# Analysing Sandymount Credit Union's accounts



## Brendan Burgess (1 Dec 2013)

I just got the Annual Report from Sandymount Credit Union, which is a well run, conservative Credit Union. 

*The deposits are very safe *



Gross loans to members| €7.8m 
||

Provisions for bad debts|€0.7m
Total reserves|€4.6m
Less dividend due|(€0.2m) 
Total reserves and provisions| €5.1m
As a percentage of gross loans|65%In other words, it could write off 65% of its loans and still be solvent. 

Some of the gross loans to members of €7.8m is secured on members' shares, so the net loans to members is probably only around €6m.  

It has reduced the dividend to 0.75%. It could well afford to pay more and be at no risk. 

Its premises is in the books at €246k and it's a fine modern building worth at least that. 

*It is more a deposit taker than a lender *



 Members's shares and deposits| €20.4m |
Loans to members| €7.8m|38%It has €17m in bank deposits and government bonds.  It doesn't make much financial sense for me to deposit €50,000 in my Credit Union for them to go across the road and put it on deposit in AIB. 

It runs up management expenses of €438k a year to act as this deposit intermediary. 

*The cost of insurance and levies 
*

 Share and loan insurance|€97k
Death Benefit Insurance |€31k
SPS contribution| €14k
Credit Resolution Fund levy|€12k
Deposit protection fees|€2k
Total |€156kThe share and loan insurance is probably fair enough.

But they are paying a lot for deposit protection when they are never going to need it.


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## Brendan Burgess (1 Dec 2013)

I am wondering if they should review their strategy and just tell their members to withdraw €15m in shares. 

The new balance sheet would be as follows: 



Deposits and investment| €2.3m
Net loans to members| €7.1m 
Other assets|0.7m
Total assets| €10.1m 
||
||
Members' shares|€5.5m 
Reserves |€4.6m 
Total |€10.1m 
I would go even further and tell the borrowers that we are setting their shares against their loans, so that the true net loans figure is shown.


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## Bronte (2 Dec 2013)

Brendan Burgess said:


> I
> It runs up management expenses of €438k a year to act as this deposit intermediary.
> 
> 
> But they are paying a lot for deposit protection when they are never going to need it.


 

Where are you getting the 435K management costs from. 

What is the deposit protection insurance and how does it work.

If they reduce deposits won't they have less to lend.  Would it be better instead to loan more money, on which they can make a profit and then increase the dividend to sharehholders.


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## Brendan Burgess (2 Dec 2013)

Bronte said:


> Where are you getting the 435K management costs from. [/table]
> 
> From their accounts
> 
> ...


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## Protocol (2 Dec 2013)

Brendan Burgess said:


> *It is more a deposit taker than a lender *
> 
> 
> 
> ...


 
I have been thinking about this.

My local CU has deposits which are double loans.

I guess that many depositors have said to themselves: "I don't trust the banks, so I will put deposits in my CU instead"

Yet the same CU have 10m-20m on deposit in a few banks.

I don't think most CU savers realise that in many cases, in effect, half of their deposit is simply re-deposited in banks.


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## Brendan Burgess (2 Dec 2013)

If I put €100,000 in AIB and it goes bust, the government will give me back my €100k.

If I put €100,000 in the CU and they put it on deposit in AIB and AIB goes bust, the CU won't get the money from the government. 

While my €100,000 in the CU is guaranteed, the CU will not be able to pay a dividend. 

It's a very inefficient way of moving money around.


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## Brendan Burgess (2 Dec 2013)

Can someone explain what all these insurances and levies are for?  Have I got them right. 


Share and loan insurance|€97k - benefits the member - if the borrower dies, their loan is paid off or they get double the shares back 
Death Benefit Insurance |€31k - benefits the member - additional life cover? 
SPS contribution| €14k - No benefit to Sandymount CU members - A fund which allows the ILCU to bail out illiquid or insolvency credit unions 
Credit Resolution Fund levy|€12k - No benefit to Sandymount CU members -  a statutory payment to pay for the €100,000 deposit guarantee? 
Deposit protection fees|€2k - No idea what this one is


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## Crugers (3 Dec 2013)

Brendan Burgess said:


> Can someone explain what all these insurances and levies are for?  Have I got them right.



*Share and loan insurance|€97k - benefits the member - if the borrower  dies, their loan is paid off or they get double the shares back *
Correct but subject to certain pesky "terms and conditions"

*Death Benefit Insurance |€31k - benefits the member - additional life cover?*
Correct but subject to those pesky "terms and conditions" again

*SPS contribution| €14k - No benefit to Sandymount CU members...
*Correct in that it does not directly benefit Sandymount CU Members*
...A fund  which allows the ILCU to bail out illiquid or insolvency credit unions*
Correct but surprisingly enough that's not the way it is described by ILCU! 

_*Credit Resolution Fund levy|€12k - No benefit to Sandymount CU members*_...
Correct in that it does not directly benefit Sandymount CU Members
_*...a statutory payment to pay for the €100,000 deposit guarantee?*_
Not correct.   The Central Bank and Credit Institutions (Resolution) Act 2011 established the Resolution Fund to provide a source of funding for the resolution of financial instability in, or an imminent serious threat to the financial stability of, *an* authorised credit institution.
It is not CU specific and applies to ALL credit institutions.
  See here

*Deposit protection fees|€2k - No idea what this one is*
AFAIK - Sandymount's contribution to the payments made under the Deposit Guarantee Scheme to Depositors who lost out in IRBC liquidation.
 Again it is not CU specific and applies to ALL credit institutions.
See [broken link removed]


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## Bronte (3 Dec 2013)

Protocol said:


> My local CU has deposits which are double loans.


 
What does this mean?


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## Brendan Burgess (3 Dec 2013)

Bronte said:


> What does this mean?



Presumably they have €10m in deposits from members , but have only €5m in loans to members and a further €5m on deposit with banks. 

Brendan


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## CUJimmy (7 Dec 2013)

The deposit protection fees are what has been charged to the credit unions DEposit guarantee fund for the liquidation of IBRC


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