Bad Loans, High Expenses Prompt Liquidation of Detroit Credit Union
The Michigan Department of Insurance and Financial Services on Friday liquidated the $24 million Craftsman Credit Union of Detroit after determining the state-chartered credit union was insolvent and had no prospect for restoring viable operations. The state regulator appointed the NCUA as liquidating agent.
The $367 million, 49,277-member Security Credit Union of Flint, Mich., immediately assumed Craftsman’s members and deposits, as well as some loans.
Loan losses had plagued Craftsman, which served employees of Detroit’s General Motors plants and select groups near the credit union, since 2008 when the credit union ended the year with 10.54% delinquencies and 4.48% charge offs.
Craftsman had 22.69% net worth at that time, but loan losses steadily eroded capital. Losses accelerated in 2011, with charge offs rising above 10%, leaving Craftsman with 11.05% net worth by the end of the year. Another tough second quarter in 2012 further reduced net worth to below 9%, but the credit union seemed to hold steady the second half of 2012 and the first quarter of 2013, matching above peer charge offs with a healthy net margin.
However, in the second quarter of 2013, net worth plunged to 1.46% from 8.43% the previous quarter after Craftsman reported a more than $2 million net loss. Operating expenses rose from $223,079 in March to $948,203 in June. Loan loss provisions also saw a steep increase, from $31,662 in the first quarter to $1.43 million in June.
The bulk of the credit union’s loan portfolio was concentrated in real estate loans; of Craftsman’s $8.56 million total loans, $5.8 million were real estate. According to the credit union’s June 30 call report, it had earmarked nearly $3 million of its total loan portfolio for loss allowances.
However, just $391,664 in fixed rate mortgages and $126,554 in adjustable rate mortgages were reported delinquent, accounting for nearly all delinquencies. Craftsman also reported $646,695 in restructured mortgages as of June 30. Year to date, Craftsman had charged off just $214,584 in bad loans.
Also in the June 30 Call Report was that Craftsman paid out $375,405 in employee compensation and benefits during the first half of the year, another $180,000 for outside services and $528,999 for miscellaneous operating expenses. According to the credit union’s website, it was only open four days a week.
Craftsman Credit Union is the 12th federally insured credit union liquidated in 2013.