Friday, November 30, 2012

Border Lodge Credit Union Closed

Stephen W. Kimbell, Commissioner of the Vermont Department of Financial Regulation, announced that he has taken possession of the Border Lodge Credit Union in Derby Line, Vermont, and closed it.

The Commissioner’s placed the Border Lodge Credit Union into liquidation and appointed the NCUA’s Board as liquidating agent after examiners found "issues that raised serious concerns."

Border Lodge Credit Union served 1,097 members and had assets of approximately $3.1 million.

Border Lodge Credit Union is the eleventh federally insured credit union liquidation in 2012.

Read the order.

Read NCUA's press release.

Earnings at $6.4 Billion, Surpassing 2011 Total

Net income at federally-insured credit unions through the first three quarters of 2012 exceeded total industry earnings for all of 2011, according to NCUA. Credit unions are reporting almost $6.4 billion in earnings through the first nine months of 2012 compared to $6.3 billion for all of 2011.

Third quarter earnings were $2.1 billion. This was driven by higher fee income and other operating income coupled with declines in interest expenses and provisions for loan and lease losses. The industry’s return on average assets ratio was at 86 basis points for the quarter.

Total assets grew by $5.3 billion to end the third quarter at $1,012.9 billion, while loans increased by $9.4 billion during the quarter to $591.1 billion. This was the sixth consecutive quarterly increase in total loans.

On the other hand, shares (deposits) at credit unions grew by less than $1 billion during the third quarter to 869.7 billion. As a result, the loan to share ratio increased by 101 basis points during the quarter to 67.97 percent.

Industry net worth rose to $104.5 billion, an increase of $2.1 billion for the quarter. The industry’s net worth ratio rose 15 basis points during the quarter to 10.31 percent.

Credit union asset quality continued to improve as both the delinquency rate and net charge-off rate showed modest declines during the quarter.

Read the press release.

Thursday, November 29, 2012

No Corporate CUs Participating in CLF as of October

The October financial report for the Central Liquidity Facility (CLF) shows that no corporate credit unions have stepped up to act as agent members, despite the efforts of the NCUA Board.

The NCUA Board tried to encourage corporate credit union participation in the CLF by modifying the definition of net assets for calculating the leverage ratio to “total assets less CLF stock subscriptions, loans guaranteed by the NCUSIF, and member reverse repurchase transactions.”

However, most, if not all, corporate credit unions cannot afford to purchase CLF stock as an agent for their members. A corporate credit union acting as an agent for its members must subscribe to CLF capital stock in an amount equal to 0.5 percent of its paid-in and unimpaired capital and surplus of its members.

As a result, the borrowing capacity of the CLF has dramatically fallen with the redemption of U.S. Central Bridge FCU's CLF stock.

View the report.

Tuesday, November 27, 2012

Business Lending Contributed to Easten New York FCU's Failure

NCUA's Office of the Inspector General (IG) released a report on the failure of Eastern New York Federal Credit Union. As of September 2012, the estimated loss to the NCUSIF was approximately $3.6 million.

The IG report concluded that Board of Directors (Board) gave the credit union's CEO broad authority to conduct various and significant transactions with very little oversight. As a result, these business ventures, including complex credit union service organization arrangements, unsound business loan originations, and excessive holdings of fixed assets, proved to be catastropic for the credit union.

According to the report, the credit union's business loan portfolio grew rapidly from one loan of $200,000 in 2007 to 26 loans totaling approximately $3.5 million by the end of 2009. However, 17 loans totaling $3.1 million or 88 percent of the total dollar value originated were made to two separate, but related, families creating an excessive concentration risk.

The report noted that the business loans were poorly underwritten and had almost no credit analysis. In addition, the CEO and the Chairman of the Board, who approved all these loans, did not meet the regulatory requirements related to business lending experience. Also, in many cases, loan approval documentation was not received until well after loan proceeds were dispersed.

NCUA’s Asset Management and Assistance Center estimated impairment losses from Eastern New York's business lending operations to be $2.4 million.

Read the Material Loss Review.

Monday, November 26, 2012

Thrivent Financial Bank Becomes a Credit Union

The National Credit Union Administration (NCUA) has chartered Thrivent Federal Credit Union (FCU), which has acquired certain assets and liabilities formerly held by Thrivent Financial Bank.

The new credit union is sponsored by Thrivent Financial for Lutherans, a fraternal benefits society. Thrivent FCU will have approximately $500 million in assets. Thrivent Financial Bank’s 47,000 clients will become member-owners of Thrivent FCU upon the transfer of their accounts. The credit union will have a potential membership of 2.5 million members nationwide.

In addition to NCUA, the conversion was approved by the Federal Deposit Insurance Corporation, the Federal Reserve and the Office of the Comptroller of the Currency.

Read the press release.

Wednesday, November 21, 2012

ABA Comments on NCUA's Proposed Rural District

ABA in a November 19 comment letter urged the National Credit Union Administration Board to withdraw its proposal to amend the definition of “rural district.”

Under the proposed definition, a geographic area would qualify as a rural district if it has, among other criteria, a total population that does not exceed the greater of 200,000 people or 3 percent of the population of the state in which the majority of the district is located. Currently, a rural district cannot exceed 200,000 in population.

“ABA believes that the new population threshold … for a rural district is contrary to congressional intent,” the association said. “Congress explicitly stated that a meaningful affinity and bond, an interaction, and sense of cohesion or identity among a credit union’s membership were essential for a credit union to fulfill its public mission.”

But the NCUA’s proposed rural-district definition would permit the cobbling together of both rural and urban census blocks, and they would have little affinity or commonality of interest as intended under the law. “Moreover, the potential geographic area of a rural district under the amended definition could be so vast that it would make it nearly impossible for a federal credit union to fulfill its public mission,” ABA said.

Read the letter.

Monday, November 19, 2012

$184.7 Million NCUSIF Commercial Loan Mystery

Between July and August, the financial statement of the National Credit Union Share Insurance Fund reported that Other Investments went from zero to $184.7 million.

According to the financial notes, Other Investments consisted of $184.7 million in commercial loans with maturies through December 31, 2017.

When I inquired with NCUA as to why the Other Investments were not part of Receivables from the Asset Management Estates, I was told by NCUA spokesperson John Fairbanks:

"[T]he NCUSIF purchased these loans in August 2012. They are wholly owned loans of the NCUSIF, held as an investment.

I cannot comment further as the purchase is part of the ongoing supervision of an operating CU."

This does raise some interesting questions:

Was this purchase of $184.7 million in commercial loans from one of the credit unions under NCUA conservatorsip?

Does this transaction represent a form of Section 208 assistance to a troubled credit union?

Review the August NCUSIF Financial Statement.

Friday, November 16, 2012

Chatter Yak! Correction

Earlier this week, I did a post about Chatter Yak! based upon an article appearing in Credit Union Journal. The publication erroneously mentioned that the founders of Chatter Yak!, who are now part of the management of CitizensFirst CU, owned the credit union service organization.

Chatter Yak! in fact was a wholly-owned CUSO of Vacationland Federal Credit Union.

Neither Ralofsky nor Roth benefitted from the transaction.

Thursday, November 15, 2012

Assessments for 2013 to Range from 8 to 16 Basis Points

The NCUA Board today announced the proposed range of assessments for 2013.

NCUA projects an NCUSIF premium range between zero to 5 basis points in 2013. NCUA also projects a Stabilization Fund assessment range of 8 to 11 basis points in 2013.

Wednesday, November 14, 2012

H.R. 6474 Would Phase Out Credit Union Tax Exemption

A bill, H.R. 6474, would phase out the credit union federal tax exemption and 28 other federal tax expenditures over a five year period.

In addition, the bill eliminates or replaces many other tax expenditures and lowers personal and corporate tax rates.

H.R. 6474, Implementation of Simpson-Bowles Spending Reductions Act of 2012, was introduced in the House in late September by Rep. Dennis Ross (R - FL).

Read the bill.

Tuesday, November 13, 2012

Nebraska Bank to Acquire Tiny Credit Union

Credit Union Journal is reporting that First York Ban-Corp of York, Nebraska has agreed to acquire tiny Glenvil Cooperative Credit Union of Glenvil, Nebraska in a rare acquisition of a credit union by a bank.

The $3 million-asset Glenvil approached First York about acquiring it. The credit unions was having problems hiring management.

Glenvil Cooperative is a single branch credit union that has reported small losses four years in a row and was undercapitalized with a net worth ratio of 5.4 percent as of September 30.

The deal requires approval from the Nebraska Department of Banking and Finance, the FDIC, the Federal Reserve, and the NCUA.

Monday, November 12, 2012

$5.1 Billion Owed to Treasury

Buried in the last paragraph of a NCUA press release heralding the repayment of a Medium Term Note for failed Western Corporate FCU, NCUA mentioned that agency has outstanding borrowings of $5.1 billion from the United States Treasury. This is up from $3.2 billion as of June 25, 2012.

This borrowing from the Treasury helped the Temporary Corporate CU Stabilization Fund to handle the front loaded corporate credit union resolution cost.

While credit unions are ultimately responsible for repaying this $5.1 billion in debt and have until 2021 to repay the debt, they should also recognize that they received a significant benefit from the Treasury. This made the cost of corporate credit union bailout resolution more manageable for credit unions.

Thursday, November 8, 2012

Timely and Transparent Communications

Recently, a federal regulator for financial cooperatives adopted requirements on the timely disclosure of material events and senior management compensation to the owners and investors of the cooperatives.

The Farm Credit Administration (FCA) in September revised the FCA's regulations governing disclosures of senior officer compensation, supplemental retirement plans, and compensation committee responsibilities. The final rule also contains new requirements to hold nonbinding, advisory votes on senior officer compensation

In addition, the final rule requires the timely and transparent communication to shareholders and investors of significant or material events that occur at Farm Credit System institutions between annual reporting periods.

The rule requires the boards of directors to develop policies to identify events to be communicated. Notice must be made within 90 days of the event’s occurrence. The events may be communicated in either a separate notice to shareholders or as part of the quarterly report to shareholders.

If the FCA has adopted such rules for Farm Credit System associations, which are member-owned financial cooperatives, then why hasn't NCUA adopted the same disclosure requirements for federally-insured credit unions?

Tuesday, November 6, 2012

Glaring Omission

Recent information has disclosed that less than $130 million of the $170 million in out-of-court settlements has gone to the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund). More than $40 million of the settlement went to two law firms that employed by NCUA on a contingency fee arrangement.

However, during the October 4 Virtual Town Hall Meeting, NCUA Chairman Debbie Matz stated that the $170 million in settlements was going to the Stabilization Fund, when the agency knew this was not true.

Below are excerpts from the transcript of the Town Hall Meeting dealing with the lawsuits and the out-of-court settlements.

Todd Harper: We have a question here about the lawsuits that NCUA has been bringing. What is the latest with the lawsuits against the big lenders who caused the big losses at the corporates? Is there talk of a settlement? And I think Mike McKenna, you’re probably in the best place to answer that.

Mike McKenna: Well, we’ve sued a number of different underwriters. We’ve sued Goldman Sachs, Bank of Scotland, JPMorgan, Wachovia, UBS, and Barclays. We’ve settled with 3 underwriters. We’ve settled with Deutsche Bank, Citi Group, and HSBC for approximately $170 million.

Todd Harper: We have a question here about the $170 million that NCUA has already received to date in settlements with Wall Street financial underwriters. How will this $170 million that NCUA has collected affect future Corporate Stabilization Fund assessments charged to credit unions?

Chairman Debbie Matz: That $170 million is returned to the Corporate Stabilization Fund and is used to reduce corporate assessments going forward.

While NCUA Chairman Matz is correct that the settlements will lower future assessments, the failure to acknowledge that less than $130 million of the $170 million in settlements was being applied to the Stabilization Fund balance is a glaring omission on the part of Chairman Matz. If this information had been disclosed, it could have raised additional uncomfortable questions for the agency.

Monday, November 5, 2012

Issues NCUA's Inspector General Needs to Examine in the Hiring of Law Firms

In a recent blog post, I reported that Representative Issa requested that NCUA's Inspector General review if NCUA must comply with an executive order signed by President George W. Bush in 2007, titled "Protecting American Taxpayers from Payment of Contingency Fees." The executive order prohibits federal agencies from entering into contingency arrangements with outside law firms.

NCUA last year hired two law firms under a contingency arrangement associated with lawsuits filed against investment banks over mortgage-backed securities sold to failed corporate credit unions.

As the Inspector General conducts its review, there are several issues it should explore beyond whether the agency is subject to the 2007 executive order and whether this was the best option for the agency.

First, the Inspector General needs to review whether the bids were subjected to competitive open bidding process. It is unclear from the Wall Street Journal story whether the bidding process was open. John Ianno, the NCUA's associate general counsel, told the Wall Street Journal that he was not aware if the agency interviewed any other law firms for this work.

Second, the Wall Street Journal story noted that then-general counsel Robert Fenner, who entered into the contracts with the two law firms, worked with Mr. Frederick of Kellogg Huber at the Justice Department. Kellogg Huber was one of the two law firms selected. Did Fenner's connection with Frederick influence the awarding of the bid?

The Inspector General should disclose what factors led to the selection of the two law firms, especially Kellogg Huber.

Friday, November 2, 2012

Range of Future Assessments Shrinks

NCUA is reporting that the upper end of projected assessments associated with the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund) declined between December 2011 and June 2012.

According to the agency's analysis, the estimated range of future Stabilization Fund assessments is now between $6 billion and $8.9 billion compared to a projected range between $6 billion and $9.3 billion six months earlier.

The agency cited several factors for the narrowing of the range of future assessment estimates, including changes in housing prices, interest rates, unemployment rates and mortgage prepayments.

In addition, NCUA noted a slight improvement in the performance of the legacy assets backing the NCUA Guaranteed Notes.

Read the press release.

Thursday, November 1, 2012

NCUA Liquidates Women's Southwest FCU

The National Credit Union Administration (NCUA) liquidated Women’s Southwest Federal Credit Union (WSFCU) of Dallas, Texas.

NCUA made the decision to liquidate WSFCU and discontinue operations after determining the credit union was insolvent and had no prospect for restoring viable operations.

As of the end of September 2012, the credit union had a net worth ratio of 7.54 percent. The credit union also reported that 5.07 percent of its loans were 60 days or more past due. In comparison, a year earlier the credit union reported a delinquent loan rate of 0.27 percent.

WSFCU served 743 members and had deposits of approximately $2 million.

WSFCU is the tenth federally insured credit union liquidation in 2012 and the second credit union in Texas to be liquidated this year.

Read the press release.

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