LUA Against Lynn Municipal Employees CU Terminated

The National Credit Union Administration announced today that it has terminated its Letter of Understanding and Agreement, dated Oct. 12, 2012, with Lynn Municipal Employees Credit Union and the Massachusetts Division of Banks.

Maryland CU Pays $4.75 Million for Arena Naming Rights

The Baltimore Sun is reporting that Linthicum-based State Employees Credit Union (SECU) will pay $4.75 million over the next 10 years to have Towson University's new basketball facility called SECU Arena.

The deal includes the use of one of the arena's two large corporate suites, which will be used to woo potential customers and reward employees, and access to multipurpose rooms in the $70 million, 5,200-seat arena.

SECU is the largest state-chartered credit union in Maryland, with $2.6 billion in assets.

Read more.

CU to Offer Zero Percent Loan to Illinois Legislators

Privately-insured Credit Union 1 (Rantoul, IL) is offering 0 percent loans to state lawmakers after Governor Pat Quinn vetoed their salaries out of the budget.

Legislators, who are members of the credit union, can get a 60-day loan worth up to half their salary for 0 percent interest.

The credit union stated that the lawmakers are not getting any special deal, because it had offer same terms to state employees when it looked like they wouldn't get paid in 2007.

However, there is a big difference between giving state employees zero percent loans and giving state lawmakers zero percent loans.

Read the story.

Number of Problem CUs Fall in Q2 2013

The National Credit Union Administration (NCUA) reported that the number of problem credit unions fell by 9 during the second quarter of 2013 to 330 federally-insured credit unions.

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

These problem credit unions held $15 billion in assets and $13.4 billion in deposits (shares) at the end of the second quarter. This is down from $16.8 billion in assets and $15 billion in deposits at the end of the first quarter.

According to NCUA, 1.53 percent of the industry’s shares and 1.4 percent of the industry’s assets were in problem credit unions at the end of the second quarter.

Credit unions with less than $100 million in assets accounted for all of the decline in the number of problem credit unions. There was an increase in the number of problem credit unions with between $100 million and $1 billion in assets. (see chart below)

Stabilization Fund Assessment at 8 Basis Points

NCUA announced that federally-insured credit unions will be assessed 8 basis points on insured deposits (shares) as of June 30, 2013. The assessment will raise approximately $700.9 million.

Federally-insured credit unions should expense the assessment in July and report the entire expense on the September 30, 2013 Call Report.

According to staff analysis, an assessment of 8 basis points will lower the annualized return on assets for federally-insured credit unions by 7 basis points. Based upon March 2013 data, an additional 328 federally-insured credit unions will slip from being profitable to having a negative core income.

In addition, NCUA stated that Net Worth Ratio for the industry will fall 6 basis points from 10.31 percent to 10.25 percent. Eight credit unions will become undercapitalized as their net worth ratio will fall below 6 percent due to the assessment and another 31 federally-insured credit unions will slip from being well-capitalized to adequately capitalized.

Furthermore, NCUA stated that the assessment of approximately $700.9 million will bring total Temporary Corporate Credit Union Stabilization Fund (TCCUSF) assessments to $4.8 billion. NCUA is projecting that the remaining TCCUSF assessments will range from $0.9 billion to $3.2 billion.

NCUA further announced that it will repay at least $650 million in TCCUSF borrowings in November. This will leave outstanding borrowings to Treasury at no more than $4.075 billion.

Read the board action item.

End Patent Troll Abuses

ABA, CUNA, and other trade groups sent a joint letter last week to congressional leaders stating that Congress should act to stop patent abuse by non-practicing entities, also known as “patent trolls."

These patent trolls hold patents but do not use or manufacture the patented technology or concept; instead, they solicit “licensing fees” from firms that use common but patented technology, threatening legal action if a fee is not paid.

The letter stated: "Managing frivolous patent suits unfortunately has become an expensive distraction for a large cross section of American businesses. Instead of focusing on innovation, job creation, and economic growth, we are forced to deal with legal games that have serious consequences."

Read the letter below (click on images to enlarge).

Texas Dow Employees CU Buys 7 Branches, Loans, and Deposits from Hancock Bank

Hancock Bank (Gulfport, Miss.) has agreed to sell seven retail branch locations in the greater Houston (Texas) market to Texas Dow Employees Credit Union (TDECU) in Lake Jackson, Texas. As part of the branch acquisition, TDECU expects to acquire approximately $34 million in loans and to assume approximately $30 million in deposits. The branch locations to be sold are:

3800 SW Fwy. Ste. 100, Houston, Texas
6348 Woodway, Houston, Texas
5102 Richmond Ave., Houston, Texas
24250 Cinco Ranch Blvd., Katy, Texas
9915 Broadway, Pearland, Texas
24706 SW Fwy., Rosenberg, Texas
2109 State Hwy 6, Sugar Land, Texas

The branch sales, which are subject to regulatory approvals and certain closing conditions, are expected to be completed by year-end 2013. Terms of the branch sales were not disclosed.

Read the press release.

CU Borrowing from Discount Window During Q2 2011

Nineteen credit unions borrowed from the Federal Reserve's discount window during the second quarter of 2011, according to data released by the Federal Reserve.

The most active credit union borrower was Central Minnesota Credit Union (Melrose, MN). The credit union went to the discount window 12 times and borrowed on average $1,337,500. The most the credit union every borrowed was $4 million and least amount borrowed was $300,000.

More Thoughts on Associational Common Bonds

I've written several times about credit unions using associations to open their fields of membership to anyone.

However, there are several trends that I find very bothersome.

First, you have some credit unions that are allowing a person, who is otherwise ineligible to belong to the credit union, to join an association at the same time they are joining the credit union. In the Washington, D.C. area, there are numerous credit unions that are permitting this to take place, such as Pentagon Federal Credit Union, State Department Federal Credit Union, and Andrews Federal Credit Union.

This simultaneous affiliation with an association and a credit union undermines the spirit of the law. Congress in 1998 found that there needed to be "a meaningful affinity and bond among members, manifested by a commonality of routine interaction, shared and related work experiences, interests, or activities, or the maintenance of an otherwise well-understood sense of cohesion or identity."

It is hard to see how simultaneously joining an association to become a member of a credit union constitutes a meaningful affinity and bond among members.

At a minimum, shouldn't the person first belong to an association for some length of time -- maybe 6 months -- before the individual can apply for credit union membership? This would at least meet the requirement of commonality of routine interaction and interests.

Second, I am bothered by credit unions that are setting up their own associations, groups or foundations to qualify people for credit union membership.

For example, Allegacy FCU (Winston-Salem, NC) created The Center for Smart Financial Choices. For a life-time donation of $10 to The Center for Smart Financial Choices, you can become a member of Allegacy FCU.

Achieva Credit Union (Dunedin, FL) recently received regulatory approval to expand its field of membership to include dues paying members of the Achieva Foundation.

While the Achieva Foundation or The Center for Smart Financial Choices may engage in admirable activities, it is disturbing that these credit unions are using these associations to circumvent fields of membership limitations.

The rules governing associational common bonds should require at the minimum an arms length relationship between the association and the credit union.

Taupa Lithuanian CU Closed

The Ohio Division of Financial Institutions has liquidated the Taupa Lithuanian Credit Union of Cleveland, Ohio, and appointed the National Credit Union Administration (NCUA) as liquidating agent.

The Division of Financial Institutions made the decision to liquidate Taupa Lithuanian Credit Union and discontinue its operations after determining the credit union had no prospect for restoring viable operations.

Taupa Lithuanian Credit Union served 1,154 members and had assets of more than $23.6 million, according to the credit union’s most recent Call Report.

Read the press release.

Matz: NCUA to Update Risk-Based Capital Standards

Speaking at the Annual Conference of the National Association of Federal Credit Unions, NCUA Chairman Debbie Matz said the agency is in the process of updating its risk-based net worth (capital) requirements for credit unions with more than $50 million in assets.

Chairman Matz pointed out that the current one-size-fits-all net worth requirement of 7 percent is outdated and insufficient. She said that such a capital regime "does not belong in the ever growing, increasingly complex credit union industry."

Chairman Matz stated:

"A net worth ratio of 7 percent would remain the floor, as required by the Federal Credit Union Act. However, credit unions with assets over $50 million would be subject to improved risk-based capital requirements, to better correlate required capital levels to risk. The result would be higher capital levels for credit unions with high concentrations of risky assets."

However, Chairman Matz said that NCUA has no plans to implement Basel III for credit unions and that Basel III is not right for credit unions.

Read the speech.

Credit Unions Raise OD Fees, Bank OD Fees Unchanged

The Washington Post reported on a study released by Moebs Services that showed "credit unions have been raising overdraft fees on ATM withdrawals, checks and debit card purchases at a faster pace than banks to offset a decline in consumers overdrawing their accounts."

According to the article, the median overdraft charge at banks was $30 a transaction for the past four years. However, the median overdraft fee at credit unions has risen from $25 to $28 per transaction in the past two years.

But the article does not adjust for the difference in tax treatment between credit unions and banks, as credit unions are exempt from federal corporate income taxation. If you adjust for the difference in tax treatment, the credit union median tax adjusted overdraft fee is closer to $40 per transaction -- $10 higher than the median overdraft fee charged by banks.

To derive the median tax adjusted overdraft fee divide the current median overdraft fee by (1 minus the tax rate). For this analysis, the tax rate was assumed to equal 30 percent.

This would suggest that the tax exemption is not being passed through to the credit union member.

U.S. District Court Dismisses NCUA's Lawsuit Against Barclays

Barclays Plc won the dismissal of a NCUA lawsuit over the sale of more than $555 million of mortgage-backed securities to two failed corporate credit unions.

U.S. District Judge John Lungstrum in Kansas City, Kansas said the National Credit Union Administration waited too long by not filing its complaint until September 25, 2012. The deadline was March 20, 2012, three years after the NCUA had been named conservator of the U.S. Central Federal Credit Union and the Western Corporate Federal Credit Union.

Read the story.

American Consumer Council

Almost fifty credit unions are allowing anyone to join them through the American Consumer Council (ACC).

These credit unions have partnered with ACC for the express purpose of qualifying individuals, who otherwise are ineligible, for credit union membership. In fact, some credit unions blatantly advertise on their websites that if you are not eligible to join through any of the listed groups or affiliates, you can join through ACC.

It appears that ACC was added to these credit unions’ fields of membership via the associational common bond. However, on ACC's website, it states that “if your intention is to join one of our participating credit unions, or if you are already a member of a credit union, you can join for free! (emphasis added)”

While ACC is an association, the absence of dues seems to make it more difficult for the associational common bond requirement to be satisfied.

Membership in ACC needs to be more than the checking of a box on a credit union’s membership application. There needs to be a meaningful affinity and bond among ACC members so as to satisfy the associational common bond requirements.

This is just another instance of permissive credit union regulators permitting some credit unions to stray from their charter.

H.R. 2572 Would Authorize Equity Instruments

Representative Gary Miller (R - CA) introduced a bill (H.R. 2572) that would allow credit unions to issue equity capital instruments.

The bill would amend the definition of net worth to allow components of equity under generally acceptable accounting principles (GAAP) not included in retained earnings to count towards net worth.

Below is the specific language.

(2) NET WORTH.—The term ‘net worth’—
A) with respect to any insured credit union, means the retained earnings balance of the credit union, as determined under generally accepted accounting principles, together with—
(i) any amounts that were previously retained earnings of any other credit union with which the credit union has combined; and
(ii) components of equity under generally accepted accounting principles not included in retained earnings, as determined by the Board;

In an April 2010 report, NCUA's Supplemental Capital Working Group identified two instruments, voluntary patronage capital and mandatory membership capital, that could count as equity under GAAP.

In addition to these two instruments, the Board could include other comprehensive income as a part of net worth.

Jamaican Junket

CUNA's Volunteer Institute will meet next January in Montego Bay, Jamaica.

The conference will span 4 days and will be held at Hilton Rose Hall Resort & Spa. CUNA is advertising an all inclusive room rate of $289 per night for a single room or $341 per night for a double room.

While most credit union directors are not paid, they are handsomely rewarded with all expenses paid perks, such as conferences on a tropical island.

Lynrocten Federal Credit Union Update

The New & Advance is reporting that almost two months after NCUA seized Lynrocten FCU of Lynchburg, Virginia, 179 accounts with a collective balance of about $7 million are awaiting resolution and repayment as investigators look into loans members say they did not take out.

A NCUA spokesperson stated that another 1,500 accounts have been paid in full.

At the time of its closure, Lynrocten had 1,068 members and $13.8 million in assets.

Read the story.

PEF FCU Closed

The National Credit Union Administration (NCUA) today liquidated PEF Federal Credit Union of Highland Heights, Ohio.

Best Reward Credit Union of Brook Park, Ohio immediately assumed certain PEF Federal Credit Union members, shares, assets and liabilities.

NCUA placed PEF into conservatorship on June 21, 2013 and made the subsequent decision to liquidate PEF and discontinue its operations after determining the credit union had no prospect for restoring viable operations. The credit union reported a delinquent loan ratio of 10.59 percent and net charge-off ratio of 6.17 percent at the end of March 2013.

PEF served 2,974 members and had assets of approximately $31.3 million.

PEF FCU is the 11th credit union to be liquidated this year and the first Ohio credit union to fail, since G.I.C. FCU on December 13, 2012.

Read the press release.

HarborOne Transitions to a Co-operative Bank Charter

HarborOne Credit Union's conversion to a Massachusetts co-operative bank is officially complete.

The credit union will operate under the name HarborOne Bank starting today.

The institution recently received regulatory approval for FDIC insurance and in April the National Credit Union Administration notified HarborOne that it complied with the requirements of the NCUA's conversion regulations.

HarborOne will be with largest co-operative bank in New England, with $1.9 billion in assets.