Monday, August 31, 2015

Teachers Credit Union Buys Naming Rights to High School Football Field

The buying of naming rights to arenas and sports venues is becoming a regular occurrence within the credit union industry.

The latest credit union to buy the naming rights to a sports venue is Teachers Credit Union (South Bend, IN).

The largest credit union in Indiana will pay $140,000 over the next 12 years for the naming rights to Freed Field at Penn High School (Mishawaka, IN).

The stadium will be called Teachers Credit Union Freed Field.

Read more.

Saturday, August 29, 2015


The Iowa Credit Union Division was granted authority by the District Court to place SCICAP Credit Union of Chariton, Iowa, into receivership and then tendered the receivership to the National Credit Union Administration.

Community 1st Credit Union of Ottumwa, Iowa, immediately assumed most of SCICAP Credit Union’s members, assets and loans.

The Iowa Credit Union Division made the decision to take over management of SCICAP Credit Union after determining the credit union was insolvent with no prospect for restoring viable operations on its own.

The credit union's most recent Call Report indicated that the credit union was well capitalized and profitable. This would suggest that fraud may have been involved with this failure.

At the time of liquidation, SCICAP Credit Union was a federally insured, state-chartered credit union with assets of approximately $2 million that served 858 members, according to the credit union’s most recent Call Report.

SCICAP is the sixth federally insured credit union liquidation in 2015.

Read press release.

Friday, August 28, 2015

The State of Alabama Seizes Alabama One Credit Union

Alabama's sixth-largest credit union is now under the control of the state.

The Alabama Credit Union Administration board voted on Thursday to take over Alabama One Credit Union and its $600 million in assets due to financial mismanagement and a number of improprieties involving several key executives and officers.

As part of the conservatorship, the CEO of Alabama One, John Dee Carruth, was dismissed.

The takeover was announced one day after Alabama One expanded its lawsuit against several top state officials to include Gov. Robert Bentley alleging that state officials conspired against the credit union.

Read more.

Conservatorship Order.

Thursday, August 27, 2015

Wescom CU Sponsors UCLA Athletics

UCLA Athletics announced on August 26 a new multi-year partnership with Wescom Credit Union making Pasadena-based Wescom “The Official Financial Institution of UCLA Athletics.”

The partnership will include co-branded fan experience enhancements, increased awareness of Wescom throughout the Rose Bowl and Pauley Pavilion and a presenting sponsorship of The Den, UCLA’s official student group. Additionally, Wescom will work with UCLA Athletics' Academic and Student Services team to develop, manage and enhance financial literacy programming for the nearly 700 student-athletes at UCLA.

Terms of the sponsorship were not released.

Read more.

Matz's Appointments with CU Trade Offiicals

Unlike Federal Reserve Chairman Janet Yellen, National Credit Union Administration (NCUA) Chairman Debbie Matz does not publish her appointment calendar.

However, under a Freedom of Information Act (FOIA) request, NCUA released Chairman's Matz appointment calendar for the first seven months of 2015.

The FOIA was limited meetings or calls with credit union officials from three national credit union trade associations -- the Credit Union National Association, the National Association of Federal Credit Unions, and the National Association of State Credit Union Supervisors.

According to information obtained from the FOIA, Chairman Matz had 16 meetings.

Interestingly, there were 3 calls with credit union officials in the days following her testifying before the House Subcommittee on Financial Institutions and Consumer Credit on July 23. She also had 4 lunches with credit union officials during the first 7 months of 2015.

Unfortunately, the topics discussed during these phone calls and lunches were not disclosed.

Below is her appointment calendar.

Tuesday, August 25, 2015

Alabama CU to Buy Huntsville Bank

Avadian Credit Union, formerly Alabama Telco Credit Union, announced that it is acquiring American Bank of Huntsville.

The Birmingham-based financial institution said it has entered into a definitive agreement to buy the Huntsville institution. The transaction, which has been approved by each entity's board of directors, is expected to close by late 2015.

The deal is dependent on shareholder and regulatory approvals.

Proceeds from the purchase and assumption transaction will be used to retire the debt of the bank and upon the dissolution of the bank, to return approximately $2 per share to shareholders. This includes repaying preferred stock issued by the U.S. Treasury TARP program.

Read more.

Read shareholder letter.

McWatters Urges Revisiting MBL Lending History Exception

In the August 2015 NCUA Report, Board Member McWatters urges credit union officials to write the National Credit Union Administration (NCUA) about revisiting the agency's stance regarding a credit union that has a history of primarily making member business loans (MBLs).

The NCUA Board currently has a proposal out for comment regarding its MBL regulations.

When Congress in 1998 put in place the statutory cap on member business loans, it provided an exception to credit unions that had a history of primarily making business loans.

NCUA's current position is that unless a credit union's history of making MBLs was already established “as of” the date of
the passage of the Credit Union Membership Access Act of 1998, a credit union could not take advantage of this exception.

However, McWatters believes that based upon "reasonable" legal analysis NCUA has the discretion to revisit this exception. Of course, it is his interpretation of reasonable.

McWatters wrote:

"I welcome this review of the MBL proposal and urge all interested credit union officials not to hold back in recommending changes to the rule that will improve MBL operations, consistent with Federal Credit Union Act and safety and soundness. This includes looking at the lending history exception."

It is troubling that McWatters introduced this idea of revisiting the lending history exception during the final days of the comment period on NCUA's proposed MBL rule, especially when this issue was not part of the original proposal.

This looks like the next avenue that NCUA will use to exclude more credit unions from the statutory MBL cap.

Saturday, August 22, 2015

Court Rules that American Airlines FCU Illegally Debited Accounts

U.S. District Judge Douglas Woodlock ruled last week that American Airlines Federal Credit Union (AAFCU) violated Massachusetts state and federal law when it took money out of customers' deposit accounts to pay separate credit card debt.

According to the complaint, Martino alleged that AAFCU's policies with respect to such accounts violate the anti-offset provisions of the Massachusetts Consumer Credit Cost Disclosure Act (MCCCDA) and the Federal Truth in Lending Act (TILA).

The credit union claimed that it has a valid security interest in the depository accounts and is therefore permitted to take funds from the accounts.

Judge Woodlock concluded that the combination of the Pre-Approval Certificate, the Credit Card Agreement, and Martino’s subsequent use of the credit card is insufficient to create a consensual security interest under both TILA and MCCCDA. AAFCU’s deduction of money from Martino’s deposit account to pay her credit card debts was the equivalent of an
offset, which is prohibited under TILA and MCCCDA.

Read the decision.

Wednesday, August 19, 2015

Logix FCU to Build 170,000-Square-Foot HQ Building in Santa Clarita

Logix Federal Credit Union, the largest credit union in Los Angeles County, said Tuesday it will build a 170,000-square-foot headquarters in Santa Clarita.

The $4.1 billion credit union purchased a vacant 12-acre parcel in the Valencia Commerce Center for an undisclosed price and expects to move there sometime in 2018.

Read the story

Tuesday, August 18, 2015

Judge Makes NCUA Subordinate to CU in Restitution Payments

U.S. District Court Judge Norman Moon ruled that Northern Piedmont FCU (Warrenton, VA) will have first priority in restitution payments ahead of the National Credit Union Administration with respect to a fraudulent loan participation from now defunct Lynrocten Federal Credit Union (Lynchburg, VA).

According to federal prosecutors, nearly 90 percent of loans originated by Lynrocten were fraudulent. The judge ordered the defendants to pay $10 million in restitution payments.

NCUA closed Lynrocten FCU on May 3, 2013.

Read the story.

Sunday, August 16, 2015

Two NCUA Assisted Mergers in July

On July 1, the National Credit Union Administration (NCUA) assisted in the mergers of two financially distressed New York-based credit unions -- 65 Family FCU and Kolmar NY Employees FCU.

These NCUA assisted mergers are what I would call quiet credit union failures as NCUA does not issue press releases regarding assisted mergers. Information about NCUA assisted mergers are posted under Supervisory Actions (Closed Credit Unions).

According to NCUA's Monthly Insurance Report of Activity, 65 Family FCU was merged into Entertainment Industries FCU (Elizabeth, NJ). However, information regarding Kolmar NY Employees merger has not been disclosed as of the publishing of this blog post.

65 Family FCU was critically undercapitalized as of June 2015 with a net worth ratio of 0.53 percent. The $2.8 million credit union reported a loss of almost $134 thousand for the first two quarters of 2015 and had not reported an annual profit since 2007. According to the credit union's financial performance report, its delinquent loan ratio was 5.15 percent.

Kolmar NY Employees FCU was critically undercapitalized as of June 2015 with a net worth ratio of 1.78 percent. The $1.39 million credit union posted a small year-to-date loss as of June 2015. The last time the credit union reported a full-year profit was 2006. As Of June 2015, the credit union reported that 4.76 percent of its loans were delinquent.

These were the second and third NCUA assisted mergers of 2015.

Wednesday, August 12, 2015

TransUnion: CUs Have Greater Appetite for Mortgages

A study by TransUnion found that while auto lending by credit unions is still viewed as the top loan category for future growth, credit unions have a greater appetite for originating mortgages compared to the rest of the financial services industry.

According to TransUnion, the share of all mortgage originations by credit unions has increased from 7 percent in Q1 2013 to 11 percent in Q1 2015.

In addition, a survey of 90 credit union executives by TransUnion found that six in 10 respondents stated that mortgage originations (ranked in the top 3 loan products) were an area of growth/opportunity/focus for their credit unions in the next 12 months. This is up from 50 percent in the 2014 survey.

TransUnion also noted that credit unions experienced 25 percent growth in non-prime mortgage originations in Q1 2015 compared to 4 percent for the rest of the industry.

Read the press release.

Tuesday, August 11, 2015

CU Exec Comment on CU versus Sub S Taxation Deserves Several Pinocchio Noses

In a recent opinion piece, John Gibardi, President and CEO of Entertainment Industries FCU, wrote:

Credit union member-owners pay personal income taxes on interest and dividend income from their credit union. In fact, when it comes to Federal corporate and personal income taxes, credit unions are taxed identically to one-third of all U.S. banks, those established under Federal law as “Subchapter S” corporations.

Let's fact check this statement for accuracy.

Mr. Gibardi is correct that credit union members pay personal income taxes on interest and dividend income from their credit union; however, he is incorrect to state that credit unions are taxed identically to banks established as Subchapter S corporations.

With a Subchapter S corporation, income and losses of the business are passed through to shareholders and included on their individual tax returns. This allows Subchapter S corporations to avoid double taxation on the corporate income. As a result, there's just one level of federal tax to pay instead of two.

In comparison, the net income of a credit union goes untaxed at both the corporate level and the personal level. In other words, there is not any level of federal taxes paid on credit union net income.

If credit unions were taxed identically to a Subchapter S corporation, then the credit union members would have to pay personal income taxes on the net income of the credit union. This is not the case.

It is obvious that his statement that credit unions are taxed identically to Subchapter S banks has a significant factual error and deserves a rating of several Pinocchio noses.

Read the opinion piece.

Monday, August 10, 2015

Third Party Vendors Remain a Regulatory Blind Spot

In an August 6 letter to nine consumer groups that requested that National Credit Union Administration (NCUA) investigate credit unions and credit union service organizations that participated in predatory student loans with ITT Educational Services, NCUA Chairman Matz wrote that NCUA does not have enforcement authority over credit union service organizations or third party vendors. (See the following blog post here)

As background, 7 credit unions purchased loans from ITT Education Services, the Rochdale Group, and Student CU Connect. A majority these loans ended in default. The seven credit unions that had participated in a lending program ceased purchasing these loans in 2012 after a three-year contract expired at NCUA's instigation.

This inability of NCUA to examine third party vendors remains a regulatory blind spot. As this letter to the nine consumer groups highlights, third party vendors pose a potential risk to credit unions.

While NCUA is seeking authority to supervise third party vendors, the Credit Union National Association (CUNA) is actively opposing this authority.

The latest example of CUNA's opposition is an August 5 letter to Senate Majority Leader Mitch McConnell (R-KY) and Minority Leader Harry Reid (D-NV) opposing an amendment introduced by Senator Warren to the Cybersecurity Information Sharing Act (CISA), which would grant NCUA additional authority to supervise third party vendors. The Warren amendment was not included in the list of amendments that will be debated by the Senate, when it considers CISA.

The failure to include this amendment maintains a regulatory blind spot regarding third party vendors that solely serve credit unions.

Perhaps the Consumer Financial Protection Bureau should step in, where NCUA cannot, to fill this regulatory void and begin to examine these third party vendors to credit unions.

Friday, August 7, 2015

Taxi Medallion Lender LOMTO FCU Q2 Financials Now Available

LOMTO Federal Credit Union's second quarter call report was posted this week. It is the last of the four New York City credit unions that specialize in taxi medallion loans to report its financial performance.

During the second quarter of 2015, LOMTO saw an increase in loans 60-days or more past due to $9.2 million from $2.8 million. As of the end of the second quarter, the credit union reported that 3.68 percent of all loans were delinquent.

However, early delinquencies (loans 30 to 59 days past due) fell by $2.9 million during the quarter to almost $5.6 million. Compared to a year earlier, early delinquencies were slightly less than $900 thousand.

LOMTO reported that outstanding trouble debt restructurings (TDRs) of almost $25 million (all of these loan are in nonaccrual status). Compared to a year ago, outstanding TDRs stood at $0.

LOMTO has reported its provisioning for loan and lease losses increased during the second quarter. Provisions increased from $300 thousand as of March 2015 to $2.1 million at the end of the second quarter. As a result, LOMTO is reporting a year-to-date loss of almost $236 thousand compared to a profit of slightly less than $1.9 million for the same period a year ago.

As of June, the credit union has allowances for loan and lease losses (ALLL) of almost $6.6 million up from $4.7 million from the previous quarter. This indicates that the credit union has a coverage ratio (ALLL to Delinquent Loans) of 71 percent.

LOMTO FCU currently has equity capital of $44.5 million. Its net worth ratio is 16.73 percent.

This means the credit union has a buffer (capital plus ALLL) of over $51 million to absorb expected and unexpected losses.

Thursday, August 6, 2015

Tiny Faith Based Virginia CU Voluntarily Liquidates

The National Credit Union Administration announced the voluntary liquidation of New Bethel Federal Credit Union of Portsmouth, Virginia.

NCUA placed New Bethel Federal Credit Union into conservatorship on April 30, 2015. The decision to voluntarily liquidate New Bethel and discontinue its operations was made after determining the credit union was unable to restore viable operations.

New Bethel served 172 members and had assets of $101,630, according to the credit union’s most recent Call Report.

Read the press release.

America First Uses Emergency Merger Loophole to Retain Salt Lake County

On June 1 I asked the following question -- how is Salt Lake County still part of America First Federal Credit Union's field of membership, if it is a multiple common bond credit union?

From documents obtained through a Freedom of Information Act request, it appears that the credit union retained Salt Lake County via an emergency merger of Intermountain Credit Union on November 1, 2008.

At the time of the emergency merger, America First had a community charter serving Salt Lake County. Intermountain Credit Union's field of membership (FOM) contained Salt Lake County and select employee groups and associations.

Under NCUA's emergency merger regulations, America First can continue to serve Intermountain's FOM, even though Intermountain's FOM was more expansive than America First's FOM.

Almost six years later on July 14, 2014, America First FCU applied to the National Credit Union Administration (NCUA) to convert from a community charter to a multiple common bond credit union. On August 21, 2014, NCUA approved the conversion.

So, America First removed Salt Lake County from its charter; but was able to retain Salt Lake County because it was part of Intermountain's charter at the time of the emergency merger.

But it seems to me that the emergency merger was meant to allow America First to incorporate these select employee groups and associations into its field of membership. There was already an overlap of Salt Lake County in each credit unions' fields of membership.

In my opinion, Salt Lake County should have been struck from both charters at the time America First became a multiple common bond credit union.

Monday, August 3, 2015

Puerto Rican Debt Default May Affect the Island's Credit Unions (Updated)

Puerto Rico's Government Development Bank announced on Monday, August 3 that it was only able to make a de minimis partial payment on its Public Finance Corporation debt service of $58 million due on August 1.

Puerto Rico's Public Finance Corporation made a payment of approximately $628,000.

According to CNN Money, the Public Finance Corporation's bonds are held by the island's credit unions and their members and other investors.

While it is unclear how much of the Public Finance Corporation's debt is held by the island's credit union, the Public Finance Corporation has borrowed about $1 billion.

Unlike other bonds issued by the Commonwealth with a claim on tax money, these securities are moral obligation bonds and are to be repaid by money appropriated by the legislature. The legislature did not appropriate funds for the repayment of these bonds.

According to the Financial Times, Public Finance Corporation debt maturing in 2024, which last traded on July 24, is priced at roughly 14 cents on the dollar.

Given that this debt is severely impaired, credit unions should be writing down this asset to reflect market values.

This does beg the question -- what is the National Credit Union Administration's contingency plan to deal with Puerto Rico's credit unions?

Update: CU Today is reporting that the National Credit Union Administration issued a statement saying that credit union exposure to these Puerto Rican bonds is minimal and do not pose a material risk to the National Credit Union Share Insurance Fund.

Does CUNA Really Believe NCUA Is a Prudent Regulator?

In an op ed appearing in The Hill, the president and CEO of the Credit Union National Association (CUNA), Jim Nussle, defended the National Credit Union Administration (NCUA) as a prudent regulator.

Nussle's opinion piece was in response to an earlier editorial by Frank Keating, president and CEO of the American Bankers Association, that called NCUA a cheerleader regulator.

If you look up the term "prudent", it is defined as acting with or showing care and thought for the future. An alternative definition is wise or judicious in practical affairs; sagacious; discreet or circumspect; sober.

However, actions speak louder than words.

CUNA's withering assault on NCUA on numerous issues ranging from risk-based capital requirements to third party vendor supervisory authority to NCUA's budget raises serious doubt that CUNA really believes NCUA is a prudent regulator.

Saturday, August 1, 2015

Mile High Lawsuit Against NCUA

The Fourth Corner Credit Union (TFCCU), a Colorado credit union chartered to serve the cannabis industry, on July 30 sued the National Credit Union Administration (NCUA) in U.S. District Court in Denver for not approving its application for federal deposit (share) insurance. The credit union is also suing the Federal Reserve Bank of Kansas City.

The 78-page complaint alleges that NCUA deprived TFCCU of Due Process of Law in violation of the Fifth Amendment and the NCUA’s own procedures.

The complaint also claims that NCUA acted arbitrarily, capriciously, not in accordance with law and abused its discretion. Among the claims by TFCCU of NCUA's abuse of regulatory discretion are that NCUA:

improperly concluded that the credit union was unable to satisfy DOJ, FinCEN and BSA enhanced monitoring requirements;
concluded that TFCCU’s business model served a single industry that does not have an established track record and remains illegal at the federal level;
determined that TFCCU did not present adequate evidence of compelling interest and commitment among the members to promote thrift through systematic savings;
concluded TFCCU failed to provide information on the general character and fitness of the credit union’s management;
discriminated against TFCCU, a state chartered credit union, and acting in favor of federally chartered and federally insured credit unions in violation of 12 U.S.C. §1790;
violated 12 U.S.C. §1790d by applying net worth requirements to TFCCU, a new credit union;
engaged in improper ex parte communications relative to TFCCU's pending confidential federal share insurance application;
failed to follow the provisions of its August 13, 2014 supervisory letter regarding the ability of credit unions to provide services to marijuana-related businesses (MRBs);
failed to follow the provisions of its July 18, 2014 supervisory letter regarding the ability of credit unions to provide services
to MRBs in acting on TFCC’s federal share deposit insurance application; and
found the provision of services by TFCCU to MRBs involved an undue risk to the federal share insurance fund.

The complaint concludes that "the NCUA does not trust highly qualified state regulators with superior local knowledge, familiarity with a state spawned industry ... to properly charter, regulate, supervise and examine TFCCU...NCUA concocted an over-the-top denial of the federal deposit insurance application by including a series of baseless and gratuitous findings impugning the reputations" of highly qualified professionals and of Colorado regulators. The complaint further claims that NCUA and the Federal Reserve Bank of Kansas City conspired to block TFCCU's access to the Federal Reserve's payment system.


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