Report: AEA receives $20 million from NCUA
At first glance, AEA's financial standing seems to have improved significantly in the fourth quarter of 2011, according to the credit union's latest call report posted in late January with the National Credit Union Administration.
However, it's because the credit union received a capital injection of $20 million in subordinated debt in the fourth quarter.
NCUA deposited the funds into AEA's account in December 2011, confirmed John Zimmerman, public affairs specialist with NCUA.
He said the deposit, which could also be considered a capital assistance note, was made to “strengthen the credit union” by providing it with more capital. The funding is a loan, he said, but he doesn't know the terms.
The NCUA's decision was that the $20 million note was “the least costly resolution for AEA and the credit union insurance fund. We determined it was the least costly of any option.”
Other possible options were to liquidate AEA or to reach a purchase and assumption agreement with another credit union. In either case, the National Credit Union Share Insurance Fund would pay off AEA's losses.
Zimmerman said the $20 million in funds to AEA poses “zero risk” to taxpayers if the credit union were to fail. “The cost would be borne by the federal insurance fund, which is funded by credit unions.”
As a result of the capital infusion, the net worth ratio of the troubled AEA rose from a minus 6.89 percent at the end of the third quarter to a positive 2.69 percent at the end of the fourth quarter in December 2011.
That's the first time AEA's net worth ratio has been in the black since plunging to a minus 7.63 percent in December 2010 and being placed into conservatorship by the NCUA, with the agency citing inadequate capital, insufficient earnings and problem loans. The peer average is about 10.30.
Much of AEA's difficulties have been attributed to $25 million in bad business loans made by William Liddle while he managed the credit union's business loan program from November 2004 until he left AEA in December 2009.
Liddle and his wife, Rhonda, currently are on trial in U.S. District Court in Phoenix. They and co-defendant Frank Ruiz were each charged with 68 counts of conspiracy, money laundering and fraud in an alleged kickback scheme. Authorities allege that Liddle and Ruiz worked together for Ruiz to obtain $22 million in suspicious loans in exchange for giving more than $1 million in kickbacks to the Liddles.
In June, Ruiz pleaded guilty to one count of conspiracy and one count of money laundering in exchange for agreeing to testify against his co-defendants. He currently is on the stand in the Liddles' trial, which will resume this morning.
Meanwhile, AEA's financial standing remains troubled. Subtracting the $20 million note from AEA's balance sheet appears to push its net worth to a negative 6.6 percent.
In addition, the credit union's one- to two-month loan delinquency is skyrocketing. It went from $3 million at the end of September for the third quarter to $10.8 million at the end of December.
AEA's total loss charge-offs continue to increase as well, going from $13.9 million at the end of December 2010 to $39.48 million at the end of December 2011.
Joyce Lobeck can be reached at firstname.lastname@example.org or 539-6853. Find her on Facebook at www.facebook.com/YSJoyceLobeck or on Twitter at @YSJoyceLobeck.