Friday, December 15, 2017

Louisville Metro Police Officers CU Placed into Conservatorship

The National Credit Union Administration (NCUA) placed Louisville Metro Police Officers Credit Union, in Louisville, Kentucky, into conservatorship on December 15th.

The NCUA placed Louisville Metro Police Officers Credit Union into conservatorship to allow the credit union to continue regular operations with experienced management in place and to correct operational weaknesses.

Various news outlets are reporting that the Federal Bureau of Investigation is investigating possible theft-related incident at the credit union.

Louisville Metro Police Officers Credit Union is a federally insured, state-chartered credit union with 3,564 members and assets of $28,759,623, according to the credit union’s most recent Call Report.

Read the press release.

Consent Order Issued to Mid-Cities Credit Union

The California Department of Business Oversight issued a consent order against Mid-Cities Credit Union (Compton, CA).

Mid-Cities Credit Union is privately insured by American Share Insurance.

As of September 2017, the credit union posted a loss of $703,246.

The consent order requires the credit union to retain management and Board of Directors acceptable to the Commissioner.

Within 45 days of the date of this order, the members of the Board of Directors will attend and participate in financial literacy training that is designed for credit union board of directors.

Also, the $20.1 million credit union needs to start a search to identify mergers partners that are acceptable to the Commissioner.

By December 31, 2018, the credit union would have an operating expense-to-average assets ratio of no more than 6 percent. As of September 2017, the credit union reported an operating expense ratio of 8.70 percent.

Also, the credit union is expected to develop, adopt, and submit a Net Worth Restoration Plan. As part of the plan, the credit union will seek to attain a minimum quarterly profitability of 0.10 percent of total assets.

Furthermore, the credit union was expected to improve procedures for the oversight of any vendors or independent contractors, who provide debt collection services.

The order was signed on December 11, 2017.

Read the consent order.

Thursday, December 14, 2017

ABA Chairman Says It's Time to Tax Large CUs

The tax code shouldn’t pick winners and losers, and businesses performing the same service should face the same rules, ABA Chairman Ken Burgess wrote in a letter to the Wall Street Journal. The letter was in response to a Dec. 5 article highlighting the fact that credit unions were left out of the tax reform bill.

“At a time when Congress is asking everyone from teachers to homeowners to give up tax breaks in the name of lowering rates, why is the trillion-dollar credit-union industry still getting a free ride?” wrote Burgess, chairman of FirstCapital Bank of Texas in Midland, Texas.

Burgess added that today’s credit unions look nothing like those of the 1930s, when Congress first exempted credit unions from federal income tax and noted that there are now 282 credit unions with more than $1 billion in assets.

Burgess wrote: “It’s time for Congress to end the uneven playing field and require the nation’s billion-dollar credit unions to pay their fair share.”

Read the letter to the editor (subscription required).

Wednesday, December 13, 2017

FICUs Earn $7.84 Billion Through the First 9 Months of 2017

The National Credit Union Administration (NCUA) reported that federally-insured credit unions (FICUs) posted aggregate earnings of $7.84 billion through the first 3 quarters of 2017. In comparison, FICUs reported earnings of $7.27 billion for the same period of 2016 -- up 7.8 percent.

At the end of September 2017, FICUs had a return on average assets of 79 basis points -- up 2 basis points from June 2017 and 3 basis point from the end of 2016. The median return on average assets as of September 2017 was 39 basis points.

During the first 3 quarters of 2017, return on average assets was bolstered by higher net interest margin of 9 basis points and lower operating expenses of 4 basis points. This was offset by 6 basis points increase in provisions for loan and lease losses by 6 basis points, lower fee and other income by 4 basis points, and lower non-operating income by 1 basis point.

Net Worth

The industry's net worth increased by $7.8 billion to $148.6 billion. The industry's net worth ratio increased by 9 basis points during the quarter to 10.89 percent, but was unchanged from the end of 2016.

As of September 2017, 97.55 percent of FICUs had a net worth ratio of at least 7 percent. In comparison, 97.87 percent of FICUs had a net worth ratio of 7 percent or better at the end of 2016.

The number of undercapitalized credit unions increased by 11 during 2017 to 48 FICUs. In addition at the end of the third quarter of 2017, 9 credit unions were critically undercapitalized (net worth ratio below 2 percent) with five FICUs reporting a negative net worth ratio.

Loan, Share, and Asset Growth

FICUs reported strong asset, loan, and share (deposit) growth in 2017.

Assets at FICUs increased by $71.1 billion during 2017 to $1.36 trillion.

Loans at FICUs increased by annualized rate of 10.4 percent during the first 3 quarters of 2017 to almost $937 billion. All major loan categories have grown during 2017.

The number of outstanding loans at FICUs increased from 61 million at the end of 2017 to 63.7 million at the end of the third quarter of 2017. During the third quarter, the number of outstanding loans increased by 1.2 million.

Indirect lending helped to fuel expansion in credit union loans -- growing at an annual rate of 19.66 percent to $189.6 billion at the end of the third quarter of 2017. Indirect lending represented 20.23 percent of total credit union loans, up from 19.01 percent at the end of 2016.

FICUs reported shares and deposits of $1.15 trillion at the end of the third quarter of 2017. NCUA reported that shares at FICUs grew at an annualized rate of 7.09 percent through the first 9 months of 2017.

Since loan growth outpaced share growth, the loan-to-deposit ratio increased from 79.55 percent at the end of 2016 to 81.43 percent as of September 2017.

Delinquencies and Net Charge-Offs

Delinquent loans rose by $828 million over the last year to almost $7.4 billion. As a result, delinquency rates edged higher by 4 basis points during the third quarter of 2017 to 0.79 percent. A year ago, the delinquency rate was 0.77 percent.

Net charge-offs at FICUs increased by $538 million over the last year to $3.8 billion as of the end of the third quarter of 2017. The net charge-off rate was 56 basis points as of September 2017 -- up 3 basis points from a year ago.

Credit unions saw a $1 billion year-over-year increase in allowance for loan and lease losses to $8.6 billion. The industry's coverage ratio was 116.79 percent.

Read the press release.

NCUA Chart Pack.

Metsger: Our Hands Were Tied

In a speech last week, National Credit Union Administration (NCUA) Board Member Rick Metsger indicated that the agency's hands were tied to address the excessive exposure of some credit unions to taxi medallion loans.

Metsger stated that NCUA was aware of and had warned about the risk of being too concentrated in taxi medallion loans, but according to the press release, "NCUA’s ability to curtail speculative taxi medallion lending was limited by a provision in the Credit Union Membership Access Act that specifically exempted credit unions chartered for the purpose of making, or had a history of primarily making, member business loans, from the statutory member business lending cap. A Senate report on that legislation specifically noted taxi medallion lending was an example of loan activity that was exempt from the cap."

The Senate Report also mentioned specifically credit unions that financed fishing or shrimp boats, tractor trailers, church construction, or agriculture have an exception from the aggregate business loan cap. So, is NCUA's ability to curb risky lending by credit unions making these type of loans limited?

While the legislation exempted some credit unions from the business loan cap of 12.25 percent of assets, it did not mean that NCUA should abdicate its role of being a safety and soundness regulator.

NCUA did not have to allow these credit unions to put almost all of their assets in taxi medallion loans. NCUA still had the authority to limit these credit unions' exposure to taxi medallion loans, if this lending posed a safety and soundness risk.

For example, it could follow the lead of the Federal Deposit Insurance Corporation (FDIC). The FDIC restricts the amount of taxicab medallion loans that Medallion Bank may finance to three times Tier 1 capital.

As one commenter wrote to my December 8 blog post, NCUA could have issued a document of resolution (DOR) to each medallion lending credit union. This could have limited their concentration in taxi medallion loans and reduce the risk to the National Credit Union Share Insurance Fund.

Tuesday, December 12, 2017

HFSC to Mark Up Bill to Repeal NCUA's Risk-based Capital Rule

The House Financial Services Committee (HSFC) is marking up a bill (H.R. 4464) today that would repeal the National Credit Union Administration's risk-based capital rule that is scheduled to go into effect on January 1, 2019.

Given what has transpired with taxi medallion lending credit unions, repealing this risk-based capital rule appears to be a bad idea from a policy perspective.

If this rule was in effect in 2012 or 2013, it would have required these taxi medallion lending credit unions to hold more capital or net worth to offset the risk posed by these credit unions to the National Credit Union Share Insurance Fund.

See the bills that are being marked up.

Monday, December 11, 2017

Private Share Insurance Coming to Montana

American Share Insurance (ASI), which is headquartered in Dublin, OH, announced on December 7 that it has been approved to provide private share insurance in the State of Montana.

Montana is the 10th state to permit credit unions to be privately insured.

Read the press release.

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