Tuesday, July 26, 2016

NCUSIF Reserves Increased by $23 Million for June

The National Credit Union Administration (NCUA) last week reported a $23 million increase in reserves at the National Credit Union Share Insurance Fund (NCUSIF) during the month of June.

As of June 30, 2016, reserves were $178.9 million -- $4.5 million was for specific natural person credit unions and $174.4 million was for general reserves. At the end of the previous month, reserves were $155.9 million.

The NCUSIF recognized an insurance loss expense of $22.2 million during the month of June 2016. This was the second consecutive month where insurance loss expenses increased.

Read the June NCUSIF Statement.

Monday, July 25, 2016

Melrose CU's Website Misleads on Financial Health

Melrose Credit Union (Briarwood, NY) has misleading information about its financial health on its website.

The following screenshot shows the misleading information, which captured from the credit union's website on July 20. This information can be found under What's New.
The website cites the 2015 edition of DepositAccounts.com Top 200 Healthiest Credit Unions in America. The website gives the impression that these rankings were just released and that Melrose Credit Union is the healthiest credit union in New York.

However, these rankings were not just released. The 2015 rankings are based upon December 2014 data.

While the information accurately reflected the credit union's health as of December 2014, it does not currently reflect the health of the credit union.

In fact, DepositAccounts.com currently has suspended the health rating for Melrose due to the uncertainty surrounding its large exposure to New York City taxi medallion loans. (See screenshot below)
The New York Department of Financial Services should require Melrose Credit Union to remove this misleading information from its website.

Sunday, July 24, 2016

Franklin Mint FCU to Build $19 Million HQ

Franklin Mint Federal Credit Union (Broomall, PA) is building a new three-story, $19 million corporate headquarters in Chadds Ford, Pennsylvania.

The new 71,000 square-foot headquarters building will include a two-story, glass-enclosed café with grand staircase.

This is just another example that many credit unions have outgrown being small, mom and pop organizations.

Read the story.

Thursday, July 21, 2016

The Number of Problem CUs Fell; But Shares and Assets Increased at Problem CUs

The National Credit Union Administration (NCUA) reported today that the number of problem credit unions fell during the second quarter; but share and assets at problem credit unions grew during the quarter.

At the end of the second quarter, there were 209 problem credit unions. In comparison, there were 218 problem credit unions at the end of the first quarter of 2016 and 258 credit unions at the end of the second quarter of 2015.

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

During the second quarter both total shares (deposits) and assets in problem credit unions rose. Shares in problem credit unions increased from $7.5 billion as of March 31, 2016 to $8.4 billion as of June 30. Over the same time period, assets in problem credit unions rose from $7.8 billion to $9.5 billion. A year earlier, problem credit unions held $10.2 billion in shares and $11.4 billion in assets.

According to NCUA, 0.85 percent of total insured shares and 0.8 percent of industry assets were in problem credit unions at the end of the second quarter.

NCUA reported that 1 credit union with at least $1 billion in assets was a problem credit union as of June 30, 2016 (this credit union was most likely Melrose Credit Union in Briarwood, NY). The number of problem credit unions with between $500 million and $1 billion in assets was unchanged during the quarter at 2 credit unions. The number of problem credit unions with between $100 million and $500 million in assets was unchanged at 14 at the end of the second quarter of 2016. Only credit unions with less than $10 million in assets saw a decrease in the number of problem credit unions by 12 during the quarter to 114 credit unions.

Wednesday, July 20, 2016

Rep. King Calls for Update of GAO Study on Credit Unions

Representative Steve King (R-Iowa) wrote House Ways and Means Committee Chairman Kevin Brady (R-Texas) on July 18th urging Congress to update a previous Government Accountability Office study on the tax-exempt status and membership practices of credit unions.

It has been a decade since the GAO last examined this issue. At that time, GAO examined the effect of the Credit Union Membership Access Act on credit union membership; reviewed the NCUA’s efforts to serve low- and moderate-income individuals; compared rates offered by credit unions with those offered by comparably sized banks; and assessed transparency of credit union senior executive compensation.

Rep. King noted in his letter that regulatory and legislative changes have blurred the lines of distinction between credit unions and other depository institutions.

“Congress has a responsibility to all American taxpayers to ensure credit unions and all “not-for-profits” missions’ properly align with good public policy,” King wrote. “The credit union tax expenditure alone will be nearly $10 billion over the next five years and the last GAO report showed significant weakness in oversight in the industry’s mission.”

Read the letter.

Tuesday, July 19, 2016

Diversity and Corporate Governance

Federal regulators and policymakers want to increase the level of diversity at financial institutions, including their boards.

Beginning in 2010, Section 342 of the Dodd Frank Act created the Office of Minority and Women Inclusion (OMWI). One of the goals of OMWI was to assess the diversity policies and practices of entities regulated by the various federal agencies.

In 2015, federal bank regulators and the Securities and Exchange Commission issued a final rule establishing standards for regulated entities to create and strengthen their diversity policies and practices — including their organizational commitment to diversity, workforce and employment practices, procurement and business practices, and practices to promote transparency of organizational diversity and inclusion within the entities' U.S. operations.

NCUA as part of this final rule issued a voluntary self-assessment checklist that provides credit unions with best practices for assessing their diversity policies and practices.

However, my experience is that voluntary best practices tend to become what is expected by examiners.

In a June 2016 speech, Securities and Exchange Commission (SEC) Chairman Mary Jo White stated that "the low level of board diversity in the United States is unacceptable." She believes increasing board diversity is the right thing to do.

To address the issue of board diversity, Chairman White stated that the agency staff are working on a proposed rule that would require public companies to include in their proxy statement “meaningful disclosures” of the race, sex and ethnicity of their board members and board nominees. Chairman White commented that the disclosures would be based on voluntary self-reporting by directors.

While SEC regulations do not apply to credit unions, I suspect that it is only a matter of time before credit unions, as well as other non-publicly traded financial institutions, would be subject to such disclosure about board members and nominees, as it would be viewed as good corporate governance.

While greater board diversity is a positive, having the federal government mandate it is not.

Monday, July 18, 2016

CUNA's Alternative Reality

Once again, the Credit Union National Association (CUNA) has removed all doubt that it lives in a different reality from the rest of us.

In CUNA's July 12 testimony before the House Financial Service Committee, Jim Nussle, president and CEO of CUNA, stated that during the financial crisis the National Credit Union Share Insurance Fund (NCUSIF) remained well funded -- as the NCUSIF fund ratio was above 1.20 percent of insured deposits over that time period.

However, CUNA is not allowed to rewrite history about what happened during the financial crisis.

CUNA's testimony neglected to mention that the NCUSIF was bailed out by Congress in 2009 with the creation of the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund). This shifted the cost of the corporate credit union debacle from the NCUSIF to the Stabilization Fund.

Without the creation of the Stabilization Fund, the NCUSIF ratio was going to drop to 0.31 percent for 2009 with the failures of two corporate credit unions, WesCorp and U.S. Central.

Moreover, the NCUSIF ratio would have fallen further, maybe going into the red, because three other corporate credit unions failed.

CUNA also conveniently forgot to mention that the Stabilization Fund borrowed billions of dollars from the U.S. Treasury to help resolve these five failed corporate credit unions. In fact, the Stabilization Fund still has $1 billion in borrowings outstanding.

So, the reality is that the NCUSIF was bailed out during the financial crisis and the industry tapped the Treasury to help resolve the corporate credit union debacle.


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