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Minnesota CUs feel recessions lending slump
MINNEAPOLIS/ST. PAUL, Minn. (6/14/10)--A drop-off in lending caused by the recession is the major reason that 60% of the largest 25 credit unions in Minnesota’s twin cities area--Minneapolis/St. Paul--are reporting lower capital rates. The situation is leading some credit unions to take proactive approaches to the problem. Some credit unions reported double-digit percentage drops in the value of loans generated in the first quarter 2010, compared with the same period last year (Minneapolis/St. Paul Business Journal June 11). “You’re not seeing second-mortgage loans as much,” Mark Cummins, president/CEO of the Minnesota Credit Union Network, told the Journal. “People aren’t buying new cars. If the consumers are not buying, we’re not lending to them. That’s going to hurt our bottom line. It’s going to make it hard for us to raise capital.” Credit unions not only are dealing with defaulted loans, they also are handling loans that are being paid on time, but for some reason are considered troubled and need to be renegotiated, the Journal said. Therefore, money has to be set aside, per accounting rules. As an example, Hiway FCU was advised by its outside auditor to reserve more funds for troubled loans, Jeff Schwalen, president of the $847.7 million-asset, St. Paul-based credit union, told the publication. That resulted in a first-quarter loss of $1.72 million--the largest loss among the Twin Cities’ biggest 25 credit unions. However, Hiway still is well-capitalized and Schwalen told the Journal he thinks the worst is over. “The third and fourth quarter will be positive,” he added. Some credit unions are trying different approaches rather than waiting for economic conditions to improve, the Journal said. In one instance, Financial One FCU, a $68 million-asset credit union based in Columbia Heights, entered partnerships with roughly 40 auto dealerships to provide auto financing. The auto loans bolstered the credit union’s loan levels, allowing it to provide nearly $8 million in first-quarter loans this year--eight times more than the same quarter a year ago, Previn Solberg, Financial One president, told the Journal. Also, some smaller credit unions are looking to merge with larger ones. More difficult financial times and increased regulation are forcing more credit unions to merge, Sherri Stumpf, interim CEO of TruStone Financial FCU, a $642.4 million-asset Plymouth-based credit union, told the Journal. “[Some credit unions are] seeking us out saying, ‘We can see the rates you are able to offer on car loans and home loans and we’d like to be able to give that to our members, and we just can’t anymore because of all these assessments and impairments,’” Stumpf added. Four other Twin Cities credit unions were mentioned in the article.
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