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Small Pa. credit union is NCUA's first liquidation of 2020

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The National Credit Union Administration on Friday liquidated IBEW Local Union 712 Federal Credit Union, a $7.7 million-asset institution in Beaver, Pa. It is the first credit union failure of 2020.

The credit union's assets, shares and loans were assumed by $14.8 million-asset West Penn P&P FCU, also based in Beaver. IBEW Local Union 712 served 2,935 members at the time of its liquidation.

IBEW Local Union 712 FCU experienced a net loss of $2.3 million during the first quarter of 2020, compared to a net income of $26,460 it posted during the same period last year. The credit union's credit card loan balances more than doubled from March 2019 to March 2020, to $2.43 million, more than 40% of its total loan balances. Its first-quarter call report included no charge-offs for the year so far and only modest delinquencies, but a nearly $2.4 million provision for loan losses. By contrast, the credit union closed out 2019 with loan loss provisions of just $16,000. First-quarter call report data shows the credit union had a net worth ratio of -18.32%, making it "critically undecapitalized" by NCUA standards.

There is no indication the credit union's failure had any connection to the economic fallout from the coronavirus, but many analysts have suggested low interest rates and declining earnings will be the name of the game for at least the remainder of 2020, meaning Local IBEW's closure could be the first of more to come. The latest Credit Union Trends Report from CUNA Mutual Group offered a bleak picture of what's ahead, including severe economic contraction this year, reduced earnings through the end of 2021 (and possibly beyond), increased provisions for loan losses and declining ROA, including negative ROA next year.

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