AEA Federal Credit Union still troubled with 'necessary pain'

AEA Federal Credit Union's financial picture remains troubled with a still declining net worth ratio, high loan charge offs and continuing bankruptcies, according to the call report just posted for the first quarter of 2011.

But some of that is necessary pain as the new management team and existing staff work toward turning around the financial institution, noted David Small, spokesman for the National Credit Union Administration. AEA has been under NCUA conservatorship since mid-December when the credit union's net worth ratio plunged to a minus 7.63.

AEA's net worth/total asset ratio has continued to decline, reaching minus 7.7 for the fourth quarter of 2010. The peer average is in the neighborhood of a positive 10.2.

The slight decline in the ratio was driven by an overall decline in total assets, said Small. He noted that AEA experienced a decline of approximately $24 million in member deposits during the first quarter, the majority of it occurring in high cost certificates of deposit that matured in January and February. Total assets reported for the first quarter of 2011 were $239.5 million compared to $373.3 million during the same period in 2010.

“It is not unusual for shares to decline in a credit union under conservatorship,” Small said. “This is often a necessary part of restructuring the credit union's operations to restore profitability.”

That's also true for AEA's high loan charge off ratio, Small said.

The credit union reported a loan charge off ratio for the first quarter of 30.2 percent, totaling $17.9 million in bad loans.

“The charge-off ratio for the first quarter is very high, but the credit union predicted these losses in the quarter that closed in December,” Small said. “AEA needed to gain control of the properties via the foreclosure process. These losses are part of the ongoing process to clean-up problems in the AEA business loan portfolio.”

There's likely more bad news to come. The credit union has $14.3 million in delinquent business loans of more than 12 months past due. In addition, the pipeline of fresh delinquencies of one to two months delinquent increased from almost $6.7 million at the end of 2010 to slightly above $9 million at the end of the first quarter.

On the other hand, Small said, AEA earned a profit in the first quarter, showing net income of $1.35 million. This positive net income decreased the equity deficit from just under $20.0 million to just over $18.6 million.”

He said it typically takes between 18 and 24 months to complete a workout situation.

In the meantime, AEA members can rest assured that their money is safe with their accounts insured up to $250,000 apiece by the National Credit Union Share Insurance Fund.

And AEA continues to address problem loans as necessary to protect the interests of the membership and minimize losses, Small said.

“A necessary part of restoring profitability is reviewing and revising fee schedules,” he said. “As a result of this review, AEA has made some changes to fees to more accurately reflect the credit union's cost of a particular product or service.”

Returning the credit union to its members continues to be NCUA's goal, Small said.

“The ability of AEA for long-term prospects will be driven by a variety of factors, including continued member and community support of their credit union,” he concluded.