Thursday, October 23, 2014

Problem Credit Union Update, Q3 2014

The number of problem credit unions declined by 7 during the third quarter of 2014 to 288 credit unions.

A problem credit union is defined as a credit union with a CAMEL rating of 4 or 5.

Assets at problem credit unions declined from $14.9 billion as of June 2014 to $14 billion as of September 2014. Deposits (shares) at problem credit unions fell from $13.2 billion at the start of the third quarter to $12.4 billion at the end of the quarter.

According to NCUA, problem credit unions held 1.38 percent of the industry's insured deposits and 1.3 percent of the industry's assets.

While the vast majority of problem credit unions are smaller institutions, the bulk of the shares are in credit unions with $100 million or more in assets.

The number of problem credit unions with $500 million or more in assets declined from 8 to 6 during the third quarter. At the end of the quarter, these 6 problem credit unions held $4.5 billion in shares.

The number of problem credit unions with between $100 million and $500 million in assets increased by 3 to 22 credit unions with total shares of $4.2 billion.

NCUA Fines 44 Credit Unions for Late Filing Their Call Reports​

The National Credit Union Administration fined 44 credit unions for missing the deadline to file their second-quarter Call Reports.

The late filers will pay a total of $17,111 in penalties. Individual penalties range from $52 to $1,824. The median penalty was $256.

The size of the civil penalty depended on three factors: the credit union’s asset size, its recent Call Report filing history and the length of the delay.

Four of the credit unions assessed penalties had been late in the previous quarter.

Read the press release.

For a list of late filers, click here..

Wednesday, October 22, 2014

Remove Barriers to Time-Sensitive Mobile Calls and Texts

ABA last week asked the Federal Communications Commission to remove barriers to time-sensitive mobile calls and texts that financial institutions use to reach their customers when their accounts may be compromised.

ABA requested exemptions for communications that would alert customers to potentially fraudulent transactions, actions needed to complete pending money transfers and actions necessary to respond to data breaches.

ABA filed the petition because class action suits filed under the Telephone Consumer Protection Act currently limit financial institutions’ ability to offer these communications, even though most consumers prefer mobile fraud and security alerts.

Read the petition.

Tuesday, October 21, 2014

Is the Taxi Medallion Asset Bubble Collapsing?

Disruptive technologies, like Uber and Lyft, are undermining the value of taxi medallions.

The New York Post is reporting that taxi fleets have lost between 10 percent to 15 percent of their drivers to app-based livery services.

As a result, the price of taxi medallions have dropped by almost 15 percent in the last four months after surging in the first half of this year.

According to Mitchell Reiver of the Melrose Credit Union -- a credit union that specializes in financing taxi medallion purchases, the price of taxi medallions has fallen from $1.05 million four months ago to about $850,000 on average.

The story further notes that the credit union is currently negotiating a medallion sale for $825,000. So, it appears that taxi medallions prices have not found a floor.

This plunge in taxi medallion prices should make credit union regulators nervous, especially with regard to credit unions that are overly exposed to this market.

I suspect these credit unions will be subject to greater scrutiny going forward to ensure that they do not pose a risk to the National Credit Union Share Insurance Fund.

In fact, NCUA in April 2014 issued guidance to credit unions that were engaged in taxi medallion lending or participated in these loans.

Read the article.

Monday, October 20, 2014

FAQ: When Are CUs Included in Regulatory Analysis of Bank M&A Deals?

Last week, the Federal Reserve published answers to a frequently asked questions (FAQ) document to help bankers understand how the Federal Reserve and the Justice Department evaluate proposed merger and acquisition (M&A) activities.

The FAQ includes a discussion about when the Federal Reserve includes credit unions in the Herfindahl-Hirschman Index (HHI) calculation, which measures market concentration, and under what circumstances would a credit union receive a 100 percent weighting in the HHI calculation.

When are credit unions included in the HHI calculations?

If an application exceeds the delegation criteria in a given market in the initial screen, Board and Reserve Bank staff will consider whether any credit unions should be included in the structural concentration calculations, because they exert competitive pressure on banks in the market. Credit unions are typically included in these calculations if two conditions are met: (1) the field of membership includes all, or almost all, of the market population, and (2) the credit union's branches are easily accessible to the general public. In such instances, a credit union's deposits will be given 50 percent weight.

Under what circumstances would a credit union get 100 percent weight in the HHI calculation?

If a credit union has significant commercial lending and has staff available for small business services (special tellers, lending officers, business-only teller windows, etc.), then its deposits may be eligible for 100 percent weighting. To date, it has been very rare for a credit union's deposits to receive more than 50 percent weight.

Total C&I lending as a percentage of assets is an important factor in this consideration. The C&I lending of a credit union includes C&I loans, unsecured business loans, and unsecured revolving lines of credit for business purposes.

However, business loans secured by real estate and construction loans are not counted as C&I loans.

The FAQ also discusses the circumstances when the Justice Department's Antitrust Division (Division) includes credit unions in its analysis.

The Division may include the deposits of a credit union in the HHI analysis if the credit union meets certain criteria. Similar to the conditions set forth by the Federal Reserve, to be considered an active competitor in retail banking, a credit union must have a community-based field of membership, making it easily accessible to customers looking for banking alternatives in the market. For small business banking, the Division will evaluate factors similar to those considered in the analysis of thrifts to determine whether a credit union is an active competitor. Unlike thrifts, however, credit unions do not provide deposit data to the FDIC. Reliable branch-level data may not be readily available for HHI calculations. Therefore, in such cases, the presence of credit unions that meet these criteria will be considered a mitigating factor in evaluating the competitive effects of a transaction.

Read the FAQ.

Wednesday, October 15, 2014

Community First CU to be Title Sponsor of Jacksonville's Light Boat Parade

Community First Credit Union has agreed to be a title sponsor of Jacksonville's Light Boat Parade for at least the next three years.

Organizers hope to have at least 100 boats participate in the parade. After the boat parade, there will be a fireworks show.

Community First and Gator Bowl Sports declined to disclose the dollar amount for the credit union’s sponsorship.

But is sponsoring a boat parade consistent with the tax-exempt purpose of a credit union?

Read more.

Tuesday, October 14, 2014

Who Benefits When CUs Merge?

A paper by Bauer, Miles, and Nishikawa found gains to the owners/members of the target credit union and to the regulators but not to the acquiring credit union.

The paper examines pre-merger versus post-merger performance of credit unions between between 1995 and 2003. The study treats all mergers as the same whether the merger is between willing partners or a purchase and assumption agreement (P&A) between the acquiring credit union and the National Credit Union Share Insurance Fund (NCUSIF). The paper notes that less than 10 percent of the mergers involved P&As with the NCUSIF.

The paper found that members of the target credit union experienced a net gain from the merger.

The study also found that the performance of acquiring credit unions is little affected by the merger. If an acquiring credit union makes some financial adjustments to a merger, these changes tend to favor borrowers at the expense of savers.

Furthermore, the study found evidence to support the hypothesis that most mergers are instigated by regulators to avert using NCUSIF to resolve failing credit unions. The authors posit that the acquiring credit union may do the merger to avoid any disutility to its members that may arise from impact of the failed credit union on the NCUSIF.

Read the paper.


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