The financial condition of the nation's bank and credit union industries are possibly the strongest we have seen in our lifetime. That will prove to be invaluable as we come to grips with the full impact of COVID-19. Federal and state regulators are encouraging the financial institutions to do whatever they can to meet the financial needs of their customers and members and to minimize the adverse financial effects as we navigate our way around and through this virus.
The National Credit Union Administration (NCUA), enjoying a very low-key celebration of its 50th anniversary as an independent regulator, just released year-end financial data.
Based on that data, the aggregate capital ratio of the nation's federally-insured credit unions was up 7 basis points from a year earlier (from 11.30% to 11.37%). Net income of $14.1 billion was up $1.1 billion or 8.8% over 2019. And 83.5% of the credit union industry earned recommended ratings (either 5-Stars or 4-Stars) from Bauer. (Bank star-ratings and data were updated two weeks ago (JRN 37:09)).
The 71 basis point delinquency rate at federally-insured credit unions was unchanged from a year earlier, and the charge-off rate went down from 58 to 56 basis points. While we expect these numbers to rise as we go through this latest storm, we are fortunate to be starting at very low points.
Only two credit unions are currently "Critically Undercapitalized"-down from five last quarter. Zero-Star Winslow Santa Fe in Arizona (see (JRN 37:04) and Zero-Star Mid-East Tennessee, which is operating under conservatorship.
Those two, along with 44 other credit unions that are either:
- rated 1-Stars or Zero-Stars OR
- are less than "Adequately Capitalized" by regulatory standards are listed on page 7.
While they number only three more than last quarter (JRN 37:04), there are actually nine new additions:
1-Star Solano First FCU, Fairfield, CA-in addition to continued losses, Solano First is already struggling with poor loan quality. Non-performing assets (delinquencies + OREO) account for 1.69% of total assets and over 29% of Solano First FCU's total net worth.
Those numbers are tame in comparison to Zero-Star Southwest Kansas Community C.U., Dodge City, KS. Nonperformers at SW Kansas total 4.27% of assets and whopping 114% of capital.
1-Star Bi-County Ptc FCU, Warren, MI, on the other hand, has decent quality loans on its books. However, its capital ratio is just 5.45% and it has posted losses in three out of the last five quarters.
Almost 90% of 1-Star Twin States FCU, Columbus, MS's loans are for automobiles-both new and used. Fortunately, they have collateral. Unfortunately, the credit union does not want to be a car dealership. Nonperformers at Twin States continue to climb and ended 2019 at 7.7% of assets.
2-Star Montana Health FCU, Billings, MT looks more like Bi-County (above). Its loan underwriting is not its biggest problem. Its capital ratio, which is below 6%, and its continued losses are much bigger threats.
Zero-Star Heights Community FCU, Bethlehem, PA has it all: a low capital ratio (5.5%), poor loan quality (nonperformers to assets of 5.6%) and it is posting losses.
2-Star Richmond Heritage FCU, Richmond, VA has two out of three. Its capital ratio of 5.59% is well below that of its peers, and it too is posting losses. Richmond Heritage is doing better loan quality than most C.U.s on this list and that's a good thing since 37% of its loans are unsecured.
That brings us to Empire Financial FCU in NJ, and Greater Galilee Baptist CU in WI, which are each less than $1.5 million in assets and therefore too small to be rated. In each case, the credit union lost over half of its net worth during the fourth quarter dropping their respective capital ratios to 4.18% and 3.12%.
Please remember, the credit unions listed on page 7 (and the banks listed in 37:09) are the exceptions. The vast majority are strong and ready to help.