Mid-Year Numbers Showing Losses Seen As 'Warning'

Michigan Credit Union League CEO Dave Adams is describing mid-year call report data for state-chartered credit unions in the state as a "little bit of a warning."

The data from the Office a Financial Services (OFIS) showed a decline in earnings and capital and higher loan charge-offs (CU Journal, Aug. 19).

Adams said that considering the high rate of deposit inflow and the poor stock market, the numbers are not alarming.

"Tough economic times are being felt by Michigan credit unions," Adams said. "They're certainly getting higher- than normal deposit growth, but the capital ratios are so good that the asset quality is good. They're going to be able to weather this storm."

Adams said he appreciates that OFIS is not idly standing by as the numbers are reported. Roger Little, deputy commissioner of OFIS, has asked Michigan's state-chartered credit unions to develop a written plan that identifies and addresses negative trends.

"The stresses evident in the June 2002 statistics highlight the need for application of sound management practices in an increasingly uncertain economic environment," Little said.

The report showed that 38 of Michigan's 282 state-chartered CUs net losses at mid-year, double the number of 2001, with another 29 reporting weak return-on-average assets.

"There is a deterioration in net earnings," Adams said. "And, it is true that the ROA on an annualized basis is .78%, lower than it's been from 1992 to 1997."

But, he added, many credit unions have been enjoying ROAs of greater than 1%. The OFIS report also indicated that average net capital fell to 11.05% as of June 30, 2002, the lowest since 1995. During the same period, net charge-offs increased, with 22 credit unions reporting charge-off rates of 1.5% or higher, double the number of 2001.

"As you're growing, it's going to continue to put a strain on you. But credit unions are still doing very well," Adams said, noting that even with slightly higher charge-offs, the state's credit unions continue to have "very solid, low charge-off and delinquency rates."

Adams said the end of the year will reveal the whole story. "It is possible to see a little bit more deposit growth the first half of the year," he said. "For 2001, even though credit unions were showing a 17% deposit growth, by the end of the year, it equated to 13.2%."