Deluge Of Bankruptcies FloodsCUs

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ALEXANDRIA, Va. - (02/23/06) -- Last fall's rush of personalbankruptcy filings, just as the new bankruptcy law was to takeeffect, caused credit unions to set aside millions of dollars inloan loss reserves and pushed down fourth-quarter earnings to a20-year low, according to NCUA. Credit unions reported an 80% spikein member bankruptcies for the fourth quarter, causing them to add$850 million to their loan and lease loss reserves, according todata compiled by Callahan & Associates based on fourth quarterdata reported by NCUA. This pushed down the key profitabilityindicator, return-on-average assets, or ROA, to just 0.64% for thefourth quarter, and to a 10-year low of 0.85% for the full year."That's really where the hits came from," Jeff Taylor, senioreconomist for NAFCU, told The Credit Union Journal. The affects ofthe new bankruptcies will continue into the first quarter, but at aslower pace, he predicted. The spike in bankruptcycharge-offs--credit unions reported a 50% increase for the fourthquarter--was due to a flood of 300,000 personal bankruptcy filersin the two weeks prior to the Oct. 17 effective date of the newbankruptcy law, as debtors sought to file under the old law. Creditunions also reported flat share growth for the fourth quarter,bringing fiscal year share growth to just 3.8%, the lowest since1994. Fourth quarter loan growth was 1.4%, and 10.6% for theyear.

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