the credit union is losing money, the bigger question is whether the NCUA is potentially throwing good money after bad.