Risks of failure remained high for credit unions reporting the second quarter of 2011. The bank standard rating of 125 is based on the IDC Financial Publishing (IDC) ranking of all financial institutions, ranging from (1) the lowest to (300) the highest rank.  Your credit union could be at risk of failure with merger into a successful surviving credit union or closed by the National Credit Union Administration (NCUA).  Check your credit union score to determine its safety and soundness.

 While credit union deposits and share accounts are currently insured up to $250,000 per individual by the NCUA, individuals require investments in shares or deposits remain in quality, well-run credit unions.  Also, insurance companies and other product suppliers prefer safe and sound financial concerns.

 IDC ranks 509 credit unions as problem credit unions (rank less than 75), based on June 30, 2011 financial statements.  Of these high-risk credit unions, those with the lowest rank of 1 (60 institutions) are experiencing severe problems.  The 1,447 credit unions ranked below average (124 to 75) are not rated problem credit unions, but rank below the bank standard of 125 established as the minimum quality level for investment in certificates of deposit.

 Credit union assets are $954 billion as of June 30, 2011, with $77 billion of assets in institutions ranked 124 to 75 (below average), $64 billion of assets in problem credit unions ranked 74 to 2 (lowest ratios), and $4 billion of assets in the highest risk credit unions ranked 1 (lowest rating).  These credit unions below the bank standard rank of 125 suffer from excess loan delinquencies, limited profitability, and potential short-falls in capital and surplus.

 IDC rated 7,370 credit unions reporting to the NCUA in the second quarter of 2011, evaluating 17 financial ratios with its unique “CAMEL” analysis.  Capital (C) measures the financial strength of the institution.  Adequacy (A) of capital and loan loss reserves compared to loan delinquency calculates default risk.  Margins (M) evaluate management’s ability to produce profitability and control costs.  Earnings (E) from operations compared to earnings from leverage measure the effectiveness of the credit unions plan of operation.  Liquidity (L) measures the credit unions ability to support leverage of outstanding shares and other debt or deposit obligations.

 For a more in-depth look at IDC’s methodology and CAMEL analysis, review “how-it-Works” at IDC’s home page and view sample reports.

 This article is authored by John E. Rickmeier, CFA.  Mr. Rickmeier has over 30 years of experience in evaluating depository institutions.  As CEO of IDC Financial Publishing since its founding in 1984, Mr. Rickmeier and his analytical team currently evaluate and rank quarterly over 16,000 banks, thrifts, and credit unions.  IDC ratings of financial institutions have become the standard in evaluating the safety and soundness of institutions issuing brokered certificates of deposit.  IDC ratings are also used by the Federal Reserve banks, Fannie Mae, Freddie Mac, Ginnie Mae, insurance and credit card companies, state and municipal governments, financial firms specializing in brokered certificates of deposit, individuals and institutions investing in certificates of deposit, and individuals concerned about their bank safety rating.