Tuesday, April 25, 2017

Bank and Credit Union Executives Express Concerns over Examinations and Regulations

Members of the Federal Reserve’s Community Depository Institutions Advisory Council (CDIAC) raised concerns about compliance examination processes and the current regulatory landscape in a recent meeting, according to minutes released on Friday by the Fed.

CDIAC members are selected from representatives of banks, thrift institutions, and credit unions serving on newly created local advisory councils at the twelve Federal Reserve Banks. One member of each of the Reserve Bank councils is selected to serve on the CDIAC, which meets twice a year with the Board of Governors in Washington.

“The council is very concerned that the working partnership that has existed for many years between examiners and bankers and credit unions is no longer working well, as manifested by increased examination timeframes, less risky concerns being mentioned as matters requiring attention or documents of resolution, and a lack of exam focus on an institution’s overall risk profile,” the group said.

CDIAC members noted heightened concerns over examination activities related to fair lending, Bank Secrecy Act (BSA), cybersecurity, and vendor management. For example, fair lending exams "seem to continue indefinitely, as if examiners must continue to review until they find a problem."

CDIAC members expressed frustration that agencies are using opaque statistical analyses, but are not willing to share their methodologies with financial institutions. CDIAC members stated: "Being able to use the same tools as examiners would help ensure compliance on their own part and would provide examiners with sound, reliable data analysis, thereby reducing examination burden and allowing examiners to focus on higher-risk areas."

Council members said they observed regulatory expectations for large institutions “trickling down” to community institutions, and they emphasized the need for regulators to tailor examinations based on the risk profiles of individual financial institutions.

They also raised concerns about the reduction in the overall level of examiner experience and expertise, noting that less-experienced examiners tended to take a “check-the-box” approach when conducting an examination, rather than focusing on the bank’s risk profile.

Read questions 4 and 5 of the CDIAC minutes.

Monday, April 24, 2017

Indirect Used Car Lending Contributed to the Failure of Valley State Credit Union

It appears that a rapid growth in indirect used car lending played a significant role in the failure of Valley State Credit Union (Saginaw, MI).

Valley State Credit Union failed on March 31, 2017.

The following graphs provide a visual depiction of rapid growth in used car and indirect lending, the growth in delinquencies in used car and indirect loans, and the subsequent spike in net charge-offs in used car and indirect loans.

Between September 2014 and December 2015, used car loans rapidly expanded by almost 236 percent from $2.3 million to almost $7.86 million.

Over the same time period, indirect lending expanded from 11.08 percent of total loans to peaking at 33.89 percent of all loans.

Used car loan delinquency rate went from 3.02 percent in September 2014 to 30.68 percent as of September 2016.

Indirect loan delinquency rates went from 4.84 percent to 33.35 percent over the same period.

In the fourth quarter of 2016, net charge-offs for used car loans and indirect loans were $1.4 million and $1 million, respectively.

Friday, April 21, 2017

NCUSIF Reserve Balance Increased by $49 Million During the First Quarter of 2017

The National Credit Union Administration reported that reserve expenses for the National Credit Union Share Insurance Fund (NCUDIF) increased during the first quarter.

NCUA had estimated that NCUSIF reserve expenses would increase by $28 million during the first quarter of 2017. However, actual NCUSIF reserve expenses rose by $49.2 million - more than anticipated.

NCUA reported that charges for liquidation declined by about $200 thousand during the first quarter.

As a result, reserve balance at the NCUSIF increased by $49 million from $196.6 million on December 31, 2016 to $245.6 million on March 31, 2017.

According to NCUA, $8.8 million is for specific natural person credit unions and $236.8 million is for general reserves.

Thursday, April 20, 2017

Georgia's Community United FCU Conserved

The National Credit Union Administration (NCUA) placed Community United Federal Credit Union, in Waycross, Georgia, into conservatorship.

NCUA placed Community United Federal Credit Union into conservatorship to allow the credit union to correct operational weaknesses.

According to its year end data, the credit union was well-capitalized and profitable. The credit union reported that only 0.97 percent of its loans were delinquent.

Community United Federal Credit Union has 4,844 members and $23,161,861 in assets, according to the credit union’s most recent Call Report.

Read the press release.

Guardian Credit Union Named Title Sponsor of Symetra Golf Tour Event

Guardian Credit Union (Montgomery, AL) was named as the title sponsor for a women's professional golf tour event.

Guardian Credit Union agreed to sponsor the LPGA Symetra Tour event this year and next year.

The Guardian Championship will take place on the Robert Trent Jones Golf Trail September 21 and September 24.

The Symetra Tour is the official qualifying Tour for the LPGA.

The financial terms of the sponsorship were not disclosed.

However, should the credit union tax exemption be used to sponsor a professional golf event?

Read the story.

197 Problem CUs at the End of Q1 2017

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

At the end of the first quarter, there were 197 problem credit unions -- an increase of 1 credit union from the prior quarter. A year earlier there were 218 problem credit unions.

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

At the end of the first quarter, 0.83 percent of total insured shares were in problem credit unions -- unchanged from the prior quarter.

Wednesday, April 19, 2017

68.5 Percent of Quorum's Taxi Medallion Loans Were Current at the End of 2016

According to Quorum Federal Credit Union's 2016 Annual Report, approximately 68.5 percent of its taxi medallion loans were current.

While Quorum never originated a taxi medallion loan, the credit union participated in taxi medallion loans for 13 years. The credit union ended its taxi medallion participation loan program in 2013. These taxi medallion participation loans were primarily in the cities of New York and Chicago; but the credit union did not divulge the portion of taxi medallion loans in each city.

Quorum stated that it owned primarily 90 percent of these taxi medallion loans originated by parter credit unions.

As of December 31, 2016, Quorum Federal Credit Union (Purchase, NY) had $72.6 million of loans collateralized by taxi medallions.

Taxi medallion loans delinquent by 30 days or more totaled $22,871,000. Almost $20.9 million of the these delinquent loans were 90 days past due or in nonaccrual status.

Quorum's financial notes stated that the credit union increased its provisions for taxi medallion loans in 2016 by almost $19.1 million. The credit union ended 2016 with almost $19.6 million in loan loss reserves for taxi medallion loans, of which $19.2 million were specific reserves.

To estimate its underlying value of the collateral, Quorum engaged a third party specialist. According to the third party specialist, the fair value of a taxi medallion is $489,000 in New York City and $91,000 in Chicago. The $91,000 valuation for Chicago is higher than what other lenders have valued their taxi medallion loans.

While Quorum estimated the December 2016 fair value for New York City and Chicago taxi medallions, the credit union had not at the end of 2016 written down the value of these loans to their current fair value.

Quorum Federal Credit Union reported that almost $35.2 million in taxi medallion loans are scheduled to mature in 2017, $20.5 million will mature in 2018, and $13.3 million will mature in 2019. The remainder of the taxi medallion participation loans will mature in 2020 or later.

However, the credit union cautions that disruption in the value of taxi medallions could cause an increase in losses on these loans.

Read the Annual Report.


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