During the 12-month period ending June 30, 2024, uninsured shares and deposits at our nation’s credit unions increased to nearly $170 billion. Roughly $1.5 billion of those uninsured deposits are at credit unions that are deemed less-than-Well-Capitalized by regulatory standards.

In this article we take a look at anomalies we found when examining these credit unions. For example,  a $3 million credit union with $1.8 million in uninsured deposits; and credit unions that were allowed to acquire other institutions when the transaction resulted in it becoming less than well-capitalized itself.

There are 49 "less-than-well-capitalized" credit unions listed on page 5 of this week's Jumbo Rate News although four were acquired between July 1st and November 10th (2024).

Subpar Credit Unions with Uninsured Deposits

During the 12-month period ending June 30, 2024, uninsured shares and deposits at our nation’s credit unions increased more than 7%. They are currently flirting with the $170 billion mark. If that’s not enough to concern you... roughly $1.5 billion of those uninsured deposits are at credit unions that are deemed less-than-Well-Capitalized by regulatory standards.

We are in that awkward time of the quarter when we have some September 30th financial data, but nowhere near all of it. To improvise, on page 5 we have listed all credit unions that were less-than-Well-Capitalized at June 30th and that also reported uninsured shares/deposits on their books. If the credit union merged or was acquired between June 30 and now, we noted that on page 5 as well.

We were able to pull September 30th data on all of the institutions we will be editorializing on today. All financial data on page 5, however, is as of June 30th. We will begin with the 1-Star Alliance C.U. of Florida, Gainesville, FL (67432), which was placed into NCUA conservatorship on Friday, November 8, 2024.

Alliance C.U. is still in operation and insured shares are protected, but trouble has been brewing for a long time. Alliance has not been “Well-Capitalized” in years (June of 2020). It became undercapitalized with March 31, 2024 data and was “Adequate” in the interim. A look at September 30th financial data, however, shows a capital ratio of just 2.94%, making this 77 year old   C.U. “Significantly Undercapitalized.”

To make matters more disturbing, Alliance C.U.’s uninsured deposits, which were relatively low ($159,000) at June 30th, now total nearly $3 million. Conservatorship does not always lead to failure, but it will be a tough job for the NCUA, at the least.

Zero-Star 1st Choice Credit Union, Atlanta, GA (67505) was already “Significantly Undercapitalized” at June 30th. In fact, it went from “Well-Capitalized at March 31st all the way to Significantly Undercapitalized in one quarter. That's by regulatory standards, Bauer knew better. Problem loans put 1st Choice on Bauer’s Troubled and Problematic Credit Union Report (for being rated 2-Stars or below) for the past six quarters (soon to be 7). A sneak peek at its third quarter numbers shows very little change from June.

Established in 2021, N.R. Unity of Eatonville F.C.U. in FL (24935) is the youngest CU on our list. It isn’t old enough to have either a star-rating from Bauer or a “regular” capital classification from the NCUA, yet. Those take eight and ten years, respectively. All new financial institutions experience growing pains in the beginning, and we allow for that. The question that begs to be answered in this case: Why does a $3 million C.U. have $1.8 million in uninsured deposits? It’s troubling.

Another question we must ask is: Why were so many CUs on this list allowed to acquire other institutions in the recent past, or was it the acquisition that put them on this list? The answer to that question varies case by case.

2-Star Sound Federal Credit Union, Norwalk, CT (24705), for example, was a “Well-Capitalized” $85 million asset credit union when it was allowed to acquire three credit unions in a five-month period. They were:

1) 3-Star Tri-Town Teachers FCU, Westport with assets of $26.6 million (11/2/2022);

2) 3-Star Merritt FCU, Wilton, CT with assets of $12.4 million (12/1/2022); and

3) N.R. Faith Tabernacle Baptist FCU, Stamford, CT, which, with less than $200,000 in assets, was too small to be rated by Bauer (3/1/2023).

None of the three credit unions were in a dire condition but combining three new systems and increasing assets by nearly 50% in such a tight time-frame, was bound to have some repercussions. The now “Adequately Capitalized”, Sound FCU decreased first from 4-Stars to 3-Stars and then down to 2-Stars.

A look at its September Call report shows a slight decrease in uninsured deposits (to $4.4 million) but also a slight decrease in its capital ratio (to 6.34%) which is still Adequate.

3-Star Blaze Credit Union, Falcon Heights, MN (68651) was the result of a merger of equals in the first quarter of this year between the $2.2 billion asset 4-Star Spire C.U., Falcon Heights, MN and the $1.7 billion asset 5-Star HIWAY C.U., Saint Paul, MN.

The first call report after the merger earned a 4-Star rating, but by June 30th, the new Blaze CU was only “Adequately Capitalized,” and its Bauer rating went down to 3-Stars. Looking at its September 30th report, we see indications of further weakening in its capital ratio; it’s too soon to know about its Bauer rating.

3-Star Dort Financial C.U., Grand Blanc, MI (68708), is one of the many CUs to recently acquire a bank. On 12/15/2023, Dort Financial acquired Flagler Bank, West Palm Beach, FL. The transaction increased Dort Financial CU’s assets from $1.6 billion to over $2.3 billion; but not without taking a Mike Tyson sized hit to its capital ratio.

Dort Financial CU has been “Adequately Capitalized” all three quarters since the acquisition. A sneak peek at September numbers does not indicate that will change. Dort Financial’s uninsured deposits increased from $175 million to $183 million in the third quarter. Uninsured deposits like these remain a mystery to us, especially at a subpar CU.

Regulatory Capital Classifications in descending order:

Well-Capitalized (W); Adequately Capitalized (A); Undercapitalized (U); Significantly Undercapitalized (SU); Critically Undercapitalized (C).