Four Credit Unions Lose $122 Million in Q4

Four credit unions lost more than $122 million in the fourth quarter as originations plummeted, revenue dwindled and provisions spiked.

The losses represented an annualized -2.03% of average assets for the three months ending Dec. 31, deteriorating from a positive 0.86% a year earlier. The losses are on top of the $65.3 million fourth-quarter loss by Pentagon Federal Credit Union reported earlier by CU Times.

NCUA reports posted by Jan. 31 showed:

• GreenState Credit Union of North Liberty, Iowa ($11.4 billion in assets, 451,291 members) lost $71.3 million (-2.53%) in the three months ending Dec. 31 following a net gain of $8.7 million (0.10%) from January through September 2023.
• Affinity Federal Credit Union of Basking Ridge, N.J. ($4.3 billion, 232,404 members) lost $28.2 million (-2.59%) in the fourth quarter, following losses of $2.6 million (-0.08%) in the first nine months of 2023.
• Sharonview Federal Credit Union of Indian Land, S.C., near Charlotte ($1.6 billion, 94,270 members) lost $10.6 million (-2.55%) in the fourth quarter, following losses of $8.1 million (-0.60%) in the first nine months of 2023.
• Kinecta Credit Union of Los Angeles ($6.8 billion in assets, 260,785 members) lost $12.5 million (-0.73%) in the fourth quarter, after earning $12.5 million (0.25%) in the first nine months of 2023.

CU Times found these losses through its quarterly check of the 10 largest credit unions plus spot checks for others, especially those that had recent layoffs. The NCUA’s full database of results will be released in about a month.

Net losses deeper than $10 million have been rare — at least since the fourth quarter of 2019. There were six in the first quarter of 2020 when credit unions made huge loan loss provisions as the COVID-19 pandemic began, and many were later reclaimed.

Besides those, there were three in the fourth quarter of 2019, six sprinkled through the final three quarters of 2020, one in the third quarter of 2021, three in the fourth quarter of 2022 and one in the first quarter of 2023.

At least a few of those earlier fourth-quarter losses were the result of planned distributions of special dividends to members. That was not the case among the losses found for 2023’s fourth quarter.

All of the credit unions had lower net revenue, including lower net interest margins than in 2022’s fourth quarter. Borrowings declined from a year earlier but were far higher than average. All had high loan-to-share ratios, but three had reduced them from even higher levels a year earlier.

And loan originations for the three months ending Dec. 31 were 39% to 86% lower than those in 2022’s fourth quarter.

GreenState, Affinity and Kinecta raised their loan loss provisions sharply, and net charge-offs were far higher at all four credit unions.

The biggest factor behind net losses for GreenState, Affinity and Kinecta were massive increases in fourth-quarter loan loss provisions.

The next biggest factor was falling net revenue, led by declining net interest margins.

Affinity Federal Credit Union

Affinity’s Call Reports showed net revenue in the fourth quarter fell by $26.9 million, or 42%, from a year earlier. But the drop would have been only $1.2 million, or 2.5%, if not for a $26 million one-time gain in 2022’s fourth quarter. The gain, recorded under “Other Operating Income,” was from the sale and lease-back of its 126,000-square-foot headquarters 25 miles west of Newark, which it had owned since 2008.

The bigger issue for Affinity was its net interest margin, which was 2.49% in the fourth quarter of 2023, compared with 2.70% a year earlier.

Affinity’s provision was $33.2 million, up $28.8 million from a year earlier. Its fourth-quarter net charge-off ratio was 2.15%, up from 0.38% in 2022’s fourth quarter.

Kevin Brauer, who became Affinity’s president/CEO in January 2023, said the credit union’s fourth-quarter loss stemmed primarily from net income margins and auto lending.

“The economic headwinds that impacted all corners of the financial services industry in 2023 also impacted Affinity,” Brauer said.

“Specifically, our net interest margin has shrunk, as we increased yields back to our members, and we experienced a significant loss in the auto loan space as members struggled with the turbulent economy,” he said.

Affinity held $740.8 million in auto loans as of Dec. 31, down by $210.9 million from a year earlier and down by $80.4 million from September.

Affinity’s total net charge-offs were $21 million in the fourth quarter, up by $17.4 million, or nearly six-fold from a year earlier. The increase matched the $17 million in net charge-offs of auto loans in the quarter, generating a net charge-off rate of 8.74% for autos.

Brauer said auto loans were the most significant factor in the quarter’s loss.

“One of our lending channels was focused on supporting members most in need, and we were providing auto loans to the people credit unions were designed to lend to,” he said.

“The channel was fully vetted, regulated and monitored, and was protected via an insurance wrapper for higher-risk loans.

“As the impacts of inflation continued to hit this segment of our membership the hardest, we saw a high rate of delinquency on these loans this year, driving the loss.

“Notably, we moved quickly to mitigate future risk, and this channel was completely shut down in August 2023,” he said. “We are working closely with impacted members on paying their loans, remaining true to the credit union philosophy.”

Brauer said the credit union’s actions returned it to profitability in January.

“We maintain strong financial footing, exceeding the NCUA’s definition of ‘well capitalized’ and remain committed to staying compliant with all NCUA regulations. Member funds are protected in accordance with rigorously-tested risk management protocols and we remain prudent in our investment and credit decisions.”

“We are committed to advancing our services and deepening engagement with our current and prospective members.

“We are actively investing in expanding our branch footprint and growing member and community relationships,” he said. “These efforts will increase both membership size and assets, strengthen our capital reserves and ultimately ensure Affinity’s continued success.”

Sharonview Federal Credit Union

While GreenState, Affinity and Kinecta had healthy profits in 2022 with above-average returns on average assets, Sharonview’s full-year 2023 loss of $18.7 million (-1.05% ROA) follows a $3.8 million (-0.20%) loss in 2022.

The credit union, which is based on the North Carolina border just south of Charlotte, increased its fourth-quarter losses by $9.8 million from a year earlier with $4.1 million from falling non-interest income and $5.7 million from falling net interest income.

Sharonview’s net interest margin was 1.74% in the fourth quarter of 2023, compared with 2.66% a year earlier, and 2.27% in the first nine months of 2023.

Sharonview originated $12.5 million in loans in the fourth quarter, down 86% from a year earlier. From January through September, it originated $117.6 million, down 81% from a year earlier.

Its $1.1 billion loan balance at Dec. 31 was down 24% from a year earlier and down 11% from September.

Herb White, who was promoted to president/CEO in January 2023, told CU Times Friday that the fourth-quarter loss “was anticipated due to deliberate efforts to diversify our balance sheet to enhance liquidity, unforeseen economic impacts, and accounting mark to market adjustments in our investments portfolio.”

NCUA data showed Sharonview ended the year with an 8.97% net worth ratio, which White said “remained strong and continues to improve.”

“Our plan continues into 2024 with our ongoing focus on asset quality improvement, balance sheet diversification and operational efficiency as we execute our long-term growth strategy,” he said.

Sharonview offset some of its losses by selling a closed branch on Hilton Head Island, one of South Carolina’s wealthiest areas, for $1.85 million in March 2023, according to property records. Sharonview had bought the 6,774-square-foot branch for $2.05 million from Bank OZK based in Little Rock, Ark., in March 2021 and closed it in the summer of 2022.

GreenState Credit Union

GreenState’s $73.1 million fourth-quarter loss represented a $78.1 million drop from its net income of $6.8 million in 2022’s fourth quarter. Loan loss provisions rose by $60.4 million and net interest income fell by $19.4 million.

GreenState’s net interest margin was 1.76% in the fourth quarter of 2023, compared with 2.46% a year earlier, and 1.99% in the first nine months of 2023.

GreenState cut 94 jobs in the 12 months ending September 2023, and its December Call Report showed it cut the equivalent of 36 more full-time jobs from Sept. 30 to Dec. 31.

Responding to the earlier cuts, GreenState COO Kathy Courtney said in January that the layoffs were mainly due to a slowdown in sales, particularly for mortgages.

GreenState originated $621.5 million in total loans in the fourth quarter, down 39% from a year earlier. From January through September, it originated $3.9 billion, down 36% from a year earlier.

NCUA data for GreenState also showed:

• Its loan balance was $9.7 billion on Dec. 31, down 3.4% from a year earlier and down 3.3% from September.
• Its loan-to-share ratio was 105.5% on Dec. 31, down from 110.7% a year earlier and 113.0% in September.
• Its net worth ratio was 8.72% on Dec. 31, compared with 9.21% a year earlier and 9.62% in September.

Kinecta Credit Union

Its $12.5 million fourth-quarter loss followed a $19.0 million net gain in 2022’s fourth quarter. The $31.5 income plunge stemmed from a $13.1 million increase in loan loss provisions, a $12.0 million drop in net interest income and a $6.8 million drop in fees and other operating income.

Kinecta’s net interest margin was 2.35% in the fourth quarter of 2023, compared with 3.17% a year earlier, and 2.66% in the first nine months of 2023.

NCUA data for Kinecta also showed:

• Kinecta’s net charge-offs were $14.7 million in the fourth quarter, up by $11.7 million from a year earlier. Kinecta’s net charge-off ratio was 1.01% in the fourth quarter, up from 0.22% a year earlier.
• Kinecta’s loan-to-share ratio was 105% on Dec. 31, up from 98.4% a year earlier and 103.2% in September.
• Shares and deposits fell 2.6% from a year earlier and 1.1% from September, while loans rose 3.9% from a year earlier, and 0.6% from September.
• Kinecta’s net worth ratio was 8.12% on Dec. 31, compared with 8.42% a year earlier and 8.40% in September.