Concerns Arise About Credit Unions

December 13, 2002
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LANSING — The Office of Financial and Insurance Services reported last week that both individually and in the aggregate, Michigan’s 280 state-charted credit unions are in sound financial condition.

Based on Sept. 30 call report filings, credit union membership grew by slightly more than 1 percent for the third quarter to more than 2.65 million.

Total assets, which increased 5.3 percent during the quarter, currently exceed $16.1 billion.

Loans grew 1.8 percent during the quarter, a growth rate OFIS Commissioner Frank Fitzgerald characterized as “relatively strong.”

Credit union loans now total almost $9.9 million.

But as Fitzgerald pointed out Tuesday in a letter to the OFIC Board of Directors and Management, there are particular areas of concern.

Financial stresses evidenced in the September filings, he said, “highlight the continuing need for the application of sound management practices in an uncertain economic environment.” 

Among troubling industry trends are weak earnings results, high loan delinquency and charge-offs, declining net worth ratios, and a decrease in annualized asset growth rate compared with the first half of 2002.

According to the OFIC analysis:

  • 35 credit unions reported a year-to-date net loss at Sept. 30.
  • 19 credit unions reported “very weak” return on average assets of 0.20 percent or less.
  • 25 credit unions reported net worth ratios below 8 percent. No credit union, however, had net worth ratios decline by more than 20 percent over the last 12 months.
  • 24 credit unions had a net charge-off ratio of more than 1.5 percent at Sept. 30, two more than in June.
  • Overall loan delinquency increased 2 basis points during the quarter.
  • Annualized asset growth rate for all Michigan state-chartered credit unions was 9.6 percent at Sept. 30, down significantly from the 13.3 percent reported in June.
  • 21 credit unions reported annualized asset growth of more than 20 percent, compared to 41 that reported annualized asset growth of more than 20 percent in June.  

Fitzgerald cautioned that poor earnings performance should be of concern to credit union officials since earnings are a credit union’s sole source of net worth.

He advised that when adverse trends or financial conditions are identified, credit union officials put together a written plan of action to control and correct them.  

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