Tuesday, February 20, 2018

Superior Choice CU to Acquire Dairyland State Bank

Superior Choice Credit Union (Superior, WI) has entered into a merger agreement with Dairyland State Bank (Bruce, WI).

Pending regulatory approval, the acquisition will create a combined financial institution that will have more than $480 million in assets. Closing is expected to occur in the third or fourth quarter of 2018.

Superior Choice Credit Union has almost $414 million in assets at the end of 2017. Dairyland State Bank has $78 million in assets.

Going forward, the combined credit union will be called Superior Choice Credit Union.

The terms of the deal were not disclosed.

Read more.

Virtual Membership Meeting

Earlier this year, the Washington-state Division of Credit Unions issued an interpretive letter on virtual membership meeting.

The state credit union regulator stated that a Washington credit union may not conduct an annual membership meeting or special membership meeting as a virtual meeting without simultaneously conducting an in-person meeting.

However, the credit union regulator wrote that a virtual meeting can be conducted at the same time as an in-person meeting.

The letter noted that there are benefits associated with a virtual meeting, such as cost savings and greater membership participation; but virtual meetings also come with detrimental effects.

The state regulator pointed out that the Washington Credit Union Act requires a credit union's by-law to address the time and place of an annual meeting. In addition, a special meeting must be held in a reasonable location in the county that is the principal place of business for a credit union.

Read the interpretive letter.

Monday, February 19, 2018

Technology CU Provides a $23 Million Construction Loan

Technology Credit Union (San Jose, CA) will provide a $23 million construction loan to W.L. Butler, Inc.

The loan will finance the development of a 60-unit apartment building overlooking Central Park in San Mateo.

Read the press release.

Friday, February 16, 2018

NCUSIF Reserves Increased by $728.9 Million to $925.5 Million

The audited financial statement for the National Credit Union Share Insurance Fund (NCUSIF) reported a $728.9 million increase in reserves in 2017.

At the end of 2017, Insurance and Guarantee Program Liabilities (reserves) was $925.5 million to cover probable losses compared with $196.6 million for the previous year-end.

The overall increase in the Insurance and Guarantee Program Liabilities balance is due to the increase in the specific reserve of $815.7 million, partially offset by a decrease in the general reserve of $86.8 million.

At the end of 2017, specific reserves were $818.6, while general reserves were $106.9 million.

Specific reserves are identified for those credit unions where failure is probable and where additional information is available to make a reasonable estimate of losses associated with these credit unions. The general reserve reflects overall risk of loss due to potential credit union failures of federally insured credit unions taken as a whole.

In addition, the NCUSIF provided a guaranteed line-of-credit to a third-party lender, such as a corporate credit union. Total line-of-credit guarantees of credit unions as of December 31, 2017 were approximately $410.0 million -- $300 million to Melrose Credit Union and $110 million to LOMTO Federal Credit Union. The two insured credit unions have borrowed $206.0 million from the third-party lender under these lines-of-credit guarantees as of December 31, 2017. The NCUSIF reserved $9.0 million for these guaranteed lines-of-credit at the end of 2017.

However, the audited financial statements caution that actual losses could vary and may be materially different from the estimated losses recognized as of December 31, 2017.

The specific reserves are probably for two conserved credit unions that specialized in taxi medallion loans. Also, the audited financial statement notes that other other credit unions that participated in these loans are experiencing financial stress and warns that "[i]t is possible that some of these credit unions may fail, and these failures may increase the amount of losses absorbed by the Share Insurance Fund in the future. Although this exposure is limited, the NCUA must continue to manage and mitigate any potential risk from these institutions."

Read the audited financial statement.

Thursday, February 15, 2018

Problem CUs Fell, NCUSIF Reserves Up Significantly, and NCUA Board Declares Dividend Distribution

The number of problem credit unions fell during the fourth quarter of 2017, according to the National Credit Union Administration (NCUA).

At the end of the fourth quarter of 2017, there were 196 problem credit unions. In comparison, there were 204 problem credit unions at the end of the third quarter.

A problem credit union has a composite CAMEL rating of 4 or 5.

Total assets and shares (deposits) in problem credit unions fell during the fourth quarter. Assets in problem credit unions were $9.6 billion at the end of the fourth quarter -- down from $10.2 billion at the end of the third quarter of 2017. Shares in problem credit unions decreased from $9.0 billion as of September 30 to $8.7 billion as of December 31.

NCUA reported that almost 89 percent of problem credit unions have less than $100 million in assets, while less than 2 percent have more than $500 million in assets.

At the end of the fourth quarter, 0.80 percent of total insured shares were in problem credit unions. At the end of the third quarter, 0.84 percent of total insured shares were in problem credit unions.

In a related news, reserves for the National Credit Union Share Insurance Fund (NCUSIF) increased from $286 million at the end of the third quarter of 2017 to $925.5 million at the end of 2017. There will be more to come on this increase in reserves, once NCUA releases its audited financial statements for the NCUSIF.

Despite the increase in NCUSIF reserves, NCUA Board declared a distribution from the NCUSIF of $735.7 million for December 2017, which will be paid in the third quarter of 2018. The merger of the Temporary Corporate Credit Union Stabilization Fund into the NCUSIF made the distribution possible. Otherwise, insured credit unions faced a premium of 12.2 basis points per insured shares to restore the NCUSIF to its prior normal operating level of 1.30 percent of insured shares.

Wednesday, February 14, 2018

Achieva CU to Acquire Preferred Community Bank

Achieva Credit Union (Dunedin, FL) signed a definitive agreement to acquire Preferred Community Bank (Fort Myers, FL).

The 116 million bank has three branches in Fort Myers, Lehigh Acres, and Cape Coral.

Under the terms of the merger agreement this will be a whole bank acquisition.

The transaction is expected to close later this year and is subject to Preferred Community Bank shareholder and regulatory approvals.

When the transaction is completed, this will be the second community bank acquired by Achieva Credit Union. Three years ago, the credit union acquired Calusa Bank.

Read the press release.

Three More NY Credit Unions Reporting Problems from Taxi Medallion Loans

Three more New York credit unions -- Bay Ridge Federal Credit Union, Nassau Financial Federal Credit Union, and Town of Hempstead Employees Federal Credit Union -- are feeling the effect of Uber and other ride sharing apps on the taxi industry.

I would like to thank a reader for the tip that both Nassau Financial and Town of Hempstead Employees FCUs had exposure to taxi medallion loans.

Bay Ridge Federal Credit Union (Brooklyn, NY)

Bay Ridge FCU reported a loss of $4.3 million for 2017, as the credit union increased provision for loan and lease losses.

Provision for loan and lease losses increased from $1.7 million for 2016 to $6.5 million for 2017.

Its 2017 loss caused its net worth to drop from almost $19 million at the end of 2016 to $14.7 million as of December 2017. The $192.8 million credit union saw its net worth ratio fall 185 basis points over the same time period to 7.62 percent.

The credit union at the end of 2017 reported $72.7 million in outstanding commercial loans not secured by real estate. Presumably some of these commercial loans are secured by taxi medallions.

At the end of 2017, the credit union reported almost $7.4 million in delinquent loans -- down from the third quarter, but up from a year ago. At the end of 2017, 4.31 percent of its loans were 60 days or more past due.

The credit union is also reporting $8.6 million in early delinquencies (30-to-59 days past due) as of December 2017. This is up from $44,890 at the end of the third quarter of 2017.

A majority of the delinquent loans and early delinquencies were member commercial loans not secured by real estate. Delinquent commercial loans not secured by real estate were slightly less than $3.7 million at the end of 2017. Early delinquencies were almost $6.9 million.

Net charge-offs were $3.9 million for 2017 -- up from $427 thousand at the end of 2016. The net charge-off rate was 2.23 percent at the end of 2017, up from 0.25 percent from a year ago.

Troubled debt restructured (TDR) commercial loans not secured by real estate were $20.5 million as of December 2017. Almost 15 percent of these TDR loans are 60 days or more past due.

The credit union has $6.4 million in allowance for loan and lease losses, up from $3.8 million from a year ago. Its coverage ratio (allowance for loan and lease losses to delinquent loans) was 87.02 percent, up from 57.17 percent a year ago.

Key questions for the credit union's management and board are: What is the credit union's total exposure to taxi medallion loans and what is the price of taxi medallions the credit union is using to evaluate its portfolio?

Nassau Financial Federal Credit Union (Westbury, NY)

Nassau Financial FCU reported a loss of almost $8.9 million for 2017, as the credit union significantly increased its provision for loan and lease losses in 2017.

Provisions for loan and lease losses rose from $454,148 at the end of 2016 to almost $8.2 million at the end of 2017.

The $403 million credit union at the end of 2017 reported outstanding commercial loans not secured by real estate of $24.2 million. One suspect that some of these loans were to finance the purchase of taxi medallions.

The 2017 loss caused its net worth to drop from $38.3 million at the end of 2016 to $29.4 million at the end of 2017. Its net worth ratio over the same time period tumbled by 194 basis points to 7.30 percent.

The credit union is reporting $12.9 million in delinquent loans in its most current call report. Its delinquency rate was 4.77 percent.

A majority of the delinquent loans at the end of 2017 were nonmember commercial loans not secured by real estate at $7.4 million. Almost 31 percent of nonmember commercial loans not secured by real estate were past due.

In addition, troubled debt restructured commercial loans not secured by real estate were $8.2 million at the end of 2017, of which all were in non-accrual status.

The credit union significantly increased its allowance for loan and lease losses from about $1.4 million at the end of 2016 to $7.7 million at the end of 2017. The increase in its loan loss reserves caused its coverage ratio to climb from 11.23 percent on December 31, 2016 to 59.73 percent on December 31, 2017.

Town of Hempstead Employees Federal Credit Union (North Baldwin, NY)

Town of Hempstead Employees Federal Credit Union reported a loss of almost $919 thousand for 2017, after posting a profit for 2016.

The 2017 loss arose from a more than five-fold increase in 2017 provision for loan and lease losses compared to 2016 to $554,500 and a 33 percent increase in 2017 employee compensation and benefits to almost $2.8 million.

As the result of the 2017 loss, the $123 million credit union saw its net worth decline by 10.6 percent in 2017 to slightly less than $7.8 million. The credit union saw its net worth ratio fall from 7 percent to 6.31 percent. The credit union is now adequately capitalized.

The credit union is reporting outstanding commercial loans not secured by real estate of $7.1 million at the end of 2017, down from $9.6 million at the end of the third quarter of 2017. Presumably some of these commercial loans were to finance the purchase of taxi medallion loans. The credit union had $6.4 million commercial loan participations.

At the end of 2017, the credit union reported almost $1.4 million in delinquent loans, which means 2.11 percent of loans were delinquent.

However, the credit union saw an increase in the pipeline of early delinquencies. Loans 30-to-59 days past due grew by 321 percent during the fourth quarter of 2017 to approximately $1.1 million.

The credit union more than doubled its allowance for loan and lease losses during 2017 to almost $813 thousand. As a result, the credit union's coverage ratio rose from 48.46 percent in 2016 to 59.18 percent in 2017.

This means the credit union at the end of 2017 has a total buffer of net worth and allowance for loan and lease losses of $8.6 million to absorb expected and unexpected losses.






 

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