Uninsured Deposits at U.S. CUs Top $165 Billion

Uninsured Deposits at U.S. CUs Top $165 Billion

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Nearly three quarters of all federally-insured credit unions have at least some shares/deposits that exceed the insurance limit (which is typically $250,000). The total of uninsured shares reported by these CUs at June 30th topped $165 billion.

If that’s not concerning enough, over $1 billion of those uninsured shares are in credit unions that are deemed to be less than “Well-Capitalized” by regulatory PCA (prompt corrective action) standards. This is particularly pertinent as the NCUA just closed its second credit union of the year, Zero-Star Paducah Teachers FCU, Paducah, KY, and also took two into conservatorship.

Paducah Teachers FCU had just $357,000 in uninsured shares at June 30th. But that’s a lot for a $12 million institution. 5-Star C-Plant FCU, also of Paducah, purchased some assets and “most” deposits after the NCUA liquidated Paducah Teachers FCU on September 30th, but it is unclear if that included the uninsured portion.

What is clear is that, since 1957 Paducah Teachers FCU served members of the Paducah education community, including retirees. And while members have a new, strong, credit union, to belong to, we hate to think that anyone, particularly teachers and retirees, may have lost money as a result of the failure. It does highlight the importance of checking the star-rating of your financial institutions each quarter.

Paducah Teachers FCU’s descent was swift. But, even as a “Well-Capitalized” credit union, it was only rated 3-Stars for most of 2021 due to struggles with delinquencies. While it had been working on improving those delinquent loans for several quarters, 2022 was not kind. Between year-end 2021 and March 31, 2022, Paducah Teachers FCU’s delinquency to asset ratio went from 1.6% to 10.7% and its Bauer’s Adjusted CR dropped to –4.7%.

In addition, its regulatory capital (net worth) went from $1.5 million at year-end 2021 when its regulatory classification was “Well-Capitalized” to $0.9 million and “Adequately-Capitalized” at March 31, 2022 and then to –$0.6 million and “Critically-Undercapitalized” one quarter later. It was closed within three months of hitting that critical “Critical” mark.

Failures do not typically happen that quickly. We generally have much more warning of problems on the horizon, but as you can see, that is not always the case.

The NCUA also placed two West Virginia Credit Unions into conservatorship this month: Zero-Star Mingo County Education FCU, Williamson, WV, a $2.7 million asset credit union, and N.R. O.F. Toalston FCU, Logan, WV, which, with assets less than $500,000, is too small for Bauer to rate. (BauerFinancial does not rate credit unions with assets less than $1.5 million.) Neither reported any uninsured shares at June 30th.

The 50 credit unions listed on page 7 did. In fact, they all have two things in common: they are all less than “Well-Capitalized” by regulatory PCA (prompt corrective action) standards, and they each have at least $2 million in uninsured shares/deposits. Most are “Adequately Capitalized” by those same PCA standards, but as we witnessed with Paducah, that can change quickly.

One Credit Union on the list, 3-Star Collins Community Credit Union, Cedar Rapids, IA, has almost $220 million in uninsured share deposits. Collins Community is one of fewer than 300 credit unions nationwide with assets exceeding $1.5 billion and the 4th largest credit union in Iowa. With over 91,000 members, those uninsured shares could be  widespread.

Conversely, 3-Star WCU Credit Union, Decatur, AL, a much smaller credit union with assets of $36 million and share deposits totaling $33.4 million, reports that $2.35 million is uninsured. That’s 7% of the total and likely to include a higher percentage of WCU’s 3,500 members.

Of those listed, the credit union with the most uninsured per member is 2-Star La Loma FCU, Loma Linda, CA. La Loma has been rated 2-Stars, and therefore on Bauer’s Troubled and Undercapitalized Credit Union Report for the past six quarters, yet it still reports $3 million in uninsured share deposits. That’s an average of $219.00 per member. If split evenly, that wouldn’t be so bad, but most of its 13,700 members do not exceed the insurance limit. It’s up to those who do to remedy their situation. Bauer can only alert them of the potential risks.

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