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.

Saturday, December 9, 2017

KEMBA Financial CU and the Columbus Blue Jackets Renew Partnership

The National Hockey League's Columbus Blue Jackets and KEMBA Financial Credit Union (Gahanna, OH) have announced the renewal of a multiyear partnership.

The credit union will be the presenting sponsor of the Columbus Blue Jackets Foundation's 50/50 Raffle.

Correction: An earlier version identified the credit union as Kemba Federal Credit Union (West Chester, OH).

Read more.

Friday, December 8, 2017

Metsger: The Bill Is About to Come Due on Taxi Medallion Loans

National Credit Union Administration Board member Rick Metsger warned that the bill is about to come due on taxi medallion loans.

In a speech to the Oregon Department of Financial Services CEO roundtable, Metsger stated that National Credit Union Share Insurance Fund (NCUSIF) reserves are likely to rise in the near future, due to much lower prices on New York City taxi medallion and a "continued increase in already high delinquency rates on medallion loans."

Metsger stated that NCUA knew of and warned about the problem associated taxi medallion loans for some times.

But Metsger blamed the pending increase in losses from taxi medallion loans on "a small number of credit unions that gambled on a market that was disrupted and a bubble that burst" and the Credit Union Membership Access Act, which limited the agency's ability to curb speculative taxi medallion loans.

Metsger commented that the reason why the agency is raising the equity ratio on the NCUSIF's normal operating level to 1.39 percent is to account for significant losses from taxi medallion loans and to avoid a sudden and significant increase in premiums.

Furthermore, Metsger defended the agency's risk-based capital requirements from credit union trade association attacks by stating that "situation with the taxi medallion credit unions ... is a prime example off why we need a strong risk-based capital system."

Read the press release.

Three CUs Ink Naming Rights Deals.

Three credit unions have signed naming rights agreements in recent weeks.

Mountain America Credit Union (West Jordan, UT) bought the naming rights to the South Towne Expo Center.

The 258,000 square-foot venue will be called Mountain America Expo Center beginning on January 1, 2018.

The credit union will host quarterly financial seminars at the expo center.

The length of the agreement is for 10-years. But the price of the deal was not disclosed.

Read the press release.

Diamond Credit Union (Pottstown, PA) bought the naming rights to the theater at the Santander Arena.

The theater will be known as the Diamond Credit Union Theater.

Terms of the agreement were not disclosed.

Read the story.

1st Ed Credit Union (Chambersburg, PA) secured the naming tights to the indoor track at at Chambersburg Area Senior High School.

The indoor track will now be called 1st Ed Credit Union Indoor Track.

As part of the deal, the credit union will be allowed two signs in the Field House. Also, the credit union will be allowed two features per year in the school district's internal and external eNewsletter. The credit union's logo will receive placement of its logo on the Chambersburg Area School District's community partners webpage.

The annual cost of the deal is $6,000.

The length of the deal is for three years.

Read the story.

Read the sponsorship agreement.

Read the 1st Ed Credit Union proposal.

Thursday, December 7, 2017

Consumer Credit at CUs Rose in October, But at a Slower Pace

The Federal Reserve is reporting that outstanding consumer credit at credit unions expanded in October, but at a slightly slower rate than in September.

Outstanding consumer credit at credit unions rose from $417 billion in September to $420.2 billion in October.

Revolving credit at credit union grew by $300 million in October to $55.6 billion

Nonrevolving credit balances at credit unions advanced by $2.9 billion to $364.6 billion.

Read the G.19 report.

Louisiana Bank Sues CU over Trademark Infringement

The Texarkana Gazette is reporting that Red River Bancshares Inc. and its licensee, Red River Bank LSCB, both based in Alexandria, La., is suing Texarkana-based Red River Employees Federal Credit Union for alleged trademark infringement and unfair competition.

The lawsuit was filed on October 24 in the Western District of Louisiana federal court after the purchase and assumption by Red River Federal Credit Union of liquidated Shreveport Federal Credit Union, which had branches in the trade area of the bank.

The bank contends that the entry of the credit union into its market area has generated customer confusion.

The complaint alleges that the credit union is infringing on its trademark and engaging in unfair trade practices in violation of federal law and in violation of the Louisiana Unfair Trade Practices Act.

The bank wants the court to rule that the credit union cannot use the names Red River Employees Federal Credit Union, Red River Credit Union and the RRFCU logo or any other similar variant.

The bank is also seeking attorney fees and actual damages and want an accounting of Red River FCU's profits in Louisiana and Mississippi.

Read the story.

Wednesday, December 6, 2017

Greater Transparency Needed at NCUA

I know that I sound like a broken record; however, the National Credit Union Administration (NCUA) needs to become more transparent regarding its decisions with respect to credit union applications.

Recently, NCUA approved an application of Jefferson Financial FCU (Metairie, LA) to issue $12 million in secondary capital.

Unfortunately, the agency did not disclose its decision on this application.

I requested information regarding Jefferson Financial's application. An NCUA spokesperson stated that "as for any specifics regarding the Jefferson Financial Federal Credit Union’s secondary capital plan, those are confidential."

NCUA's behavior is different from the other federal banking regulators. The other federal banking regulators publish their decisions regarding applications from their regulated institutions.

Hopefully, NCUA will alter its behavior and start to disclose its decisions regarding credit union applications.

Tuesday, December 5, 2017

Reuters: CU Sues to Remove Mulvaney as Acting Head of CFPB

Reuters is reporting that Lower East Side People's Federal Credit Union (New York, NY) has filed a lawsuit in federal court to remove Mick Mulvaney as the head of the Consumer Financial Protection Bureau (CFPB).

Citing regulatory chaos, the credit union is asking a federal court to determine who is in charge of the CFPB. The complaint contends that Leandra English, the CFPB’s deputy director, is the proper acting head of the agency.

The lawsuit was filed in U.S. District Court in Manhattan.

Last week a federal judge sided with the Trump Administration ruling against English and allowing Mulvaney to serve as the agency’s acting head.

English continues to pursue her case.

Read the story.

NCUA Closes Riverdale CU

The National Credit Union Administration on December 4 liquidated Riverdale Credit Union of Selma, Alabama.

Jefferson Financial Federal Credit Union of Metairie, Louisiana, immediately assumed Riverdale Credit Union’s membership, shares, loans, and most other assets.

Riverdale was placed into conservatorship on June 22, 2017, as a result of unsafe and unsound practices at the credit union. NCUA made the decision to liquidate Riverdale and discontinue its operations after determining the credit union was insolvent and had no prospect for restoring viable operations.

Read my November 2 blog post on Riverdale's deteriorating financial condition.

At the time of liquidation, Riverdale served 11,572 members and had assets of $54,924,278, according to the credit union’s most recent Call Report. Chartered in 1967, Riverdale Credit Union served persons who live, work, worship, or attend school in Autauga, Chilton, Dallas, Lowndes, Perry, or Wilcox counties in Alabama as well as various employee groups.

Riverdale is the fifth federally insured credit union liquidation in 2017.

Read the press release.

Bill Would Repeal NCUA's Risk-Based Capital Rule

A bill, The Common Sense Credit Union Capital Relief Act of 2017 (H.R. 4464), was introduced by Rep. Bill Posey (R-Fla.) on November 28th.

The bill would repeal the National Credit Union Administration’s risk-based capital rule, which is currently scheduled to go into effect in January 2019.

The Credit Union National Association is supportive of the legislation.

In related news, National Credit Union Administration Chairman McWatters wrote that the agency will seek to delay the January 2019 compliance date for the risk-based capital rule.

The agency also plans to make additional changes to the risk-based capital rule to reduce its coverage, along with a review of alternative and secondary capital authority.

Read the bill.

Monday, December 4, 2017

Is the Credit Union Tax Exemption the Third Rail of Politics?

An article in today's Wall Street Journal discusses why the credit union tax exemption is untouchable.

The article points out how credit unions have been successful in their grassroot efforts in keeping their preferential tax treatment off the chopping block, while lawmakers were scrambling to find tax breaks to eliminate to fund the tax code overhaul.

For example, the article mentions Project Zip Code, which matches credit union members addresses to Congressional Districts. This allows credit unions to tell Congressional offices how many credit union members would be affected by repealing the tax exemption in their Congressional districts.

The article stated that members of Congress would face "significant political blowback", if they proposed eliminating the credit union tax exemption.

However, I believe that the story overstates the clout of the credit union lobby. While the article mentions the 1998 legislation that overturned the Supreme Court field of membership decision, it failed to mention that the same 1998 legislation capped business lending at credit unions. It also did not point out that credit unions have been unsuccessful in their efforts to raise their business lending limit for more than a decade.

Read the story (subscription required).

IG Recommends Ending Zero-Dollar Leases to CU, Costing Parish Almost $3.7 Million over 25 Years

Jefferson Parish Office of Inspector General (IG) found that the Parish is missing out on almost $3.7 million in revenues over 25 years by providing free space to Jefferson Parish Employees Federal Credit Union (Harahan, LA).

The report noted that the $100 million credit union had offices in three Parish government buildings -- the Yenni Building, the General Government Building, and the Odom Building.

The forgone annual revenue to Jefferson Parish from these 3 zero-dollar leases was estimated at $146,920. The audit report also pointed out that the credit union is not paying its pro-rata share of custodial costs, as well as cost for utilities.

In addition, the Inspector General wrote that the credit union does not pay rent to Hospital Service District #2 on space it leases in East Jefferson General Hospital.

Parish President Mike Yenni’s administration agreed in part with the findings, most notably that the parish should get some form of compensation for the leases and leases should have a cost of living clause.

The audit report also stated that three other properties had zero-dollar leases, but the credit union accounted for a bulk of the forgone revenue.

Read the Audit Report.

Sunday, December 3, 2017

Majority of Utahns Support Taxing Large Credit Unions

A survey found that a majority of Utahns support the taxation of large credit unions, while small, traditional credit unions deserve their tax exemption.

The survey was commissioned by UtahPolicy.com. It was conducted on November 21 and November 22.

The survey of 602 registered voters found that:
  • 67 percent of respondents said they strongly or somewhat agreed that these financial institutions should be taxed equally. Twenty-eight percent disagreed.
  • 72 percent of poll respondents said that if retained earnings of large credit unions are not distributed to members as dividends, then those retained earnings should be taxed, similar to the way bank profits are taxed.
  • 84 percent of respondents said credit union members should be allowed to vote on whether retained earnings should be distributed to members, or used for such things as expansion into new locations.
  • 75 percent of respondents said that if credit unions make large commercials loans, like banks do, then retained earnings or profits from those loans should be taxed, like profits from a bank would be taxed.
The poll also found that even a strong majority of credit union members support fair taxation of retained earnings of large credit unions that are not returned to members.

Read the press release.

Saturday, December 2, 2017

Lake Trust CU Buys Naming Rights to University's Athletic Facility

Lake Trust Credit Union (Brighton, MI) has bought the naming rights to Cleary University's forthcoming athletic facility.

The 150,000-square-foot complex will be christened Lake Trust Credit Union Stadium when it opens next fall on the school's campus in Livingston County's Genoa Township.

Financial terms of the contract, which runs through 2028, were not disclosed.

The deal includes stadium merchandising, signage, and field imagery.

Read the story.

Friday, December 1, 2017

Chartered for the Purposes of Making MBLs

In recent years, the National Credit Union Administration (NCUA) approved four credit unions that were chartered for the purpose of making member business loans (MBLs).

The four credit unions are Funeral Service Credit Union (IL), Members Cooperative Credit Union (MN), Thrivent Federal Credit Union (WI), and Firefighters First Federal Credit Union (CA).

The information was obtained through a Freedom of Information Act request.

As of September 2017, the percent of assets in commercial loans at:
  • Thrivent FCU were 27.10 percent;
  • Funeral Service Credit Union were 65.46 percent;
  • Members Cooperative Credit Union were 8.34 percent; and
  • Firefighters First FCU were 8.56 percent.
Credit unions that are chartered for the purpose of making MBLs or have a history of primarily making MBLs are exempt from the MBL cap of 12.25 percent of assets.

Previously, NCUA had provided the names and charter numbers of 120 credit unions that were chartered for the purpose of making MBLs or have a history of primarily making MBLs. NCUA reported that all but 13 of the 120 credit unions are still active.

Thursday, November 30, 2017

Morning Consult Finds Majority of Voters Support Eliminating CU Tax Exemption to Pay for Tax Reform

A survey by Morning Consult of 1,990 registered voters conducted for the American Bankers Association found that American voters are overwhelmingly unaware that credit unions pay no federal income taxes. When told that credit unions do not pay corporate income taxes, more than half would support a tax reform plan that eliminates the credit union tax exemption to limit an increase in the deficit.

According to the national survey,
  • 85 percent of American voters did not know whether credit unions pay taxes or mistakenly believed they do.
  • 51 percent of voters said they would support eliminating the credit union tax exemption if it helped minimize the impact of tax reform on the deficit.
  • 56 percent believe it is inappropriate for credit unions to use their tax exemption to buy multimillion-dollar naming rights to arenas and sports sponsorships.


Below is an infographic highlighting the survey results.

Wednesday, November 29, 2017

Another Georgia Bank to Be Acquired by Credit Union

SRP Federal Credit Union (North Augusta, SC) has reached an agreement to acquire Southern Bank (Sardis, GA).

SRP FCU has $851 million in assets, according to its most recent call report.

Southern Bank is a privately held bank with $80 million in assets and five branches.

The combined entity would have $950 million in assets and more than 20 offices in Georgia and South Carolina.

The acquisition is expected to be complete in the second quarter of 2018.

This is the eighteenth announced or completed merger between a bank and a credit union, since 2012.

Read the story.

United Nations FCU, Clements & Company and Underwriters at Lloyd's of London Fined $1.47 Million

The New York Department of Financial Services (DFS) has entered into a consent order with Clements & Company, Underwriters at Lloyd’s of London, and the United Nations Federal Credit Union (UNFCU) for offering, marketing and underwriting an unlicensed credit and debit card-based life insurance program for UNFCU members.

The insurance program offered guaranteed-issue term life insurance to UNFCU’s members in more than 210 countries and territories. A total of more than 4,300 policies were sold, including to 804 members listing New York as their primary location.

According to the DFS, the insurance offered and sold to UNFCU members did not meet New York standards for policies sold by DFS-approved insurers.

Also, prior to the settlement, the insurance program was operating at a severe loss and was unsustainable.

DFS is requiring the parties to transfer the business over to a New York-licensed insurer, Monitor Life Insurance Company of New York.

The consent order requires the parties to pay a total of $1.47 million in fines for unlicensed life insurance business and to establish an insurance program with a DFS-licensed insurer.

According to the consent order, UNFCU will pay a civil penalty of $250,000.

Additionally, UNFCU will no longer receive "commissions, fees, and other compensation related to coverage offered New York Certificate Holders." The credit union will pay one-third of the first $100,000 cost associated with hiring a third-party vendor to design and build a web portal. UNFCU will be responsible for paying all merchant credit card fees.

Read the press release.

Read the consent order.

Tuesday, November 28, 2017

Align CU Buys Naming Rights to Pavilion Club at the Tsongas Center

Align Credit Union is sponsoring the Pavilion Club at the Tsongas Center at UMass Lowell.

The “Align Credit Union Pavilion” is a 4,800 square foot multi-level luxury concourse that provides 350 Pavilion Club members with great views and amenities.

The price and terms of the sponsorship was not disclosed.

Read the press release.

Monday, November 27, 2017

CUs Accounted for 9 Percent of All Mortgage Loans in 2016

Credit unions accounted for 9 percent of all mortgage originations in 2016, according to Home Mortgage Disclosure Act (HMDA) data.

There were 1,939 credit unions that filed HMDA reports. A majority of credit unions (1,025) made fewer than 100 loans and 374 credit unions reported fewer than 25 loans.

Credit unions reported 215 thousand home-purchase loans. Almost 87 percent of home-purchase loans were conventional mortgages.

Credit unions, along with small banks, accounted for a highly disproportionate share of conventional higher-priced loans. Five percent of credit unions' conventional loans were high-priced versus 3.7 percent of all conventional mortgages made by all lenders.

Almost one quarter (25.2 percent) of all home-purchase loans were made to low-and moderate-income (LMI) borrowers and 13.2 percent were to LMI neighborhoods.

Credit unions reported 277 thousand refinance loans, of which 96 percent were conventional loans.

Credit unions sold about one-half of the home-purchase loans they originated and about 40 percent of the refinance loans they originated.

Read the Federal Reserve Bulletin article.

Friday, November 24, 2017

Bettendorf City Council Approves TIF for Ascentra's Construction Project

The Quad City Times is reporting that Ascentra Credit Union (Bettendorf, IA) will receive tax-increment financing (TIF) for the construction of its new headquarters.

The Bettendorf (IA) City Council on November 211 approved a development agreement with Ascentra Credit Union by a 6-1 vote that will lead to the construction of an almost 40,000 square-foot headquarters across the street from the Quad-Cities Waterfront Convention Center.

The terms of the agreement call for a 10-year, 100 percent TIF capped at $2 million.

Terms of the agreement call for the city to purchase Ascentra's current headquarters on Grant Street for $1.15 million and bury utilities on the new site and in addition to relocating the traffic signal at the corner of 21st and Grant streets.

Ascentra's obligations include purchasing the north Town Square property for $750,000 and the south property for $1. After an alternative parking structure is constructed, the south property would be conveyed back to the city for $1.

Both the Scott County Board of Supervisors and Bettendorf School District were supportive of the project and the use of tax incentives.

Read the story.

November 21 City Council Agenda.

Wednesday, November 22, 2017

Bad Taxi Medallion Loans Negatively Affect These NY Credit Unions

Carnage in the taxi industry from ride sharing apps continues to negatively impact several New York credit unions.

Van Cortlandt Cooperative FCU (Bronx, NY)

Over 25 percent of loans at Van Cortlandt Cooperative FCU were delinquent at the end of the third quarter of 2017.

The $72 million credit union reported that $8 million in loans were 60 days or more past due as of September 2017. More than half (57 percent) of the delinquent loans were past due for 360 days or more.

Almost all of the delinquent loans (slightly less than $8 million) were nonmember commercial loans, which presumably were taxi medallion participation loans.

As of September 2017, the credit union reported $10.6 million in purchased commercial loans or participations to nonmembers. Over three-quarters of these loans (75.42 percent) were 60 days or more past due.

The credit union further reported almost $6.7 million of troubled debt restructured commercial loans.

One factor mitigating the dire delinquency ratio is that the credit union has a loan to asset ratio of 38.65 percent.

In addition, the credit union had a year-to-date loss of $409 thousand, after posting a loss for 2016 of $3.2 million.

Over the last year, the credit union's net worth ratio has fallen from almost $11 million to approximately $6.5 million. The credit union's net worth ratio has tumbled from 13.99 percent to 8.97 percent.

The credit union is reporting that it has allowances for loan and lease losses of $4 million. This gives the credit union a coverage ratio of 49.98 percent.

Bay Ridge FCU (Brooklyn, NY)

Bay Ridge FCU reported a loss for the first nine months of 2017 of almost $2.6 million. In comparison, the credit union reported a profit of almost $250 thousand for the same time period in 2016.

The loss was due to provisions for loan and lease losses of $4.3 million as of September 2017.

Due to its loss, the credit union's net worth dropped from $19 million at the end of 2016 to $16.3 million as of September 2017. Over the comparable time period, its net worth ratio fell by 110 basis points to 8.37 percent.

The credit union reported almost $8.3 million in delinquent loans at the end of the third quarter of 2017 -- this was up from $3.8 million from a year ago. The percent age of delinquent loans rose from 2.20 percent to 4.83 percent.

Almost $5.9 million of the delinquent loans were commercial loans not secured by real estate.

In addition, the credit union is reporting almost $21.6 million in troubled debt restructured commercial loans. Troubled debt restructured commercial loans were almost 130 percent of the credit union's net worth.

Due to the increase in provisions for loan and lease losses, the credit union increased its allowance for loan and lease losses to $5.9 million. The portion of allowance for loan and lease losses that were troubled debt restructured loans was $4.3 million.

The credit union's coverage ratio was 71.58 percent as of the end of the third quarter of 2017.

G.P.O. FCU (New Hartford, NY)

Participation loans, presumable taxi medallion participation loans, accounted for most of G.P.O. FCU's non-performing loans.

The credit union reported holding $13.7 million in participation commercial loans, as of September 2017. Participation loans represented 8.10 percent of the credit union's total loans.

Of its $7 million in delinquent loans, almost $5.8 million were delinquent participation loans. The credit union reported 42.11 percent of its participation loans were 60 days or more past due.

Of the $5.7 million delinquent participation loans, approximately $3.7 million were 360 days or more delinquent.

In addition, $1.9 million in participation loans were charged off minus recoveries. The net charge-off rate on participation loans was 16.85 percent.

Despite the non-performance of these participation loans, the credit union was profitable and continued to build its net worth during the third quarter.



Monday, November 20, 2017

GOP Lawmakers Urge HUD to Review and Amend Out-of-Date Disparate Impact Rule

A group of Republican lawmakers wrote Housing and Urban Development Secretary Ben Carson on November 15th about the agency's out-of-date disparate impact stating that the rule is inconsistent with current Supreme Court precedents on disparate impact theory and could be negatively affecting HUD’s housing goals.

“Local governments, commercial and residential lenders, issuers, developers, and other mortgage industry service providers are less inclined to participate in housing projects because HUD’s disparate impact rule does not comply with the Supreme Court’s rulings,” the lawmakers wrote. “This inconsistency will reduce housing production, which in turn will increase housing expenses for many Americans, including those who can least afford it.”

The lawmakers urged HUD to make changes to the rule, adding that it “is a prime candidate for reconsideration” under an executive order issued by President Trump earlier this year calling on agencies to evaluate outdated, unnecessary or ineffective regulations, as well as those that impose costs that outweigh benefits.

Below is the letter.

Friday, November 17, 2017

IH Mississippi Valley CU to Build New $26 Million HQ, Project Receives Tax Incentives

Moline City Council approved the city's development agreement with IH Mississippi Valley Credit Union (Moline, IL).

The city will sell property to the $1.2 billion credit union for $2.925 million, which will be used to construct an 80,000-square-foot, four-story facility.

As part of the agreement, IH Mississippi Valley will receive a tax increment financing (TIF) incentive payment of up to $3.9 million, or 15 percent of the $26 million project. The credit union also will be rebated for eligible TIF expenses, including site work up to $525,000. The total incentive package is up to $4.425 million, which equals 17 percent of the total cost of the project.

One city alderman objected to an incentive package as the credit union does not pay income tax.

Read the story.

Read the agenda of the City Council meeting.

Thursday, November 16, 2017

Taxi Medallion Loans Impact Two NJ CUs

Several New Jersey credit unions with exposure to taxi medallion loans experienced additional deterioration in their financial performance.

First Jersey Credit Union (Wayne, NJ)

The $91 million credit union recorded a year-to-date loss of $5.8 million at the end of the third quarter. The loss was ties to a $4.6 million year-to-date increase in provision for loan and lease losses.

As a result of the loss, the credit union's net worth fell to slightly less than $2.2 million. At the end of the third quarter, the credit union was significantly undercapitalized with a net worth ratio of 2.40 percent, down from 3.80 percent as of June 2017.

The credit union reported $5.6 million in delinquent loans. This was down from $6.3 million from the previous quarter. The percent of loans 60 days or more past due was 8.88 percent as of the most recent financial performance report. Delinquent loans as a percent of net worth were 256.29 percent.

Delinquent commercial loans not secured by real estate -- presumably taxi medallion loans -- were almost $4.6 million as of September. The delinquency rate on these loans was 35.05 percent.

In addition, troubled debt restructured commercial loans were nearly $4.7 million.

The credit union reported a September 2017 net charge-offs of $2.3 million, of which $2 million was commercial loans. The net charge-off rate was 4.60 percent; but the net charge-off rate for commercial loans was 17.54 percent -- up from 4.37 percent from a year ago.

Due to the increase in provision for loan and lease losses, the allowance for loan and lease losses was $6.8 million. The coverage ratio was 121.64 percent as of September 2017, up from 114.63 percent on June 2017.

Over the last year, assets at the credit union shrunk by $34.2 million. During the last quarter, assets fell by $10.4 million.

Aspire Federal Credit Union (Clark, NJ)

Aspire FCU reported a year-to-date loss of $5.8 million as the credit union seeks to build reserves to cover bad taxi medallion loans. The $161 million credit union reported almost a doubling of provisions during the third quarter from $3.4 million to $6.7 million.

As a result of the loss, the credit union's net worth fell from $17.5 million at the end of 2016 to $11.7 million as of September 2017. The credit union's net worth ratio dropped by 283 basis points to 7.28 percent.

Delinquent loans rose during the last quarter from $8.2 million to $9.2 million. The delinquency rate on loans rose 106 basis points to 7.21 percent.

Commercial loans not secured by real estate -- presumably taxi medallion loans -- accounted for almost half of the delinquent loans ($4.5 million). The percentage of these commercial loans 60 days or more past due was 34.52 percent.

The credit union is reporting net charge-offs of $2.8 million as of September 2017. The net charge-off rate was 2.80 percent.

Troubled debt restructured commercial loans were approximately $3.9 million at the end of the third quarter of 2017.

Due to the increase in provisions for loan and lease losses, the credit union's allowance for loan and lease losses jumped from $4.3 million at the end of 2016 to $8.2 million as of September 2017. The credit union's coverage ratio was 88.73 percent -- up from 58.64 percent at the end of 2016.

Wednesday, November 15, 2017

Losses to NCUSIF from Taxi Medallion Could Reduce or Eliminate NCUSIF Distribution in 2018

Losses from taxi medallion loans to the National Credit Union Share Insurance Fund (NCUSIF) could jeopardize 2018 distribution from the the NCUSIF.

According to a presentation at the New York Credit Union Association's Credit Union CEO Roundtable in May 2017, the estimated losses from taxi medallion loans to the NCUSIF could be between $200 million to $719 million.

Below is the slide.


If losses from taxi medallion loans to NCUSIF come in at the upper end of the range, it would be in the middle of the range of the projected NCUSIF distributions of $600 million to $800 million in 2018.

In fact, Chairman McWatter cautioned during the the September National Credit Union Administration (NCUA) Board meeting, "a large increase in insurance losses ... could reduce or eliminate the projected distributions."

As of September 2017, NCUA has only set aside $286 million in reserves for insurance losses, of which $20.1 million is for specific natural person credit unions. In the case of large losses from taxi medallion loans, this $286 million in reserves would not be sufficient to cover these losses. This means NCUA would need to significantly increase reserves to cover these insurance losses going forward.

To maintain the new NCUSIF normal operating level at 1.39 percent, this would require either a reduction or elimination of the 2018 distribution.

Therefore, credit unions should not count their chickens until they are hatched.


Tuesday, November 14, 2017

Low-Income CU Secures $12 Million in Secondary Capital

Jefferson Financial Federal Credit Union (Metairie, LA) recently completed the first funding installment of its National Credit Union Administration-approved $12 million secondary capital plan.

The $563 million low-income credit union worked with CU Capital Market Solutions (CMS) of Overland Park, Kansas to develop a secondary capital plan, prepare its NCUA application and fund the capital.

The second installment of Jefferson’s secondary capital will be provided by CMS through an exclusive arrangement with CU Secondary Capital Fund.

Read the press release.

UtahPolicy.Com Calls for Scrutiny of CU Tax Exemption

UtahPolicy.Com is calling on Senator Orrin Hatch (R - UT) and Congress to scrutinize the tax exempt status of large credit unions.

According to LaVarr Webb -- the publisher of UtahPolicy.com, some tax credits and exemptions are still warranted, while others are no longer justified.

Webb writes that small traditional credit unions serving people of modest means and having a true common bond should retain their tax exemption.

However, Congress should scrutinize the tax exemptions of credit unions with more than $500 million in assets.

Webb argues that these large impersonal credit unions are just like banks and have no meaningful common bond.

This tax exemption unfairly tilts the playing field in favor of these large credit unions relative to community banks.

Read the commentary.



Monday, November 13, 2017

Delinquencies Up Almost 25 Percent During Q3 at Taxi Medallion Lender Progressive CU

Troubled taxi medallion loans caused a decline in asset quality at Progressive Credit Union (New York, NY) during the third quarter of 2017.

Progressive Credit Union had $74.2 million in delinquent loans at the end of the third quarter of 2017. Delinquent loans were up 24.8 percent during the quarter. The percentage of loans past due was 15.81 percent, up from 12.24 percent from the previous quarter.

The credit union also reported $54.2 million in net charge-offs, as of September 2017. The net charge-off rate on average loans was 13.77 percent.

In addition, outstanding troubled debt restructured loans were $120.5 million.

At the end of the third quarter, the credit union has $26.9 million in foreclosed and repossessed other assets, presumably taxi medallions.

Due to the decline in asset quality, the credit union increased provision for loan and lease losses to build its allowance for loan and lease losses.

Provision for loan and lease losses was $59.9 million at the end of the third quarter, up from $40.4 million from the prior quarter.

Through the first 3 quarters of this year, allowance for loan and lease losses increased by $5.7 million to $76.8 million, as of September 2017. The credit union's coverage ratio dropped to 103.59 percent during the quarter from 115.54 percent and since the beginning of the year from 107 percent.

As a result of the increase in provision for loan and lease losses, the credit union reported a year-to-date loss of $65.7 million, as of September 2017.

This loss caused the credit union's net worth to fall from almost $195 million at the end of 2017 to $129.2 million as of September 2017. The credit union's net worth ratio tumbled from 32.96 percent to 25.77 percent over the same time period.

Sunday, November 12, 2017

Bill Would Allow Banks to Merge or Convert into Credit Unions

A bill (H. 2980) has been introduced in the Massachusetts legislature that would permit state chartered banks to convert or merge into a credit union, according to Banker & Tradesman.

A hearing on the bill was held on October 24 by the Joint Committee on Financial Services.

The Massachusetts Bankers Association stated that it was not opposed to a two-way street allowing a bank to convert to a credit union. However, the association noted that a bank to credit union conversion is complex and could result in less tax revenue for the state.

Read the story.

Saturday, November 11, 2017

Georgia's Own CU to Acquire State Bank of Georgia

Credit Union Journal is reporting that $2.3 billion Georgia's Own Credit Union (Atlanta, GA) has entered into a definitive agreement to acquire State Bank of Georgia (Fayetteville, GA).

The deal was approved by both boards and will be structured as an asset purchase.

State Bank of Georgia had $90.1 million in assets, as of its most recent Call Report.

The transaction is expected to close during the second quarter of 2018.

Read the story (subscription required).

Friday, November 10, 2017

LOMTO FCU's Net Worth Ratio Plunges to Minus 12.86 Percent

LOMTO Federal Credit Union (Woodside, NY) was insolvent due to bad taxi medallion loans, according to its most recent call report.

LOMTO FCU was placed into conservatorship on June 26, 2017.

The $193.3 million credit union reported a year-to-date loss of $38.5 million as of September 2017. During the third quarter of 2017, the credit union recorded a quarterly loss of $27.7 million.

The year-to-date loss arose from an increase in provision for loan and lease losses over the first 3 quarters of $38 million.

As a result of the loss, the credit union's net worth fell to negative $24.9 million from $2.9 million at the end of June 2017. The credit union's net worth ratio fell from 1.31 percent to minus 12.86 percent over the same time period.

The credit union reported $39.1 million in delinquent loans. As of September 2017, the credit union's delinquency rate was 21.58 percent.

In addition, the credit union is reporting that almost $10 million in loans were in the early stage of delinquency (30 to 59 days past due) at the end of the third quarter.

Furthermore, the credit union is reporting slightly less than $12.2 million in net charge-offs. As of September 2017, the net charge-off rate was 8.18 percent.

At the end of the third quarter, LOMTO had $14.5 million in foreclosed and repossessed assets, down from $23.5 million from the prior quarter.

The increase in provision for loan and lease losses enabled LOMTO to build its allowance for loan and lease losses account to $38.2 million. The coverage ratio as of September 2017 was 97.73 percent, up from 62.39 percent in the previous quarter. Approximately $12.5 million in allowance for loan and lease losses was tied to $20.5 million in troubled debt restructured loans.

During the third quarter, assets at LOMTO fell by $25.6 million to $193.3 million.



Thursday, November 9, 2017

Melrose Credit Union Insolvent

Massive losses from bad taxi medallion loans have wiped out the net worth of Melrose Credit Union (Briarwood, NY).

Melrose Credit Union was placed into conservatorship on February 10, 2017.

The $1.49 billion credit union reported a year-to-date loss of almost $178.4 million as of September 2017. The loss arose from an increase in provision for loan and lease losses. Year-to-date provision for loan and lease losses was $178.2 million with $116.3 million increase during the third quarter.

As a result of the massive loss, the credit union's net worth went from $102.2 million at the end of 2016 to minus $76.1 million as of third quarter of 2017. The credit union's net worth ratio was negative 5.10 percent -- meaning it was critically undercapitalized as of the most recent call report.

Loans 60 days or more past due were $668.5 million as of September 2017. Loans 360 days or more past due were approximately $424.7 million -- up from $111.9 million from the previous quarter and $366.9 million from a year ago.

The credit union was also reporting that $37.8 million loans were in the early stage of delinquencies (30 to 59 days past due).

The delinquency rate on loans was 40.01 percent. This was up from 37.85 percent as of June 2017 and 24.12 percent as of September 2016.

Due to the increase in provision for loan and lease losses, the allowance for loan and lease losses rose from $210.3 million as of June 2017 to $326.5 million.

However despite this increase, the credit union's loan loss reserves are underfunded with a coverage ratio of 48.83 percent as of September 2017.

Wednesday, November 8, 2017

Significantly Undercapitalized Altier CU Affected by Bad Taxi Medallion Participation Loans

Altier Credit Union (Tempe, AZ) reported a deterioration in its financial performance, as taxi medallion participation loans weighed on its operation.

This credit union was brought to my attention by a reader.

In a 2012 comment letter to the National Credit Union Administration, Altier commented that its portfolio was "comprised of indirect lending, taxi medallions and manufactured housing." (Read the comment letter).

The $193 million credit union reported a year-to-date loss of $9.2 million, as the credit union recorded a provision for loan and lease losses during the first 3 quarters of 2017 of $9.1 million.

As a result of the loss, the credit union's net worth fell from $13.7 million at the end of 2016 to less than $4.5 million as of September 2017. The credit union's net worth ratio declined from 7.23 percent to 2.31 percent over the same time period. The credit union was significantly undercapitalized at the end of the third quarter.

The credit union is reporting almost $13 million in commercial loans, presumably taxi medallion participation loans. The credit union had $16.1 million in outstanding participation loans.

As of September 2017, $3.8 million in loans were 60 days or more past due, of which $3.3 million were participation loans. While the overall delinquency rate at Altier Credit Union was 2.68 percent, the delinquency rate on participation loans was 20.61 percent and the delinquency rate on commercial loans was 25.45 percent.

In addition, the credit union charged off $1.15 million in commercial loans through the first 3 quarters of 2017.

Furthermore, troubled debt restructured commercial loans not secured by real estate were approximately $7.4 million as of September 2017.

The increase in provision for loan and lease losses caused the credit union's allowance for loan and lease losses account to increase from almost $2 million at the end of 2016 to $9.8 million. The credit union's coverage ratio (allowance for loan and lease losses divided by delinquent loans) was 254.23 percent as of September 2017.

Tuesday, November 7, 2017

CU Consumer Credit Increased During September at a Faster Pace

Outstanding consumer credit at credit unions grew by almost $4.5 billion during September 2017 to $417 billion, according to the Federal Reserve.

During the previous month, consumer credit at credit unions grew at a slower pace of approximately $800 million.

Revolving credit edged higher by $200 million to $55.3 billion during September.

Outstanding nonrevolving credit at credit unions increased from $357.4 billion in August to $361.7 billion in September.

View the G.19 Report.


CFPB Flags Risk Associated by Longer Maturity Car Loans

A study by the Consumer Financial Protection Bureau (CFPB) flags the higher risk posed by longer term auto loans.

The study noted that auto loans with longer maturities continue to expand market share, despite a cooling in the auto finance market. According to the CFPB, loans with maturities of six years or longer accounted for 42 percent of the market in 2017 year-to-date, up from 26 percent in 2009.

Six-year auto loans are the most common term used to finance auto loans.

Longer-maturity loans may pose greater risks to consumers. These loans are more likely to be used for larger loan amounts and by borrowers with lower credit scores. The average credit score for a borrower for taking out a six-year auto loans was 674 -- 39 points below the credit score for borrowers taking out a five-year auto loans. And given that the average length of U.S. car ownership is 6.5 years, longer loan maturities may mean borrowers are paying off loans for cars they no longer drive.

The dividing line in loan quality between five-year loans and six-year loans was especially stark, with default rates for the latter roughly double the former at comparable points since origination. For example, a six-year car loan made in 2014 had a cumulative default rate of over 5 percent two years after origination, but a similar five-year loan saw a default rate of just over 2.5 percent.

Read the report.

Monday, November 6, 2017

Delinquencies Rise at Quorum FCU due to Delinquent Taxi Medallion Participation Loans

Quorum Federal Credit Union (Purchase, NY) reported an increase in delinquencies during the third quarter due to troubled participation loans.

During the third quarter, delinquent loans increased by $4.1 or 8.2 percent to $53.7 million.

As of September, Quorum FCU reported that 7.22 percent of its loans were 60 days or more past due. This was up from 6.74 percent as of June 2017 and 4.20 percent from a year ago.

Almost 80 percent of the credit union's delinquencies were participation loans, presumably taxi medallion participation loans. As of September 30, 2017, delinquent participation loans were almost $42.7 million -- up $3.2 million from the previous quarter and $22.6 million from a year ago, respectively.

The credit union reported $113 million in participation loans, of which $79.7 million were commercial loans. It appears that $70.6 million of the commercial loans were taxi medallion participation loans.

As of September 30, the delinquency rate on participation loans was 37.57 percent. This was up from 16.35 percent from a year ago.


Troubled debt restructured commercial loans not secured by real estate were $24.4 million.

The credit union reported a year-to-date profit of $427 thousand; but a third quarter loss of $2.3 million. The loss was driven by a $6.7 million increase in provision for loan and lease losses during the quarter.

The quarterly loss caused the credit union's net worth to fall from $68.2 million as of June 2017 to $65.9 million as of September 2017.

As a result, the net worth ratio fell 15 basis points during the quarter to 7.65 percent on September 30, 2017.

The increase in provisions for loan and lease losses caused the allowances for loan and lease losses to increase to $34.2 million at the end of the third quarter from $28.9 million a quarter earlier.

Quorum's coverage ratio (allowances for loan and lease losses to delinquent loans) was 63.65 percent as of September 2017 -- up from 58.22 percent as of June 2017, but down from 82.57 percent from a year ago.

Quorum ended its taxi medallion participation loan program in 2013.

Saturday, November 4, 2017

Two Assisted Mergers Impose Small Losses on the NCUSIF

The National Credit Union Administration's Office of the Inspector General (OIG) recently reported that the National Credit Union Share Insurance Fund (NCUSIF) incurred small losses associated with the assisted merger of two credit unions between April 1, 2017 and September 30, 2017.

According to the Semiannual Report to the Congress, Love Gospel Assembly Federal Credit Union (Bronx, NY) and Madco Credit Union (Edwardsville, IL) imposed an estimated loss to the NCUSIF of $30,771 and $25,000, respectively.

Love Gospel Assembly FCU failed due to poor record keeping and inadequate management. The credit union was closed on August 2. The NCUA approved a voluntarily assisted merger with USAlliance Federal Credit Union (Rye, NY).

Madco Credit Union failed due to severe operational concerns and potential unrecorded liabilities and unrecognized losses. NCUA approved an involuntary assisted merger with with 1st MidAmerica Credit Union (Bethalto, IL).

Read the report.

Friday, November 3, 2017

Bank and Credit Union Trade Groups Call for National Data Breach Standards

Seven financial trade associations wrote to lawmakers calling for a national data security and breach notification standard.

In a letter to Representatives Blaine Luetkemeyer (R-Mo.) and Lacy Clay (D-Mo.), the financial trade associations called for a standard that would require all entities handling sensitive personal and financial data to have robust protections in place and to notify consumers in a timely manner in the event of a breach. They also added that such a standard would help eliminate current inconsistencies between a patchwork of state and federal laws.

“Our existing payments system serves hundreds of millions of consumers, retailers, financial institutions and the economy well,” the groups wrote. “Protecting this system is a shared responsibility of all parties involved and we must work together and invest the necessary resources to combat increasingly sophisticated threats to the payments system.”

The seven financial trade associations that signed the letter are the American Bankers Association, Consumers Bankers Association, Credit Union National Association, Financial Services Roundtable, Independent Community Bankers Association, National Association Federally-Insured Credit Unions, and The Clearing House.

Read the letter.

Thursday, November 2, 2017

Bad Loans Push Conserved Riverdale CU Deeper into Insolvency

Massive losses from poor performing loans have pushed conserved Riverdale Credit Union (Selma, AL) deeper into insolvent as of September 2017. performing loans.

The credit union posted a year-to-date loss of $14.3 million, driven by provision for loan and lease losses of $15.6 million through the first 3 quarters of 2017.

As a result of the loss, the credit union's net worth has dropped from almost $8.9 million to a negative $6.1 million.

The credit union's net worth ratio fell from 12.21 percent as of the end of 2016 to minus 11.05 percent as of September 2017.


Delinquent loans rose from $1.6 million at the end of 2016 to $7.1 million at the end of the third quarter 2017. The delinquency rate as of September 2017 was 14.33 percent.

As of September 2017, net charge-offs were $12.8 million. The net charge-off rate was 30.61 percent as of the most recent call report.


Total assets of the credit union have dropped by almost 25 percent from the start of this year to $54.9 million as of the most recent call report. However, the credit union's assets are now less than its total deposits and shares of $57 million.

Surprisingly, the credit union is reporting almost $1.4 million in uninsured deposits and shares.

Wednesday, November 1, 2017

Large CU Loan and Deposit Growth Outperforms Community Banks

A study by Experian found that smaller community banks and credit unions are losing ground to larger institutions and that large credit unions are outperforming community banks.

Experian noted that credit unions with over $1 billion in assets had faster deposit and loan growth rates than community banks.

The median deposit growth rate for larger credit unions was 8.77 percent versus 4.06 percent for community banks. Median loan growth was 12.23 percent for large credit unions versus 5.62 percent for community banks.

However, large credit unions are less efficient and less profitable than community banks.

Read the report.

Tuesday, October 31, 2017

Members Choice CU Scheduled to Take Possession of New HQ on October 31

Members Choice Credit Union (Houston, TX) is scheduled to take possession on October 31 of its new four-story, 80,000 square-foot headquarters building, according to the Houston Business Journal.

The building will include a full service branch, a multi-purpose room available for use by the community, a quiet room for employees, and a spacious lunch room connected to an outdoor dining patio, as well as other features.

The credit union will occupy about two and a half floors of the building and will lease out 32,000 square feet of Class A office space.

As a state chartered credit union, Members Choice should pay unrelated business income taxes on the rental income from leasing its excess space.

However, federal credit unions are not subject to unrelated business income taxes on the rental of their excess space. This glaring loophole should be closed.

Read the article.

Monday, October 30, 2017

Non-Federally Guaranteed Student Loans Up 12.1 Percent Year-over-Year

Federally-insured credit unions reported almost $4.1 billion in outstanding non-federally guaranteed student loans as of June 30, 2017. This is up 12.1 percent from a year ago.

According to data from the National Credit Union Administration's website, approximately $1.1 billion in non-federally guaranteed student loans were in deferred status as of the second quarter 2017.

Navy Federal Credit Union had the largest amount of non-federally guaranteed student loans at almost $213 million. Below is a table listing the 10 largest student lending credit unions (click on image to enlarge).


As of June 30, 2017, $44.3 million of these student loans were 60 days or more past due. The delinquency rate on these loans were 1.09 percent, down 10 basis points from a year earlier.

However, the reported delinquency rate includes loans in deferred status and thereby understates the true delinquency rate.

In addition, credit unions reported $8.9 million in net charged off student loans as of June 2017. This is more than double the amount of net charge-offs from a year ago, which was $4.2 million.

Over the course of the last year, the net charge-off rate on non-federally guaranteed student loans increased by 22 basis points to 0.45 percent.

Still, private student loans at credit unions outperform federally guaranteed student loans, which have a delinquency (90 days past due) and default rate of 11.2 percent.


Friday, October 27, 2017

New York State Employees FCU Closed

The National Credit Union Administration liquidated New York State Employees Federal Credit Union of New York, New York.

Palisades Federal Credit Union of Pearl River, New York, immediately assumed most of New York State Employees Federal Credit Union’s assets and all members, shares and loans.

The NCUA made the decision to liquidate New York State Employees Federal Credit Union and discontinue its operations after determining the credit union was insolvent with no prospect for restoring viable operations on its own.

As of June 2017, the credit union was unprofitable and significantly undercapitalized with a net worth ratio of 3.92 percent. The credit union reported that 8.28 percent of its loans were at least 60 days or more past due.

At the time of liquidation, New York State Employees Federal Credit Union served 1,183 members and had assets of $2 million, according to the credit union’s most recent Call Report.

New York State Employees Federal Credit Union is the fourth federally insured credit union liquidation in 2017. The last New York-based credit union to be liquidated was Bethex FCU (Bronx, NY) on December 18, 2015.

Read the press release.

Illinois CU Regulator Orders Business to Stop Using Term "Credit Union"

The Illinois Division of Financial Institution ordered 1st Provision Credit Union to cease and desist from transacting business and using the term "credit union' or any abbreviation thereof.

According to 1st Provision's website, the business is located in Ottawa, Illinois and describes itself as a credit union.

The state regulator found that as of October 13 the entity was neither chartered by the National Credit Union Administration nor the state of Illinois.

Read the cease and desist order.

Thursday, October 26, 2017

Texas CU Regulator Reports Increase in Complaints for FY 2017

The Texas Credit Union Department reported that complaints about credit unions were up for fiscal year (FY) 2017 ending on August 31.

In FY 2017, the Department reported 280 complaints. This is up from 261 complaints for FY 2016.

Between FY 2012 and FY 2017, complaints are up approximately 61 percent.

The Department noted that many complaints arise from member service issues and poor communications.

The Department advised that working with members to resolve issues may prevent complaints from being filed.

Read the October Newsletter.

Wednesday, October 25, 2017

Groups Call for the End of CU Tax Exemption

Two recent op-eds have called on Congress and the Trump Administration to end the credit union industry's preferential tax treatment as part of tax reform.

In an op-ed in the Charlotte Observer, Yael Ossowski, deputy director of the Consumer Choice Center -- a D.C.-area consumer advocacy group -- called on the Trump administration and Congress to take steps to eliminate the credit union tax exemption as part of the broader plan to reform the U.S. tax code. Ossowski wrtoe that credit unions should not "enjoy the same tax-free status as soup kitchens, Goodwill and disaster relief charities."

In the Reno Gazette-Journal, Drew Johnson, a senior scholar at the Taxpayers Protection Alliance, wrote in an op-ed that Congress should end "the practice of using the tax code to pick winners and losers by removing the nonprofit loophole that allows large credit unions to avoid paying their fair share of taxes."

Read the Charlotte Observer Op-Ed.

Read the Reno Gazette-Journal Op-Ed.

Tuesday, October 24, 2017

Study Finds CUs Gaining Market Share

A recent study by the Federal Reserve Bank of Philadelphia found that credit unions are growing faster than small banks and have gained market share relative to small banks.

The report also noted that small banks and thrifts have lost market share to large banks.

Despite their expansion, credit unions only hold about 7.1 percent of the assets held by all depository institutions.

One of the research questions explored by the study is whether credit unions and small banks compete for the same customers.

The Philly Fed found that small banks and credit unions compete for similar borrowers in the residential lending market.

According to the study, "the mortgages for purchasing one- to four-family homes that credit unions and small banks make are similar across all income tracts."

But the study noted that credit unions may have more stringent real estate lending standards. According to data, "credit unions reject a larger proportion of their home loan applicants, and the difference in rejection rates is greatest in low- and middle-income tracts." In addition, the study found that credit unions had a lower charge-off rate on home mortgage loans.

For example, the following chart looks at rejection rates for mortgages in low-and moderate-income census tracts by credit unions and small banks.
The study also notes that since 1990, credit unions have doubled their market share of consumer loans. However, small banks have only a small share of consumer loan market, losing market share to both large banks and credit unions.

The study states that credit unions tend to offer more flexible terms on their auto loans. "Car buyers who finance their purchases through a credit union generally have lower credit scores, longer loan maturities, and lower monthly payments compared with those who take out a car loan from a small or medium-size bank." The offering more flexible terms on car loans may arise from the ability of credit unions to cross-collateralize these loans with borrowers deposits.

The report argues for more study of the credit union industry, especially as the industry moves from its traditional markets.

Read the study.

Monday, October 23, 2017

Nine Virginia CUs Sued over ADA Website Violations

The Credit Union Times is reporting that nine Virginia credit unions are being sued for violating the Americans with Disability Act (ADA) by failing to make their websites accessible to the visually impaired.

The lawsuits allege the credit unions' websites were not embedded with the code that would allow screen readers to describe graphics, or contained links with no readable text, or had redundant links.

The lawsuits also claim the credit unions were informed about the problems and failed to fix the problems on their websites.

The nine credit unions are Cadmus Credit Union Inc. (Richmond, VA), Virginia Credit Union Inc. (Richmond, VA), ABNB FCU (Chesapeake, VA), Blue Eagle CU (Roanoke, VA), Member One FCU (Roanoke, VA), NRL FCU (Alexandria, VA), Arlington Community FCU (Falls Church, VA), Henrico FCU (Henrico, VA), and Pentagon FCU (Tyson, VA).

According to the story, NRF FCU has reported that the issue has been resolved.

These lawsuits have some credit union bloggers warning that credit unions need to start making their websites ADA compliant.

Read the Credit Union Times story.

Sunday, October 22, 2017

Community First CU Opens New $25 Million HQ Building

Community First Credit Union (Appleton, WI) opened its new $25 million headquarters in Fox Crossing, Wisconsin.

The 130,000 square-foot building has three wings with a central rotunda atrium. The building also has 39 meeting rooms.

The building's great room is a cafeteria and dining room with a fireplace and views of the fountains and the pond.

The credit union will be reimbursed up to $1.5 million for the construction of a stormwater retention pond and road improvements. In addition, the credit union could receive up to $5 million towards the building cost and land over a maximum 20 years.

Read the story.


Friday, October 20, 2017

A Social Network as a Common Bond

National Credit Union Administration McWatters stated that Congress should allow credit unions to serve communities that exist only online.

In an interview with the Wall Street Journal, McWatters stated that "[c]hances are [such a change] would be very broad ... I am trying to parallel reality today as opposed to what it was a generation—or two or three or four generations—ago.”

The American Bankers Association spokesperson commented that the proposal to open credit union membership further was laughable.

In the interview, McWatters also defended the agency's decision to close the Temporary Corporate Credit Union Stabilization Fund and merge its remnants with the National Credit Union Share Insurance Fund and to raise the Normal Operating Level for the insurance fund to 1.39 percent.

McWatters further stated that he plans to revisit the risk-based capital requirements for credit unions adopted by his predecessor, as he does not believe the rule hews close enough to the Federal Credit Union Act.

Read the story (subscription required).

Thursday, October 19, 2017

NCUA Reports An Increase in NCUSIF Loss Reserves by Almost $78 Million In September

The National Credit Union Administration increased National Credit Union Share Insurance Fund reserves for losses to $286 million at the end of September.

In August, reserves for insurance losses were $208.1 million.

The agency reported that in September $20.1 million in reserves is for specific credit unions and $265.9 million was for general reserves.

Number of Problem CUs Fell During Q3 2017

The number of problem credit unions fell during the third quarter of 2017, according to the National Credit Union Administration.

At the end of the third quarter of 2017, there were 204 problem credit unions. In comparison, there were 210 problem credit unions at the end of the second quarter.

A problem credit union has a composite CAMEL rating of 4 or 5.

Total assets and shares in problem credit unions fell during the quarter. Assets in problem credit unions were $10.2 billion at the end of the third quarter -- down from $10.6 billion at the end of the second quarter of 2017. Shares in problem credit unions decreased from $9.4 billion as of June 2017 to $9.0 billion as of September 30.

NCUA reported that almost 88 percent of problem credit unions have less than $100 million in assets, while less than 2 percent have more than $500 million in assets.

At the end of the third quarter, 0.84 percent of total insured shares were in problem credit unions. At the end of the second quarter, 0.88 percent of total insured shares were in problem credit unions.

Wednesday, October 18, 2017

Chartered for the Purpose of Making Member Business Loans

The National Credit Union Administration's Office of Consumer Financial Protection and Access is providing guidance to insured credit unions on the eligibility and qualifications for being chartered for the purpose of making member business loans.

The Federal Credit Union Act provides an exemption from the member business loan (MBL) aggregate cap of 12.25 percent of assets to an insured credit union chartered for the purpose of making member business loans to its members, as determined by the NCUA Board.

According to the document, new federal credit unions, new federally insured state credit unions (FISCUs), FISCUs converting to a federal charter, federal charters converting to a FISCU, and all credit unions considering a spin-off of their field of membership may be eligible for this exemption of being chartered for the purpose of making business loans to its members.

To qualify, the insured credit union must
  • submit plans showing one or more discrete groups within its field of membership with unique commercial or business financing needs;
  • demonstrate a commitment to investing in the infrastructure to safely originate, service, and administer the anticipated business loan volume; and
  • ensure that management meets the experience and governance requirements currently outlined in NCUA's regulations.
Finally, the NCUA states that financial projections must reflect sufficient loan originations to support the exemption. However, the document notes that "a credit union seeking the exception is not required to demonstrate or propose that its MBL portfolio will be its only lending component, or even an overwhelming majority of total loans or new loan volume."

While I understand how a de novo could be chartered for the purpose of making business loans, I find it troubling that a credit union, which flips its charter from a state to federal charter or vice-a-versa, could all of a sudden become chartered for the purpose of making member business loans. These credit unions are ongoing institutions. Their purpose has not changed.

It seems to me that the National Credit Union Administration is allowing existing credit unions to game the system so as to evade the member business loan cap of 12.25 percent of assets.

Read the document.


Tuesday, October 17, 2017

Summit CU Breaks Ground on New HQ Building

Summit Credit Union (Madison, WI) has broken ground on its new 152,000-square-foot, six-story headquarters building in Cottage Grove.

The new corporate campus will include exercise and meditation rooms for employees, a sand volleyball court, and a cafeteria, along with a walking and biking path.

The cost of the project was not disclosed.

Read the story.

Illinois CU Regulator Suspends Operations of Route 1 CU for 60 Days

The Illinois Division of Financial Institutions suspended the operations of Route 1 Credit Union (Paris, IL) for 60 days.

The state regulator appointed Decatur Earthmover Credit Union (Forsyth, IL) as Manager-Trustee.

The order noted that the Department was not able to ascertain the true financial condition of the credit union.

The order stated that the credit union's allowance for loan losses account was underfunded. No determination can be made to the adequacy of the credit union's allowance for loan losses account and the current net worth position.

The order pointed out that the credit union has not filed required reports.

In addition, the credit union is in violation of state law by having fewer than 7 directors on the board and fewer than 3 members on its supervisory committee.

Also, the credit union has failed to pay in a timely manner its quarterly regulatory fee and failed to pay the Department an August 2017 special investigation fee.

Route 1 Credit Union had $4.1 million in assets, as of June 2017. The credit union reported a loss of $164 thousand through the first six months of 2017. The credit union was undercapitalized with a net worth ratio of 4.91 percent.

The order was signed on October 3.

Read the order.

Monday, October 16, 2017

Report: CU Business Loans Have Grown Rapidly in Post-Recession Period

The Federal Reserve reported that small loans to businesses have grown rapidly in the the post-recession period, according to a Report to the Congress on the Availability of Credit to Small Businesses.

Between 2012 and 2016, outstanding business loans at credit unions increased by 53.4 percent. In comparison, small loans to businesses by commercial banks increased only 1.4 percent.

Despite this growth, outstanding small business loans at credit unions remain a small fraction of the total small business lending marketplace.

The report notes that aggregate credit union business lending is capped at 12.25 percent of assets.

As of June 2016, 5.6 percent of credit unions had outstanding loans to businesses totaling in excess of 80 percent of their cap. However, among credit unions with assets of more than $1 billion, 23.2 percent had outstanding loans to business in excess of 80 percent of their cap.

The report states that raising the cap has the potential to accelerate the rate of small business lending by credit unions.

The report was issued in September 2017.

Read the Report.

Saturday, October 14, 2017

Illinois Amends St. Elizabeth CU's Suspension Order

The state of Illinois announced on October 5 that it was amending the suspension order for St. Elizabeth Credit Union (Chicago, IL).

The Illinois Division of Financial Institutions suspended the operations for the tiny credit union for an additional 60 days.

The amended order cited numerous compliance deficiencies at the credit union.

For example, the credit union's point of contact(s) did not log in to the Financial Crime Enforcement Network's (FinCEN) Secure Information Sharing System. The point of contact(s) ignored biweekly notifications sent by FinCEN.

The amended suspension order also cited the credit union for not developing a policy to provide the necessary training for directors and committees to assist with their credit union duties.

Additionally, there was no Financial Elder Abuse of the Board's Vice Chairperson and transitioning manager of the credit union in the last three years.

The initial suspension order was issued on August 9.

Read the amended suspension order.

Friday, October 13, 2017

NCUA Chairman McWatters: Equity Ratio of 1.30 Percent Not Sufficient to Weather 2007-2009 Recession

National Credit Union Administration Chairman McWatters sets the record straight that the National Credit Union Share Insurance Fund's Normal Operating Level of 1.30 percent was not sufficient to weather the 2007-2009 financial crisis and recession.

McWatters stated:
"Some in the credit union community contend a 1.30 percent normal operating level has historically been sufficient to address risks to the Share Insurance Fund, including during the 2007–2009 financial crisis. This is simply not true. The very existence of the Stabilization Fund and the fact the NCUA borrowed $5.1 billion from the U.S. Treasury to fund resolution obligations, demonstrates that the credit union community was not prepared to handle the impact of the large losses that resulted from the failure of five federally insured corporate credit unions as a result of the 2007–2009 recession.

These corporate credit unions were not some wholly separate and anomalous externality. They were insured credit unions created, funded, and governed by natural-person credit unions. As noted previously, without the Stabilization Fund, all of the equity in the Insurance Fund would have been consumed by these losses.

The corporate system is better regulated now, and much smaller than it used to be. Therefore, the exposure to future losses from corporate credit unions should be significantly reduced. However, one cannot ignore the fact that the Insurance Fund was imperiled by the risk exposure of this portion of the credit union community.

Others contend that the credit union community weathered the financial crisis just fine with the caveat “if you don’t include the corporate credit union losses.” This contention also is not consistent with established historical fact. The number of troubled credit unions, including large institutions, increased materially during the Great Recession. The Share Insurance Fund’s equity ratio fell below 1.20 percent even without the corporate credit union losses. Meaning, the equity ratio fell below 1.20 percent only because of natural-person credit union losses and insured share growth.

The result was two Share Insurance Fund premiums totaling 22.7 basis points or $1.66 billion. The actual decline in the equity ratio from the 2007–2009 severe recession was predominantly the result of the increase in loss reserves for natural-person credit unions, as required under accounting standards applicable to the Insurance Fund and, to a lesser extent, elevated insured share growth. Realized Share Insurance Fund losses were significantly elevated as well. From 2008–2012, 112 natural-person credit unions failed at a cost of $807 million to the Insurance Fund.

Clearly, a 1.30 percent normal operating level for the Share Insurance Fund was not adequate to handle the 2007–2009 severe recession."
Hopefully, McWatters' statement puts to rest the false narrative being pushed by certain credit unions and their trade associations that the equity ratio of 1.30 percent for the National Credit Union Share Insurance Fund was adequate.

Thursday, October 12, 2017

Eight Lawmakers Write NCUA over Melrose's Treatment of Taxi Medallion Borrowers

Crain's New York Business is reporting that eight New York Democratic lawmakers wrote National Credit Union Administration (NCUA) Chairman McWatters urging the agency to review its treatment of taxi medallion loans originated by Melrose Credit Union, which is in conservatorship.

The letter stated that NCUA was unfairly punishing taxi medallion borrowers, who "through no fault of their own", were adversely impacted by the disruption of the taxi industry by riding sharing apps.

The letter urges the agency "to work with medallion owners, on a case-by-case basis, and to cease the practices of doubling interest rates, demanding homes be offered as additional collateral, refusing loan assumptions by willing third-parties, and requiring additional guarantors such as spouses be added to loans."

The letter was signed by Representatives Grace Meng, Joseph Crowley, Adriano Espaillat, Carolyn Maloney, Gregory Meeks, José Serrano, Nydia Velázquez, and Hakeem Jeffries.

Read the story (letter appears at the end of the story).

Wednesday, October 11, 2017

Cost of Funds for CUs About to Rise

Depository institutions need to plan for higher cost of funds, as higher interest rates cause depositors to shift to higher yielding deposit accounts.

Most Federal Reserve watchers anticipated that the Federal Open Market Committee will raise its target federal funds rate in the fourth quarter and continue to raise rates during 2018 and 2019. The federal funds rate will rise from 1.4 percent at the end of 2017 to 2.7 percent at the end of 2019.

The following graph shows the median projected federal funds rate for the years of 2017, 2018, 2019, and 2020.


According to a June S&P Global Market Intelligence report, the deposit beta is projected to reach 30 percent in 2017. The deposit beta indicates how much of the change in the effective fed funds rate banks pass onto customers." S&P Global Market Intelligence expects the deposit beta to reach 59 percent in 2018.

In comparison, during the last rate tightening cycle, the deposit beta was 41 percent and 62 percent in 2005 and 2006, respectively.


Moreover as interest rates rise, depositors will shift their funds from low yielding accounts into higher yielding deposits. As of June 2017, 73 percent of credit union deposits were in share drafts, regular shares, and money market share accounts; but 18 percent of credit union deposits were in share certificates.


However, a decade ago at the end of the last rate tightening cycle, credit unions reported 58 percent of their deposits in share drafts, regular shares, and money market share accounts, while 32 percent of credit union deposits were in share certificates.


What do you think your deposit mix will look like two years from now?


Tuesday, October 10, 2017

180 CUs Borrowed from Fed's Discount Window in Q3 2015

During the third quarter of 2015, 180 credit unions borrowed from the Federal Reserve's Discount Window.

In comparison, 166 credit unions borrowed from the Federal Reserve's Discount Window during the second quarter of 2015.

Credit unions borrowed 270 times from the Federal Reserve's Discount Window during the third quarter of 2015.

The aggregate amount borrowed from the Federal Reserve was approximately $505.7 million.

The average amount borrowed was just shy of $1.9 million. The median amount borrowed was $75,000.

There were 45 Discount Window loans of $1 million or more during the quarter.

Visions Federal Credit Union (Endicott, NY) borrowed the single largest amount at $65 million on August 19. The credit union borrowed a total of $210 million from the Federal Reserve during the quarter.

Several credit unions actively borrowed from the Discount Window during the third quarter. Aurora Credit Union (Milwaukee, WI) borrowed from the Federal Reserve 14 times during the quarter. Both Vermont State Employees Credit Union (Montpelier, VT) and Services Center FCU (Yankton, SD) visited the Discount Window 13 times. Glendale FCU (Glendale, CA) borrowed from the Federal Reserve 12 times.

All credit unions, except for four, borrowed under the Federal Reserve's primary credit program, which is reserved for only well run credit unions. Three credit union borrowed from the seasonal credit program, while two credit unions borrowed from the secondary credit program.

The Federal Reserve is required by law to disclose with a two year delay information on borrowings from the Discount Window.
 

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