Tuesday, September 18, 2018

Trend Continues: Almost Half of CUs Report Fewer Members

While overall membership in federally insured credit unions continued to grow during the year ending in the second quarter of 2018, almost half of federally insured credit unions reported fewer members at the end of the second quarter of 2018 compared to a year ago, according to the National Credit Union Administration.

Credit unions with falling membership tend to be small with almost 75 percent of federally insured credit unions had less than $50 million in assets.

In 18 states, the median membership growth rate for federally insured credit unions was negative. At the median, membership declined the most in the District of Columbia (-2.9 percent), followed by Pennsylvania (-1.2 percent), North Dakota (-1.0 percent), and Illinois (-1.0 percent).

Monday, September 17, 2018

Paper Examines Private Student Loans at CUs

A paper recently published in the Review of Quantitative Finance and Accounting examined credit unions' entrance into the private student loan market and exposure to private student loans between 2011 and 2015.

Credit unions, unlike banks, have been required by the National Credit Union Administration to report their holdings of private student loans, since 2011.

According to the paper, private student loans have been the fastest growing loan category among credit unions, expanding from $1.03 billion at the end of March 2011 to $3.53 billion at year-end 2015.

The paper found competition with other depository institutions, strong loan demand, educational field of membership, and proximity to campus were all driving forces behind credit unions having more exposure to private student loans.

Here are some of the other findings from the paper.
  • There is a positive relationship between the holding of long-term rate sensitive assets and private student loans. The author posits that private student loans typical have variable interest rates. By increasing their holdings in private student loans, credit unions will reduce their interest rate risk.
  • Credit unions with a higher loans-to-deposits (shares) ratio were more likely to be involved in private student loans.  
  • Lower capitalized credit unions were more likely to be exposed to private student loans.
  • As credit unions get larger, they are more likely to have a greater concentration in private student loans.
  • Private student loans have a negative and statistically significant effect on a credit union’s return on assets. The paper argues that credit unions that entered the private student loan market had higher non-interest expense, as they added staff and resources to originate and service these new asset class.
  • Concentration in private student loans did not affect risk at credit unions. However, this may be due to student loans still being in deferral and not yet seasoned.
  • Many credit unions that entered the private student loan market did so through participation loans. However, as participation loans make up a greater share of private student loans, there is an increase in delinquency rates.
Read the paper.

Friday, September 14, 2018

Technology CU Funds $20.5 Million Construction Loan

Technology Credit Union (San Jose, CA) provided a $20.5 million construction loan for a luxury apartment development.

The loan will fund the development of a four-story, 55-unit luxury apartment building with a one-story parking garage.

This is a large loan and indicates that large credit unions and banks are competing for the same commercial customers.

Read the press release.

Thursday, September 13, 2018

Regulators Affirm No Enforcement Actions Based Upon Guidance

In an important joint statement issued today, the financial regulatory agencies clarified the role of supervisory guidance in bank supervision, noting that it “does not have the force and effect of law.” Regulators from the Federal Reserve, Federal Deposit Insurance Corporation, Office of Comptroller of the Currency, Consumer Financial Protection Bureau and the National Credit Union Administration affirmed that supervisory guidance is intended to outline expectations and general views regarding appropriate practices for a given subject area, and that they would not pursue enforcement actions based on it.

The agencies highlighted additional ongoing efforts to clarify policies and practices related to supervisory guidance. Specifically, they said they would: limit the use of numerical thresholds or bright-lines when outlining expectations in supervisory guidance; not criticize institutions for “violations” of supervisory guidance; strive to reduce the issuance of multiple guidance documents; and continue working to clarify the role of supervisory guidance in communications with exam teams and supervised institutions. They also noted that seeking public comment on guidance does not signal that the guidance is intended to have the force and effect of a regulation or law.

Read the joint statement.

Wednesday, September 12, 2018

Georgia Regulator Approves CU's Takeover of Bank

The Georgia Department of Banking and Finance on August 6 approved the merger of Georgia Heritage Bank (Dallas, GA) into LGE Community Credit Union (Marietta, GA).

LGE Community CU has $1.3 billion in assets. Georgia Heritage has two offices and $94 million in assets.

Monday, September 10, 2018

Consumer Credit at CUs Up $7 Billion in July

The Federal Reserve announced on September 10 that outstanding consumer credit for the month of July increased at credit unions.

Outstanding consumer credit at credit unions grew by $7 billion to $448.9 billion.

Revolving credit at credit unions rose from $58.6 billion in June to $59.2 billion in July.

Nonrevolving credit expanded by $6.4 billion in July to $389.7 billion.

PenFed Acquires Ad Agency

Pentagon Federal Credit Union (Tyson, VA) last week announced that it had acquired a Washington-area advertising agency, WHITE64.

The advertising agency led the rebranding of Pentagon Federal Credit Union to PenFed, and launched the PenFed “Great Rates Across America” campaign.

Under the terms of the agreement, WHITE64 will retain its name and operate as a virtually autonomous unit rather than an in-house agency. The price tag of the deal was not disclosed.

Under regulations governing a credit union service organization (CUSO), the National Credit Union Administration (NCUA) designated marketing services as a pre-approved power.

The agency will continue to serve its existing customers, including Washington Metro, Koons Automotive Group, and Luray Caverns. WHITE64 will also look at expanding its clientele and will provide marketing services to other credit unions.

But according to regulation, a CUSO must primarily serve credit unions, its membership, or the membership of credit unions contracting with the CUSO. It is unclear how NCUA will enforce this provision, since it has failed to define primarily.

In addition, the agency will be structured as a limited liability company. This means the income from its operations would be taxed at PenFed's tax rate. In other words, the income from the ad agency will not be taxed.

In conclusion, marketing services are unrelated to a federal credit union's tax exempt purpose. Policymakers should require federal credit unions be treated like other tax exempt organizations and pay taxes on income from unrelated business activities.

Read the press release.


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