Dedicated to Deposits: Deals, Data, and Discussion

Troubled Banks and Credit Unions in the News

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In addition to Countrywide Financial, some other banks that I've reported on for their bank deals seem to be having some difficulty in this credit crunch. This TheStreet.com article looks at Washington Mutual and National City. According to the article, Washington Mutual could be "facing serious liquidity problems as worries about the housing and mortgage markets multiply." And National City "could see its earnings and dividend come under pressure as a result of its low reserve levels."

Corus Bank doesn't get much national press, but I've included Corus Bank's competitive money market rates account and CD rates in my weekly summaries over the last two years. According to this TheStreet.com article, Corus may be in trouble due to large exposure to the Florida condo market.

We're not hearing much about credit unions, but one in Colorado just made the news. The coloradoan.com has just recently reported that Norlarco Credit Union (Colorado's 8th largest credit union) was put into conservatorship in May. The result is that the NCUA will be running the credit union in an attempt to restore its safety and soundness and return it to members. A similar situation occurred in February at Huron River Area Credit Union in Michigan (see post). This other coloradoan.com article notes where some of the problems may have come from: "Norlarco's delinquent real estate loan portfolio jumped from less than $6 million in March to about $56 million in June, mostly because of construction loans made in the souring Lee County, Fla., real estate market."

If you keep your bank and credit union deposits below the FDIC and NCUA limits, you shouldn't have to worry about these issues. For more info on FDIC and NCUA, please see my Facts about FDIC and NCUA post.

Thanks to the readers who have been emailing these news articles.


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Comments
8 Comments.
Comment #1 by Anonymous posted on
Anonymous
Thank you for your great information everyday. I have a personal CD, personal money management, business checking, and business money market account at National City bank. I opened these when it was Fidelity Federal,and they offered special rates, but Bank still give me same rate; therefore, I still stay with Bank. Each time I visited a branch, I feel strange because I have never seen any customers, but four employees who look bored. I have felt something wrong for this bank. I guess one of National C problems started with acquisition of Fidelity F.

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Comment #2 by Kevin Spring (anonymous) posted on
Kevin Spring
I'm glad we have the FDIC. It keeps me from making a run on the bank to get my money out.

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Comment #3 by Anonymous posted on
Anonymous
I surely hope United Services CU is OK, given their millstone of high interest payouts. I'm not even sure if they have a new president yet, the last one having resigned earlier this year in the wake of his belated CD account policy change troubles, and the resultant legal action threats, late last fall. One must hope for the best and rely on the NCUA.

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Comment #4 by Rainman (anonymous) posted on
Rainman
Check out your credit union financial data and ratio analysis posted on NCUA.gov here:

http://webapps.ncua.gov/ncuafpr/OnlineFPR.aspx?

You'll need to look up and then enter your credit union's charter number.

The FPR reports are succinct and easy to read. Look for deteriorating Ratio Analysis report trends over several quarters and performance against peers.

The last eight credit unions to go into NCUA conservatorship, along with date and charter number are:

Date Charter# CU Name
07-2007 65118 Norlarco, CO
06-2007 21721 Peoples First Choice, NJ
04-2007 20173 Obelisk, IN
02-2007 62465 Huron River, MI
02-2007 68189 Communities United, KS
03-2006 67978 Credit Union Group, KS
02-2006 02260 Union Pacific, NE
01-2006 61570 Gulfport, MS

If you look at the quarterly ratio analysis in the FPR report filed in the quarter preceding conservatorship for each of these credit unions, you get an idea of what a troubled credit union's financial trends look like.

Trouble signs that seem to stick out are:
- Net Worth / Assets < 11%
- Delinquent Loans / Net Worth > 4%
- Net Charge-Offs / Average Loans > .5%
- Net Income < 5% of revenue.

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Comment #5 by Banking Guy (anonymous) posted on
Banking Guy
Thanks for the info and link to the NCUA database.

Do you know if it has been this common for the NCUA to place credit unions into conservatorship rather than liquidating the credit union?

Seems like conservatorships give depositors time to check their balances to make sure they're under the NCUA limits. Although as we learned with Norlarco CU, there can be some long delays before the conservatorship becomes public.

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Comment #6 by Mike (anonymous) posted on
Mike
If the main purpose of a credit union is to serve its members, one would think that it's board/ directors would have considered merging with one of it's competitors before filing for conservatorship.

I wonder why this doesn't happen?

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Comment #7 by Anonymous posted on
Anonymous
Nolarco Credit Union's board may not have had the option of merger open to them. They would have had to find one willing to assume their assets, liabilities and possible future losses. Given Nolarco's poor financial condition most credit unions might have passed acquiring them through merger unless the NCUA provided assistance in covering future losses.

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Comment #8 by Anonymous posted on
Anonymous
Regarding Rainman's post listing credit union placed into convservatorship. Notice that 5 out of 8 had charter numbers greater than 60000, which indicates a state chartered credit union. I sometimes wonder if the state regulator and federal insurer (NCUA) have difficulties agreeing on when to take decisive action on a troubled credit union?

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