Wednesday, August 16, 2017

Other CUs Impacted by Troubled Taxi Medallion Loans

While the remaining three New York City taxi medallion lending credit unions garner most of the attention, there are other credit unions that have been affected by the disruption of the taxi industry. The following discussion looks at several of these credit unions.

First Jersey Credit Union (Wayne, NJ)

First Jersey Credit Union has a credit union service organization, USA Medallion Funding LLC, that specialized in taxi medallion lending.

First Jersey recorded a loss of almost $4.1 million through the first half of 2017, as it increased provision for loan and lease losses to $4.2 million.

As a result of the loss, the $101 million credit union's net worth fell from $8 million at the end of 2016 to $3.9 million as of June 2017. The credit union's net worth ratio fell from 6.91 percent to 3.87 percent over the same time period. As of the end of second quarter, the credit union was significantly undercapitalized.

Delinquent loans increased by 54.7 percent during the second quarter to $6.3 million as of June 30. As of the end of the second quarter, the delinquency rate on loans was 9.41 percent -- up from 5.80 percent at the end of the first quarter.

Most of the credit union's delinquent loans were member business loans. Almost $5.3 million in delinquent loans were in member business loans, presumably these loans were taxi medallion loans. The credit union reported that 36.74 percent of its member business loans not secured by real estate were 60 days or more past due.

In addition, almost $3.8 million in member business loans not secured by real estate were recorded as troubled debt restructured (TDR) loans at the end of the second quarter -- an increase of almost 31 percent from the prior quarter. As of June, almost a quarter (24.25 percent) of these loans were 60 days or more delinquent.

First Jersey charged off almost $1.3 million in non-real estate secured member business loans through the first half of 2017.

Due to the increase in provision for loan and lease losses, allowances for loan and lease losses rose from $4.5 million at the end of 2016 to $7.2 million at the end of June 2017. The credit union's coverage ratio was 114.63 percent at the end of the second quarter of 2017.

As of June 2017, the credit union has a buffer (net worth and allowance for loan and lease losses) of approximately $11.2 million to absorb expected and unexpected losses.

Bay Ridge Federal Credit Union (Brooklyn, NY)

Bay Ridge FCU reported a loss of almost $2.1 million through the first half of 2017, as the credit union increased its provision for loan and lease losses.

Provision for loan and lease losses increased from $500,000 at the end of the first quarter to $3.1 million as of June 2017, as the credit union builds its loan loss reserves.

Due to its loss, the credit union's net worth fell from $19 million to $16.9 million. Its net worth ratio fell 90 basis points to 8.44 percent during the second quarter.

Loans 60 days or more delinquent increased by 24.1 percent during the second quarter to just below $8 million. The delinquency rate at the end of June 2017 was 4.53 percent, up from 3.65 percent for the prior quarter.

A majority of the delinquent loans were member business loans not secured by real estate, most likely taxi medallion loans. As of June 30, delinquent member business loans were almost $5.8 million. The percentage of non-real estate secured member business loans that were delinquent as of June was 7.23 percent.

Net charge-offs were negligible.

Troubled debt restructured (TDR) business loans were $23.1 million as of June, up $479,298 from the prior quarter. As of June 30, 19.34 percent of TDR business loans were 60 days or more past due.

Due to the increase in provision for loan and lease losses, allowance for loan and lease losses increased by $2.6 million to $6.8 million.

Bay Ridge FCU has $200 million in assets as of June 2017.

Aspire Federal Credit Union (Wayne, NJ)

Aspire Federal Credit Union has a taxi medallion lending credit union service organization (CUSO).

At the end of June 2017, Aspire reported a mid-year loss of almost $2.8 million. The loss was due to a $3.4 million increase in provision for loan and lease losses.

As a result of the loss, the credit union's net worth fell from $17.5 million at the end of 2016 to slightly less than $14.8 million as of June 2017.

Over the same time period, the credit union'd net worth ratio declined from 10.11 percent to 8.73 percent.

Delinquent loans increased by 44.8 percent during the second quarter to $8.2 million. As of June, 6.15 percent of the loans were delinquent.

A majority of the delinquent loans were business loans not secured by real estate, as $4.75 million were past past due. These loans are most likely taxi medallion loans. The percentage of these business loans past due were 31.95 percent, this is up from 15.98 percent from the prior quarter.

Troubled debt restructured (TDR) business loans were $4.2 million at mid-year. This is down 1.9 percent from the previous quarter. As of June 2017, over one-third (35 percent) of all TDR business loans were delinquent.

Due to the increase in loan loss provisions, allowance for loan and lease losses increased by $1.8 million this year to $6.15 million.

Aspire FCU has $168.9 million in assets as of June 2017.

Tuesday, August 15, 2017

Taxi Medallion Participation Loan Defaults Rose at Quorum FCU during Q2 2017

Quorum Federal Credit Union (Purchase, NY) reported an increase in delinquent loans during the second quarter of 2017 driven by poor performing participation loans -- presumably most, if not all, were taxi medallion loans.

The 874.1 million credit union reported $49.6 million in delinquent loans, of which $39.2 million were participation loans.

According to Quorum's financial data, delinquent participation loans increased by 26 percent during the second quarter.

As of June 30, 2017, the percent of participation loans that were 60 days or more past due was 35.08 percent. This was up from 27.36 percent at the end of the first quarter of 2017 and 14.12 percent from a year ago.

If all delinquent participation loans are taxi medallion participation loans, then the delinquency rate of taxi medallion participation loans was 54.3 percent as of June 30.

Additionally, the credit union reported $24.3 million in troubled debt restructured (TDR) business loans, as of June 30, 2017. TDR business loans in accrual status were $13.5 million, while almost $10.9 million of these loans were in nonaccrual status. Total TDR loans were $30.4 million.

According to the credit union's Financial Performance Report, 56.92 percent of TDR business loans not secured by real estate were delinquent.

However, the credit union currently has a combined buffer of net worth and allowances for loan and lease losses of $97.1 million to absorb expected and unexpected losses.

Monday, August 14, 2017

Overwhelming Majority of CUs that Received Section 208 Assistance No Longer Active

The National Credit Union Administration (NCUA) reported that an overwhelming number of credit unions that received Section 208 assistance exited the credit union industry, according to the agency's emergency merger proposal.

In recent years, Section 208 assistance has taken the form of capital notes, cash advances, and non-cash guarantees.

Between the first quarter of 2001 and the fourth quarter of 2016, 181 credit unions received at least one type of section 208 assistance. Out of these 181 credit unions, 165 credit unions stopped filing Call Reports.

NCUA further noted that a vast majority of the credit unions that received Section 208 assistance exited the credit union industry prior to or shortly after receiving this assistance.

Of these 165 credit unions, 152 credit unions, or 92.1 percent, stopped filing Call Reports prior to or within 15 months of receiving the section 208 assistance.

Specifically, NCUA found that:
  • 13.9 percent of the credit unions that received section 208 assistance began receiving such assistance after they filed their last Call Report. 
  • An additional 61 credit unions filed their final Call Report in the same quarter in which they first began receiving section 208 assistance. 
  • Another 68 credit unions filed their final Call Report within one year after the quarter they first received section 208 assistance
Based upon this evidence, NCUA believes that Section 208 assistance is a good indicator of a credit union being in danger of insolvency.

Saturday, August 12, 2017

United Texas CU Abandons Federal Charter and Becomes Privately Insured

United Texas Credit Union (San Antonio, TX) has switched from a federal to state charter and converted from federal to private share insurance.

The $254 million credit union will now be insured by American Share Insurance.

The credit union's CEO stated that one of the main reasons for the charter conversion is Texas' flexible Field of Membership (FOM) rules.

Also, local supervision and lower regulatory fees played a role in the credit union's decision to change charters and insurers.

Read the press release.

Friday, August 11, 2017

NCUA Replies to ABA's FOM Lawsuit

The National Credit Union Administration (NCUA) filed a reply brief on August 9 to an American Banker Association (ABA) lawsuit challenging NCUA’s field of membership (FOM) final rule.

NCUA's reply brief reiterated the agency’s claim that it acted within its statutory authority and that its rulemaking was reasonable, and called for the dismissal of ABA’s case.

ABA's lawsuit contended that the final rule expanded credit union fields of membership far beyond the limitations imposed by Congress.

Specifically, ABA challenged the inclusions of combined statistical areas -- which encompass multiple metropolitan statistical areas -- as “local communities”; the ability of credit unions to serve core-based statistical areas without serving the urban core that defines the area; the ability to add “adjacent areas” to existing community fields of membership; and the dramatic expansion of what constitutes a rural district.

With NCUA’s reply, the case is now fully briefed. A decision is expected from Judge Ketanji Jackson in the near future on whether to hold oral arguments.

Read NCUA's reply.

Marine CU to Acquire 5 Branches from Bank Mutual on August 25

Marine Credit Union (La Crosse, WI) has received regulatory approval to acquire five Bank Mutual branches through a purchase agreement.

According to the agreement, approximately 3,000 bank customers, along with $52.6 million in deposits and $13.2 million in loans, will be acquired by the credit union.

The acquisition will take place on August 25.

Read the press release.

Thursday, August 10, 2017

Taxi Medallion Lender Progressive CU Recorded YTD Loss of $45 Million

Progressive Credit Union (New York, NY) reported a loss of $45 million through the first six months of 2017, as troubled taxi medallion loans weigh on its operation.

The loss arose from the credit union increasing provisions for loan and lease losses to build its reserves to cover problem taxi medallion loans. The credit union increased provisions for loan losses in the second quarter of 2017 by almost $14 million to $40.4 million.

As a result of the loss, the credit union's net worth fell from $169.4 million as of March 31, 2017 to slightly less than $150 million at the end of the second quarter. Its net worth ratio over the same period dropped from 31.10 percent to 29.31 percent.

Delinquent loans rose during the quarter by $13.3 million to almost $59.5 million. The delinquency rate went from 9.16 percent to 12.24 percent.


Early delinquencies (loans 30 days to 59 days past due) were $16 million as of June 30, down from prior quarter's $21.1 million.

Net charge-offs jumped during the second quarter to $42.8 million from $34.8 million. One year earlier, net charge-offs were $4.3 million.

As of June 30, 2017, the net charge-off rate was 16.05 percent.

Over the last year, foreclosed and repossessed other assets (taxi medallions) rose from less than $1 million to $24.8 million, although it fell from its March 2017 level of $29.9 million.

Troubled debt restructured (TDR) business loans were $120.4 million at the end of the second quarter of 2017. TDR loans were 24.79 percent of its total loans and 80.28 percent.

Thirteen percent of TDR loans were 60 days or more past due as of June 30, up from 5.44 percent the prior quarter.

The credit union's allowance for loan and lease losses (ALLL) rose by $6 million during the quarter to almost $68.7 million. The credit union's coverage ratio was 115.54 percent. However, the coverage ratio is overstated, as $26.4 million was dedicated to TDR loans.

As of June 30, 2017, Progressive Credit Union has a buffer of net worth and ALLL of almost $218.7 million to cover both expected and unexpected losses.



Wednesday, August 9, 2017

Melrose CU Sinks Under the Weight of Bad Taxi Medallion Loans

Melrose Credit Union (Briarwood, NY) saw its performance deteriorate during the second quarter as problem taxi medallion loans weight on its operations.

The $1.6 billion credit union reported a year-to-date loss of almost $58.4 million, which was up $20.2 million from the first quarter.

Provisions for loan and lease losses increased from $40.8 million as of March 2017 to nearly $62 million as of June 2017.

As a result of the second quarter loss, the credit union's net worth fell from $64 million on March 31 to $43.9 million on June 30. The net worth ratio declined during the quarter by 105 basis points to 2.70 percent. The credit union was significantly undercapitalized, as of June 30.

Delinquent loans increased by 11.3 percent during the quarter to almost $643 million. Almost all delinquencies are tied to taxi medallion loans.

The credit union reported that at the end of the second quarter 37.85 percent of loans were 60 days or more past due. Delinquency rate of member business loans not secured by real estate (most likely taxi medallion loans) was 51.73 percent as of June, up from 46.21 percent in March.

Troubled debt restructured (TDR) business loans as of June were down from a year ago, but up from the first quarter. TDR business loans were almost $283 million at the end of the second quarter of 2017, up $29.2 million from the first quarter of 2017.

The credit union reported that over 83 percent of its TDR business loans were 60 days or more past due.

TDR business loans were 16.66 percent of all loans and 645.21 percent of net worth.

Allowances for loan and lease losses rose by 11.8 percent during the quarter to $210.3 million. However, the credit union was under-reserved with a coverage ratio of 32.71 percent, as of June 2017.

Tuesday, August 8, 2017

Taxi Medallion Lender LOMTO FCU is Critically Undercapitalized as of Q2 2017

LOMTO Federal Credit Union (Woodside, NY) is critically undercapitalized as the credit union was battered by nonperforming taxi medallion loans.

The 219 million credit union reported a loss of $10.8 million through the first six months of 2017.

The loss was driven by an increase in provisions for loan and lease losses in the second quarter, after the credit union had recaptures some loan loss reserves in the first quarter. Year-to-date provisions for loan and lease losses were almost $10.5 million.

As a result of the loss, the credit union's net worth fell from $14.1 million as of March 2017 to $2.9 million as of June 2017. As a result, its net worth ratio fell from 5.97 percent to 1.31 percent.

Delinquent loans were $38.4 million as of June 2017, down from $42.8 million the previous quarter.

The delinquency rate edged lower from 20.55 percent at the end of the first quarter to 20.50 percent as of June 2017. However, delinquent loans as a percent of net worth was 1,337.80 percent as of June 2017

Early delinquencies fell during the quarter by 28.5 percent to almost $9.1 million.

Net charge-offs soared during the second quarter from $2.9 million to $13.8 million. At the end of June 2017, the net charge-off rate was 13.70 percent.

At the end of the second quarter, troubled debt restructured (TDR) business loans were $22.6 million. The percent age of TDR loans that were 6o days or more past due was 59.88 percent at the end of the most current quarter.

TDR business loans were 12.08 percent of all loans and 788.34 percent of net worth.

Foreclosed and repossessed other assets (taxi medallions) increased by 71.2 percent during the second quarter to $23.5 million.

Allowances for loan and lease losses (ALLL) increased by approximately $2 million during the quarter to $23.9 million. As a result, the coverage ratio increased from 51.21 percent as of March to 62.39 percent as of June. However, the portion of the ALLL allocated to TDR loans was $10.4 million.

Lake Michigan CU to Purchase Encore Bank

Lake Michigan Credit Union (Grand Rapids, MI) has announced that it will acquire Encore Bank (Naples, FL).

Lake Michigan Credit Union has $5.2 billion in assets.

Encore Bank has $418 million in assets and 6 offices.

The agreement has been approved by the board of directors of each organization. The acquisition is expected to be completed in the first quarter of 2018, pending state and federal regulator approvals.

This is the largest transaction of a credit union buying a bank by asset size to date.

Terms of the deal were not disclosed.

Read the Tampa Bay Business Journal.

See the story at CU Today.

Puerto Rico Oversight Board Certifies Fiscal Plan for Island's Credit Union Regulator and Insurer

The Financial Oversight and Management Board for Puerto Rico has certified a fiscal plan for the Public Corporation for the Supervision & Insurance of Cooperatives in Puerto Rico (COSSEC).

COSSEC is responsible for overseeing and insuring the island's 116 credit unions or cooperatives. These credit unions have $8.5 billion in assets and $7.9 billion in deposits

The fiscal plan acknowledges the risks coops face amid Puerto Rico’s fiscal crisis, as there is a high level of concentration in Puerto Rico’s debt among some cooperatives that could compromise the solvency of some.

The 116 cooperatives on the island have invested almost $965 million in Puerto Rico bonds, or 65 percent of their total investments totaling $1.5 billion. According to the document, Government Development Bank (GDB) notes comprise the greatest percentage of the Puerto Rican bonds held by the coooperatives. GDB bonds are worth 84 percent less than their original, or par, value.

In total, Puerto Rico bonds held by cooperatives are listed at 49.2 percent of their par value.

However, the plan states that given enough time, most cooperatives will be able to absorb losses arising from Puerto Rico bonds.

According to carribbeanbusiness.com, four credit unions are experiencing liquidity problems, but said options are being explored to take care of these, including a possible takeover by a large co-op.

COSSEC’s fiscal plan includes a capital injection program that would see roughly $533 million into the system to help address possible losses resulting from the restructuring of Puerto Rico’s debt. The amount would come from $383 million in capital and $155 million from the sale of certain loan portfolios, according to the document.

The fiscal plan also recommends changing the governance structure of COSSEC to eliminate conflicting regulatory and insurance mission. This could involve having the island's credit unions move to a federal charter and be regulated and insured by the National Credit Union Administration or another agency with expertise in financial regulation.

In addition, the oversight board called for legislation to allow the sale of credit unions assets to other non-coop entities, if COSSEC determines that a liquidation is necessary. The fiscal plan is seeking legislation to allow credit unions to issue preferred shares.

The document can be found here.

Monday, August 7, 2017

Consumer Credit at CUs Grew in June

The Federal Reserve reported today outstanding consumer credit at credit unions expanded in June.

Total outstanding consumer credit at credit unions rose by about $2.8 billion for June to $404.3 billion, according to the Federal Reserve's G.19 report.

Revolving consumer credit edged higher by almost $100 million to $53.3 billion.

Nonrevolving consumer credit grew by approximately $2.6 billion to $350.9 billion.

Read the G.19 report.

Georgia CU Regulator to Add S to CAMEL Rating

The Georgia Department of Banking and Finance (Department) announced that beginning January 1, 2018 the Sensitivity to Market Risk, or S component will become a separate and distinct regulatory examination component, rather than a factor in the Liquidity component.

In making the announcement, the Department noted that regulatory agencies in 17 states already have added the S component to the credit union CAMEL rating system.

Adoption of S will provide greater clarity in identifying interest rate risk and allow the Department to better allocate specialized resources to address interest rate risk outliers.

The Department believes the implementation of a distinct S rating is prudent at this time.

Read the Department Bulletin.

Saturday, August 5, 2017

Two Conserved CUs Have Wiped Out Their Net Worth

Riverdale Credit Union (Selma, AL) and Shreveport Federal Credit Union (Shreveport, LA), which were placed into conservatorship during the second quarter, are critically undercapitalized and have wiped out their net worth.

Shreveport Federal Credit Union

Shreveport Federal Credit Union with almost $86.7 million in assets saw its net worth fall from slightly more than $15.4 million at the end of 2016 to nearly -1.5 million as of June 2017. As a result, the credit union's net worth ratio fell from 14.65 percent at the end of 2016 to -1.68 percent as of June 30, 2017.

The decline in net worth was due to large losses incurred by the credit union. The credit union reported a loss of negative $17.1 million through the first two quarters of 2017. Most of the loss was due to $14.9 million in other non-operating expenses.

The credit union is also reporting other comprehensive income of almost minus 2.2 million. The credit union has negative equity capital just shy of minus $3.7 million.

Riverdale Credit Union

Riverdale Credit Union with $63.1 million in assets reported a loss of almost $10.5 million through the first six months of 2017.

The loss was due to a dramatic increase its provisions for loan and lease losses during the first six months of 2017. Provisions for loan and lease losses were almost $11.5 million as of June 2017. In comparison, provisions for loan and lease losses were $761.6 thousand a year earlier.

The loss wiped out the credit union's net worth, which fell from almost $8.9 million at the end of 2016 to minus $1.6 million at the end of the second quarter of 2017. The credit union's net worth ratio tumbled from 12.21 percent at the end of 2016 to negative 2.56 percent as of June 2017.

In addition, the credit union recorded a sharp increase in delinquent and charged off loans. The credit union reported having $7.7 million in delinquent loans at the end of the second quarter of 2017. As a result, 13.80 percent of its loans were 60 days or more past due.

Net charge-offs were almost $6.9 million for the first two quarters of 2017. The credit union reported a net charge-off rate of 23.45 percent for the first two quarters of 2017.

According to the Administrative Order, the NCUA Board determined that conservatorship was necessary because the credit union concealed books, papers, records, and assets of Riverdale Credit Union, and evidence exists of illegal and unsafe practices and NCUA staff cannot determine the full ramification of this activity.

Friday, August 4, 2017

CU Board Buys Season Tickets to Professional Football Team

During the May 25 National Credit Union Administration Board meeting, it was disclosed that a small credit union used credit union funds to buy season tickets for all its board members to a professional football team for three years.

According to the transcript, Board Member Metsger stated:
"[T]he CEO of a large credit union ... told me that they discovered after bringing in a smaller credit union that the board had approved the purchase of tickets for the next three years for all of the board members to a very expensive professional football team."
The purchase of tickets to a very expensive professional sports team by credit union directors is a form of non-monetary compensation and is an abuse of the credit union tax exemption.

Thursday, August 3, 2017

Study Claims that CUs Lack Incentive to Control Expenses

Credit unions are less efficient than other depository institutions, according to research from Moebs $ervices.

The study notes that banks and thrifts have an incentive to keep expenses low to pay for taxes, while credit unions, who are not taxed, lack a similar incentive to keep expenses low.

It should also be noted that credit union industry is overwhelmingly comprised of small institutions that are not able to take advantage of economies of scale.

The following chart compares the median non-interest expenses to assets for banks, thrifts, and credit unions.




Wednesday, August 2, 2017

NCUA's $1 Billion Legal Contingency Fee In Crosshairs of Republican Lawmakers

POLITICO PRO is reporting that Republican lawmakers are probing more than $1 billion in contingency fees paid by the National Credit Union Administration (NCUA) to two law firms.

NCUA has recouped more than $5 billion from investment banks over the sale of faulty mortgage-backed securities to five failed corporate credit unions.

"The payment of over one billion dollars in legal fees to private counsel raises serious questions about the propriety of the NCUA's legal fee arrangements, including whether the arrangements were in the best interest of the NCUA," Representative Ann Wagner (R-MO) said in a March 1 letter to the agency's chairman, Mark McWatters. Wagner chairs the House Financial Services subcommittee on oversight.

Wagner is seeking information from NCUA regarding the agreement with the two law firms, including all records related to the selection of the law firms and all communications between the agency and the two law firms.

The two law firms are Korein Tillery and Kellogg, Huber, Hansen, Todd, Evans & Figel.

In comparison, the Federal Housing Finance Agency recovered more than $25 billion on behalf of mortgage giants Fannie Mae and Freddie Mac; but paid two different law firms, based on an hourly fee basis, more than $400 million.

The article notes NCUA met at least once with the law firms in an attempt to renegotiate the terms of the agreement.

Read the story (subscription required).

Update: Below is the Representative Wagner's letter to NCUA (click on image to enlarge). Unfortunately, the image quality of the letter is poor.






Large CU CEOs in 2015 Earned 13.15 Times More Than Their Employees

CEOs of federally insured state chartered credit unions with at least $1 billion in assets earned on average almost 13.15 times more than their average employee compensation in 2015.

The median executive compensation to average employee compensation ratio was 10.19.

Total CEO compensation is pulled from Schedule J of a credit union's Form 990.

To calculate average credit union employee compensation, the analysis divided the Call Report line item Employee Compensation & Benefits by Full Time Equivalent Employees. Full Time Equivalent Employees = The Number of Full Time Employees + (0.5 times the Number of Part Time Employees).

The following graph shows that there is a positive relationship between CEO compensation and the ratio of CEO compensation to average employee compensation.


The credit union with the highest multiple of CEO compensation to average employee pay in 2015 was San Diego County Credit Union. Teresa Halleck, CEO of the credit union, earned 71.93 times the average compensation of San Diego County Credit Union's employee.

The following table lists the ten credit unions with the highest multiple of CEO compensation to average employee compensation in 2015 (click on the image to enlarge).



Monday, July 31, 2017

Large State Chartered CU CEOs 2015 Compensation Tops $1 Million

Chief executive officers at state chartered credit unions with at least $1 billion in assets reported an average total compensation of $1.021 million for 2015.

Median CEO compensation was $808,942 for 2015.

Compensation data are pulled from Form 990s filed by state chartered credit unions.

Federal credit unions are currently exempt from filing Form 990s and the National Credit Union Administration has not acted upon recommendations to require federal credit unions to disclose senior management compensation.

Total compensation includes base salary, bonus and incentives, other reportable income, retirement and deferred compensation, and nontaxable benefits.

DFCU Financial Credit Union (Dearborn, MI) did not disclose compensation information for its CEO and did not respond to request for this information. Advia Credit Union (Parchment, MI) did not disclose detail information on CEOs compensation in its Form 990 and only provided information regarding CEO's total compensation upon request. Lake Michigan Credit Union (Grand Rapids, MI) combined base and bonus & incentive compensation.

The mean base salary was $489,614. The average bonus and incentive pay was $148,449. The mean other compensation was $197,815. Retirement and deferred compensation was an average of $166,645.

Forty-nine credit union CEOs earned more than $1 million in 2015.

The highest paid CEO was James Jordan of Schools Financial Credit Union (Sacramento, CA) at $5.7 million. The next highest paid CEO was Teresa Halleck of San Diego County Credit Union (San Diego, CA) at almost $5.6 million.

Below is compensation data for each CEO (click on images to enlarge).

Thursday, July 27, 2017

NCUA Should Require Greater Transparency Regarding CEO Pay

The National Credit Union Administration's Voluntary Merger proposal would require a merging FCU to disclose to its members all merger-related financial arrangements in whatever form they may take that are paid to its CEO, the next four highest paid employees after the CEO, the board of directors, and the supervisory committee.

In justifying the proposal, the agency cites the need for transparency and disclosure so that members can make an informed decision about a merger.

Both Chairman McWatters and Board member Metsger invoked transparency numerous times during the May 25th Board meeting, when discussing the proposal.

If transparency and disclosure is so important, then why should the National Credit Union Administration (NCUA) stop at requiring only the disclosure of merger-related financial arrangements?

NCUA should require all federal credit unions to reveal the pay of their CEOs and other highly paid employees.

Credit union members have the right to know.

This would ensure that federal credit unions are treated the same as other tax exempt organizations regarding the disclosure of executive compensation, including state chartered credit unions.

Tuesday, July 25, 2017

NCUA Employees Earned an Average Pay of $121,180.88 in 2016

Employees at the National Credit Union Administration (NCUA) earned an average pay (base and bonus) of $121,180.88 in 2016, according to federalpay.org.

Seventy-nine employees earned $200,000 or more in 2016.

The following table discloses the salaries of the 10 highest paid employees.


Click here to access pay information.

New York City Taxi Medallions Valued at $358,000

Signature Bank in its earnings press release provided a new data point on the value of New York City taxi medallions.

According to its second quarter earnings release and conference call transcript, Signature Bank either reserved for or wrote down each New York City taxi medallion loan by approximately $168,000 to a value of $358,000.

This would suggest New York City taxi medallion loans held by credit unions are likely to be written down further.

Read the press release.

Monday, July 24, 2017

Taxation is Not an Existential Threat to Credit Unions

As Congress looks at reforming the U.S. tax code, credit union groups are arguing that the elimination of the credit union tax exemption would cause a dramatic decline in the number of credit unions.

For example, in a July 17 letter to Senators Hatch (R - UT) and Wyden (D - OR), Carrie Hunt, EVP for the National Association for Federally-Insured Credit Unions (NAFCU), wrote: "Simply put, the tax exemption is an issue of survival for credit unions."

Hunt further wrote that "[i]f the tax exemption was removed, many would convert to banks or just go away."

Heaven forbid that a credit union converts to a bank.

It is a sad commentary that credit unions cannot survive without a federal subsidy.

I believe NAFCU is over-stating the impact of taxation on the credit union industry.

Saturday, July 22, 2017

Unison Credit Union Buys Naming Rights to Youth Baseball Complex

Unison Credit Union (Kaukauna, WI) paid $375,000 to Kaukauna Youth Baseball for the naming rights to the organization's new baseball complex in Harrison.

The funds will be used to build four baseball diamonds. The facility will also include a concessions stand, restrooms, batting cages, a pavilion, a playground and 220 parking stalls.

Read the story.


Friday, July 21, 2017

NCUA Proposes to Close TCCUSF and Raise NCUSIF Equity Ratio to 1.39 Percent

The National Credit Union Administration (NCUA) Board is seeking comment on a proposed plan to close the Temporary Corporate Credit Union Stabilization Fund (TCCUSF)and to raise the equity ratio of the National Credit Union Share Insurance Fund (NCUSIF) from 1.30 percent of insured shares to 1.39 percent of insured shares.

The TCCUSF was created in May 2009 to handle the resolution of failing corporate credit unions. Without the creation of the TCCUSF, the NCUSIF would have exhausted its retained earnings and would have impaired a significant portion of insured credit unions' one percent NCUSIF capitalization deposit.

The TCCUSF is currently scheduled to be closed in 2021; however, the Federal Credit Union Act gives the NCUA Board the authority to close it before the scheduled closure. The NCUA Board is proposing to close the TCCUSF in 2017.

At closing, the assets and liabilities of the TCCUSF would be distributed to the NCUSIF, as required by law. This distribution will increase the net position and equity ratio of the NCUSIF. NCUA is estimating that the year-end NCUSIF equity ratio will be between 1.45 percent and 1.47 percent of insured shares.

The Board noted that given the nature of the assets and liabilities of the TCCUSF, this could increase the potential volatility of the NCUSIF equity ratio.

The Federal Credit Union Act defines the normal operating level of the NCUSIF equity ratio as between 1.20 percent and 1.50 percent of insured shares.

NCUA proposes to raise the normal operating level to 1.39 percent to help ensure the Share Insurance Fund has sufficient equity to withstand a moderate recession without the equity ratio falling below 1.20 percent, at which point a premium or fund restoration plan would be required by statute.

The NCUA expects that credit unions will receive a NCUSIF distribution (dividend payment) between $600 million and $800 million for 2018.

Comments are due by September 5.

Read the press release.

Thursday, July 20, 2017

Problem Credit Unions Increase During Q2 2017

The number of problem credit unions increased during the second quarter of 2017, according to the National Credit Union Administration (NCUA).

At the end of the second quarter of 2017, there were 210 problem credit unions. In comparison, there were 197 problem credit unions at the end of the first quarter. A year earlier there were 209 problem credit unions.

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

Total assets and shares in problem credit unions rose during the quarter. Assets in problem credit unions were $10.6 billion at the end of the second quarter -- up from $9.5 billion at the end of the first quarter of 2017. Shares in problem credit unions increased by approximately $900 million during the second quarter to $9.4 billion.

NCUA reported that 89 percent of problem credit unions have less than $100 million in assets, while only 2 percent have more than $500 million in assets.

At the end of the second quarter, 0.88 percent of total insured shares were in problem credit unions. At the end of the first quarter, 0.83 percent of total insured shares were in problem credit unions.

On June 30, 2017, 0.80 percent of the industry assets were in problem credit unions -- this was an increase from 0.70 percent as of March 2017.

Tuesday, July 18, 2017

IG: Four CUs Caused Losses to NCUSIF Between October 1, 2016 and March 31, 2017

Four credit unions caused losses to the National Credit Union Share Insurance Fund (NCUSIF) between October 1, 2016 and March 31, 2017, according to a Semiannual Report to the Congress issued by the National Credit Union Administration's Office of the Inspector General (IG).

The IG did not perform a material loss review on these failures, because none of the failures resulted in a loss of $25 million or more to the NCUSIF.

The following charts name the credit union, the estimated loss to the NCUSIF, and reasons for the failure of the credit union.


Monday, July 17, 2017

Rochester Area CUs Sponsor Symetra Tour Golf Tournament

Rochester (NY) area credit unions are sponsoring the Symetra Tour's Danielle Downey Credit Union Classic.

The golf tournament is scheduled for the week of July 17 through July 23.

Sponsorships range in price from $1,000 for a hole sponsorship to as much as $100,000 for a featured sponsorship.

Numerous credit unions are title sponsors, including The Summit Federal Credit Union, Reliant Community Credit Union, Alloya Corporate Federal Credit Union, Xceed Financial Credit Union, Visions Federal Credit Union, SEFCU, Pittsford Federal Credit Union, Advantage Federal Credit Union, SPX Federal Credit Union, Family First Federal Credit Union, First Heritage Federal Credit Union, and Ukranian Federal Credit Union.

The Symetra Tour is a developmental golf tour for the LPGA Tour.

But is sponsoring a professional golf tournament the appropriate use of the credit union's tax exemption?

Go to the tournament's website.

Friday, July 14, 2017

166 CUs Borrowed from Fed's Discount Window During Q2 2015

One hundred sixty-six credit unions borrowed from the Federal Reserve's discount window during the second quarter of 2015. In comparison, 118 credit unions borrowed from the discount window during the first quarter of 2015.

These 166 credit unions borrowed from the discount window 192 times for the total amount borrowed of $101.3 million.

The average amount borrowed was $527,672, while the median amount borrowed was $10,000.

The maximum amount borrowed from the discount window was $10 million by two credit unions -- First Financial Credit Union (West Covina, CA) and Houston Federal Credit Union (Sugar Land, TX).

There were 32 discount window loans of $1 million or more during the second quarter of 2015.

Mill City Credit Union (Minnetonka, MN) visited the discount window 7 times during the quarter. Three credit unions visited the discount window 6 times each -- Glendale FCU (Glendale, CA), Services Center FCU (Yankton, SD), and Topline FCU (Maple Grove, MN).

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

Wednesday, July 12, 2017

NCUA Proposes Controversial Voluntary Merger Regulation

The National Credit Union Administration (NCUA) is in the process of amending its regulations that govern a voluntary merger of a federal credit union (FCU). The comment period runs through August 7.

The proposed rule would make several significant changes to NCUA's voluntary merger regulations.

In justifying the changes to its voluntary merger regulation, NCUA Board Member Metsger stated that "[t]he net worth of the credit union belongs to the members, and they deserve a full and transparent accounting of how it is going to be used."

However, this proposal is controversial and not without its critics.

The proposal would require the merging FCU to disclose to its members all merger-related financial arrangements in whatever form they may take that are paid to its CEO, the next four highest paid employees after the CEO, the board of directors, and the supervisory committee. NCUA believes that some prospective merger partners may be seeking to influence the merging credit union by offering financial incentives to management and certain highly compensated employees to support the merger. According to NCUA staff, between 75 percent to 80 percent of all voluntary mergers reviewed had significant merger-related compensation. The transcript from the May NCUA Board meeting noted that one credit union merger had a total payout in the low seven figures to about 18 different people with four people getting the bulk of the payout.

The proposal increases the minimum time period before the member vote that the merging FCU must give to its members. The proposed timeframe is no less than 45 days and no greater than 90 days. This should give the members of the merging FCU adequate time to consider the information.

This proposal would add procedures to enable members to communicate with each other on a large scale regarding the merger. Under this proposed rule, the agency borrowed member-to-member communication provisions from its rule regarding conversion to mutual savings banks. This will allow members to share information and have discussions prior to the membership vote. This will also provide dissenting members with an opportunity to make their views known to the general membership, in hope of torpedoing the merger.

This proposal also revises and clarifies the content and format of the member notice that credit unions must send, and it makes conforming amendments to other provisions in various parts of our regulations to accommodate for these changes.

If adopted, the proposal could make voluntary mergers of FCUs less attractive.

In addition, the NCUA Board is seeking input on whether the proposed voluntary merger rule should be extended to all federally-insured credit unions, just not FCUs. The agency worries that its proposed rule, when finalized, could shift merger targets from FCUs to state chartered credit unions.



Tuesday, July 11, 2017

Kohler CU Buys Naming Rights to High School Gymnasium

Kohler Credit Union (Kohler, WI) will pay the Mequon-Thiensville School District $150,000 for the naming rights of the gymnasium at Homestead High School.

The naming rights agreement is for 15 years with signage both inside and outside the gymnaium.

The credit union will make payments in three increments of $50,000 to the school district in 2017, 2022, and 2027.

The credit union will also operate a branch in the high school, as well as an ATM. The credit union will support the school district's financial literacy efforts.

Read the terms of the agreement.

Read the story in the Milwaukee Journal-Sentinel.

BankThink: Common Bond Is Heading in the Direction of Being Meaningless

In a BankThink opinion piece appearing in the July 10 American Banker, Aaron Klein, a fellow at the Brookings Institution and policy director at the Center on Regulation and Markets, argues that credit union field of membership restrictions have been watered down and is headed towards being meaningless.

For example, he notes that some credit unions are advertising "great rates for everyone."

But he believes that this would have profound consequences for the credit union industry and such radical changes should be openly debated -- not done through legal loopholes and regulatory arbitrage.

He pointed out that National Credit Union Administration (NCUA) Chairman McWatters is a cheerleader for the eradication of common bond, as he recently advocated that Congress should expand the definition of common bond to include web-based communities as a basis of a charter. Klein does acknowledge that McWatters raised valid questions about geographic boundaries in a cyber world.

Klein wrote: "Expanding the definition of common bond to meaningless levels ... appears to be a direction the industry and its regulator is heading."

Klein believes that the public and policymakers need to stop and think about these changes.

Read the BankThink piece.

Monday, July 10, 2017

NCUA to CFPB Exempt Large CUs from CFPB Exam and Enforcement Authority

National Credit Union Administration Chairman J. Mark McWatters on July 6 wrote Consumer Financial Protection Bureau (CFPB) Director Richard Cordray to request CFPB provide an exemption for credit unions with assets of more than $10 billion from its examination and enforcement authority.

Section 1025 of the Consumer Financial Protection Act (CFPA) of 2010 gives CFPB primary enforcement authority for consumer financial protection law over insured depository institutions with assets of more than $10 billion.

Currently, six federally insured credit unions (FICUs) — Navy Federal Credit Union, State Employees’ Credit Union, Pentagon Federal Credit Union, Boeing Employees Credit Union, Schools​First Federal Credit Union, and The Golden 1 Credit Union—have assets of $10 billion or more.

McWatters wrote that the CFPB should distinguish between for-profit, investor-owned and -controlled financial institutions versus not-for-profit, member-owned and -controlled financial institutions.

McWatters noted that section 1025 of the CFPA imposes unnecessarily burdensome costs on credit unions.

Moreover, McWatters is critical of the CFPB's use of punitive fines on FICUs, the primary method of enforcement available to the CFPB. I suspect McWatters is referring to the $28.5 million fine assessed on Navy Federal Credit Union for its illegal debt collection practices.

McWatters said this requested change would not affect CFPB’s exclusive rulemaking authority over federally insured credit unions, and the CFPB would still be able to take enforcement action if it determined NCUA was not adequately enforcing consumer protection laws.

But in case the CFPB refuses his request to exempt large FICUs from CFPB examination and enforcement authority, McWatters stated that the CFPB should at least conduct all FICU examinations jointly with the NCUA going forward.

Read the letter.

Read the press release.

Consumer Credit at Credit Unions Grew at Slower Pace in May

The Federal Reserve is reporting on July 10th that outstanding consumer credit at credit unions grew in May, but at a slower pace than in April.

Outstanding consumer credit at credit unions was $401.5 billion in May, up from $398.2 billion in April.

In other words, consumer credit increased at an annualized growth rate of $38.8 billion in May. This was down from an annualized April growth rate of $135.9 billion.

Revolving credit increased by almost $800 million in May to approximately $53.2 billion.

Nonrevolving credit grew by almost $2.5 billion in May to about $348.3 billion.

Read the G.19 report.

Sunday, July 9, 2017

Arkansas Federal Credit Union Looking to Buy a Bank

Arkansas Federal Credit Union (Jacksonville, AR) is looking to buy a bank that is deposit rich but does not have a ton of loans.

According to www.Arkansasonline.com, the $1.1 billion asset credit union has already spoken to two banks about a possible merger.

The immediate focus is on banks located near Little Rock; but not with branches near the credit union's branches.

The credit union intends to be the first Arkansas credit union to acquire a bank.

Read the story.

Friday, July 7, 2017

Michigan CU Settles with Justice Department over Illegal Repossession of Servicemembers' Vehicles

The Justice Department announced on July 6 that COPOCO Community Credit Union, based in Bay City, Michigan, has agreed to a settlement to resolve allegations that it illegally repossessed four servicemembers’ vehicles.

The Justice Department launched an investigation after it received a complaint in October 2015 from Alyssa Carriveau, the wife of U.S. Army Private First Class Christian Carriveau, alleging that COPOCO had illegally repossessed their car. On July 26, 2016, the Justice Department sued the credit union over its alleged violation of the Servicemembers Civil Relief Act (SCRA) by repossessing cars owned by protected servicemembers without first obtaining the required court orders.

Under the agreement, COPOCO must change its policies and compensate four servicemembers whose cars COPOCO unlawfully repossessed.

Specifically, "[t]he agreement requires COPOCO to provide $10,000 in compensation to each of the affected servicemembers, plus any lost equity in the vehicle with interest. The Carriveaus, who had their car returned to them the day after the repossession at the department’s request, will receive $7,500. COPOCO also must repair the credit of all affected servicemembers, pay a $5,000 civil penalty to the United States and determine, in the future, whether any vehicle it is planning to repossess is owned by an active duty servicemember. If so, COPOCO will not repossess the vehicle without first obtaining a court order or valid waiver of SCRA rights. The agreement also contains provisions ensuring that all eligible servicemembers will receive the benefit of the SCRA’s six percent interest rate cap on their auto loans."

Read the press release.

Read the settlement agreement.

Navy Federal Credit Union Sued over Its Overdraft Program

Credit Union Today is reporting that a class action lawsuit has been filed against Navy Federal Credit Union alleging breach of contract over its overdraft program.

The plaintiffs, Jenna Lloyd and Jamie Plemons, allege they sustained monetary damages as the result of being charged with the optional overdraft protection services.

The lawsuit was filed in U.S. District Court for the Southern District of California on June 22.

Read the story.

Thursday, July 6, 2017

Black Hills FCU's Gerrymandered Rural District Charter

Black Hills Federal Credit Union (Rapid City, SD) is using the rural district loophole to connect South Dakota's two largest distinct metropolitan areas by population size. One metropolitan area is in the eastern part of the state and the other is in the western part of the state.

The credit union has used the rural district geographic common-bond to expand its footprint across the state on three different occasions.

In March 2011, the National Credit Union Administration (NCUA) granted Black Hill'a rural district community charter serving the South Dakota counties of Pennington, Meade, Haakon, Hughes, or Stanley.

In July 2015, NCUA approved a second expansion of Black Hills' rural district adding the counties of Butte, Buffalo, Hyde, Jerauld, Lincoln, McCook, Miner, Sanborn, Sully, or Turner.

In May 2017, NCUA approved an expansion of a rural district community common-bond for Black Hills Federal Credit Union (Rapid City, SD) to include Minnehaha County, the state's most populous county.

The addition of Minnehaha County raised the potential population for this rural district to 431,701, as Black Hills FCU exploits NCUA's recently amended field of membership final rule that raised the population threshold for a rural district from 250,000 to 1 million.

This rural district snakes its way across South Dakota from the Montana-Wyoming border to the Minnesota-Iowa border.

This rural district includes three core-based statistical areas -- two metropolitan statistical areas and a micropolitan statistical area.

Each of these core-based statistical areas are distinct well-defined local communities.

Almost 95 percent of the people living in this rural district reside in the three core-based statistical areas.

It appears that the credit union is using rural counties to create a bridge from one metro area to another metro area.

In fact, Black Hills FCU does not have a branch in truly rural counties, such as Haakon, Buffalo, Butte, Jerauld, Hyde, Miner, and Sanborn. However, according to its current profile, the credit union has already opened a branch in Minnehaha County, which it just added.

This gerrymandered rural district is rural in name only. NCUA's decision to approve this rural district is arbitrary and capricious.

Wednesday, July 5, 2017

MidFlorida Credit Union Settles Overdraft Class Action Lawsuit

Credit Union Times is reporting that MidFlorida Credit Union (Lakeland, FL) will pay $2.375 million to settle a class action lawsuit regarding its overdraft fee practices.

The settlement requires the credit union to pay members for overdraft fees assessed between November 24, 2010, and January 15, 2016, if those fees occurred when the member had sufficient ledger balances but insufficient available balances.

Approximately 27,500 accounts were affected.

Read the story.

FCUs Taking Advantage of New Rural District FOM

Federal credit unions are taking advantage of the new, higher population threshold for a rural district.

The National Credit Union Administration (NCUA) raised the population threshold for a rural district from 250,000 to 1 million. But NCUA eliminated the alternate population limit of 3 percent of the population of the state in which the majority of the rural district members reside.

In May, NCUA approved three rural districts with populations in excess of the old threshold of 250,000. The credit unions are Black Hills FCU (Rapid City, SD), Rocket FCU (McGregor, TX), and Marshland Community FCU (Brunswick, GA).

Under the old rule, the two credit unions in Georgia and Texas could have had rural districts with populations in excess of 250,000; but not exceeding 3 percent of the state's population. However, Black Hills would have been capped at a population limit of 250,000.

In comparison, only 8 federal credit unions between 2013 and 2016 were approved to serve rural districts with populations in excess of 250,000. According to NCUA, the eight credit unions were Red River Employees (Texarkana, TX), MobilOil (Beaumont, TX), Neches (Port Neches, TX), 1st Community (San Angelo, TX), Complex Community (Odessa, TX), Sidney (Sidney, NY), Sun Community (El Centro, CA), and Interstate Unlimited (Jesup, GA).

The final rule went into effect on February 6, 2017.

Tuesday, July 4, 2017

Canadian CUs Can't Use the Words Bank, Banker, and Banking

Canada's Office of the Superintendent of Financial Institutions (OSFI) on June 30th issued an advisory that restricts the use of the words “bank”, “banker” and “banking”.

OSFI has observed increased use of the words “bank”, “banker” and “banking” by non-bank financial service providers.

The restrictions apply to all non-bank financial service providers, including both federally regulated trust and loan companies and provincially regulated institutions. They also apply to unregulated financial service providers.

While the Advisory went into effect immediately, OFSI will give non-banks time to comply with the Advisory and established timelines for websites, print materials, and physical signage to come into compliance.

The Advisory also provides an exception to these restrictions, where the use of the words is not in relation to a financial services business.

The Canadian Credit Union Association criticized the Advisory and called on the federal government to reverse the OFSI's advisory.

Read the press release.

New York City Taxi Medallion Prices in June Show Further Signs of Distress

New York City taxi medallion prices continue to fall in June.

The nine medallion asset sales ranged in price from $150,000 to $475,000. Six medallions sold for $230,000 or less.

This would suggest more pain for credit union taxi medallion loan portfolios.

Monday, July 3, 2017

Financial Trades Urge Congress Address Bias in CDFI Fund Allocation Process

Seven financial trade associations urged lawmakers to include in the upcoming appropriations bill language that would explicitly reaffirm Congress’ intent that the Community Development Financial Institutions program support the entire diverse CDFI sector.

The CDFI Fund’s current evaluation process combines all CDFI institutions -- which include both regulated bank and credit union CDFIs and unregulated nonprofit loan and venture capital funds -- into a single applicant pool. Bias in the process has resulted in non-regulated CDFIs receiving a disproportionate amount of funds in the 20-year period between 1996 and 2016. In fact, non-regulated loan funds received 81 percent of the funds during that time, while the nation’s regulated CDFIs -- which together represent 50 percent of all CDFI entities and 90 percent of total assets in the CDFI sector -- received less than 20 percent of CDFI funding, the trade associations said.

The letter suggested legislative language that would address this disparity and ensure funds are awarded proportionally.

The groups recommended adding the following language to the end of 12 USC 4706(b):

“and diverse applicants by institution type, which shall include all types of Insured Community Development Financial Institutions as defined by 12 USC 4702(c((13) and non-insured Community Development Financial Institutions in proportion to their representation by number in each application pool.”

The trade groups also recommended accompanying report language:

“Congress directs the CDFI Fund to ensure that its CDFI Program evaluation process results in a diverse group of awardees by institutional type, including Insured Community Development Financial Institutions that are banks, bank holding companies, and credit unions and non-insured CDFIs that are loan funds and venture that is proportional by number to the applicant pool for each funding round.”

“To fulfill Congressional intent, it is important for the CDFI Fund to serve the entire CDFI industry – not just one subsector,” the groups said.

Read the letter.

Friday, June 30, 2017

Massachusetts Dishonored Check Fee Set at Maximum of $7.23, Goes Into Effect on July 1

The state of Massachusetts set the maximum dishonored check fee that state-chartered banks and credit unions may assess at $7.23. This fee will go into effect on July 1, 2017.

The 2017 deposit return items (DRI) fee is based upon deposit return item cost data from a sample of state-chartered banks and credit unions.

The state surveyed 72 financial institutions. The sample was evenly divided between banks and credit unions.

The cost of processing deposit returned items ranged from $1.21 to $30.38 per item with a median cost of $7.23.

The survey found that credit unions had a higher average cost of processing dishonored checks than banks -- $9.35 versus $7.43.

Unfortunately, this state-mandated price control will cause half of the state's institutions to incur a loss in processing dishonored checks.

This is bad public policy.

Read the decision.

Thursday, June 29, 2017

Financial Trades Urge DOD to Clarify MLA Rules, Extend Credit Card Compliance Date

Seven financial trade groups wrote to the Department of Defense (DOD) on June 21 urging the department to take additional steps to clarify inconsistencies and confusion that still surround the amended Military Lending Act (MLA) rules and a subsequent interpretive rule issued by DOD. The financial trade associations added that changes are necessary to ensure military personnel and their families have access to safe and responsible credit products.

The groups encouraged DOD to issue an interim final rule that would address lingering problems with the rule, and provided detailed comments and suggested regulatory language. They added that the rule was never intended to apply to mainstream loans, but rather, to payday loans, title loans and tax refund anticipation loans.

Among the recommended changes were clarification that the exemption for purchase money loans includes loans that are used not only to purchase the item securing the loan but also to purchase related items, such as extended warranties on a car. In addition, the associations recommended exempting credit cards from the rule, noting the requirements are unworkable; for example, it is not possible to discern which fees are “bona fide” and thus excludable from the military annual percentage rate.

The group also asked DOD to extend the mandatory compliance date for credit card accounts to October 3, 2018. This extension in the compliance date would allow time for changes in the regulation.

The letter was signed by the American Bankers Association, the American Financial Service Association, the Association of Military Banks of America, the Consumer Bankers Association, Credit Union National Association, the Independent Community Bankers of America, and National Association of Federally-Insured Credit Unions.

Read the letter.

Wednesday, June 28, 2017

Legal Opinion: Asset Securitization Is An Incidental Power

On June 21, the National Credit Union Administration (NCUA) published a legal opinion letter stating that asset securitization is an incidental power for federal credit unions.

But the agency pointed out that it is not a pre-approved activity. Before a federal credit union (FCU) securitizes any assets, it needs to complete and submit an application to NCUA.

The letter also stated that in the case of Government National Mortgage Association (Ginnie Mae) securities, the Federal Credit Union Act (FCUA) expressly authorizes this activity.

The letter noted that that an activity is an “incidental power,” even if not expressly authorized under the FCUA or NCUA’s regulations, if it:
(a) Is convenient or useful in carrying out the mission or business of credit unions consistent with the [FCUA];
(b) Is the functional equivalent or logical outgrowth of activities that are part of the mission or business of credit unions; and
(c) Involves risks similar in nature to those already assumed as part of the business of credit unions.

NCUA wrote: "[I]ssuing and selling securities is consistent with the FCUA, and is convenient and useful in carrying out the mission or business of FCUs." Securitizing assets provide an FCU with an important source of liquidity to further facilitate its lending activities and makes it less dependent on share deposits to fund its member loan demand.

NCUA further noted that "[s]ecuritization can increase the amount of credit available to consumers and businesses, due to the fact that an FCU can make more loans to its members with a given level of capital. It also provides an FCU with a vehicle to transfer credit risk to investors. NCU concludes that securitization is a logical outgrowth of providing credit.

NCUA concluded that "securitization involves risks that are similar in nature to those already assumed as part of the business of credit unions."

Large federal credit unions are the credit unions most likely to take advantage of this legal opinion.

Read the letter.

Read the American Banker article (subscription required).

Monday, June 26, 2017

LOMTO Federal Credit Union Placed into Conservatorship

The National Credit Union Administration (NCUA) on June 26th placed LOMTO Federal Credit Union in Woodside, New York, into conservatorship.

NCUA placed LOMTO Federal Credit Union into conservatorship because of unsafe and unsound practices at the credit union.

The credit union's financial performance has been battered by bad taxi medallion loans due to the disruption of the taxi industry by ridesharing companies such as Uber and Lyft.

Read my blog post from May 10 on LOMTO FCU's financial performance through the first quarter of 2017.

LOMTO Federal Credit union has 2,958 members and $236,468,882 in assets, according to the credit union’s most recent Call Report.

​This is the third New York City taxi medallion lending credit union to be seized by regulators.

Melrose Credit Union was placed into conservatorship earlier this year and Montauk was seized in 2015 and merged into Bethpage FCU in 2016.

Read the press release.

Trade Groups Support Structural Change in CFPB to Five-Member Commission

In a June 22nd joint letter to House and Senate Appropriations Committee leadership, 22 financial and business trade associations supported the inclusion of language in the fiscal year 2018 spending bill that would transition the governance structure of the Consumer Financial Protection Bureau (CFPB) from a single director to a bipartisan, five-member commission.

The trade groups noted that by a three-to-one margin, registered voters support such a structure for the regulatory watchdog agency, according to data from Morning Consult.

“A Senate-confirmed, bipartisan commission will provide a balanced and deliberative approach to supervision, regulation, and enforcement for consumers and the financial institutions the CFPB oversees by encouraging input from all stakeholders,” the associations said. “The current single director structure leads to regulatory uncertainty and instability for consumers, industry, and the economy, leaving vital consumer financial protection subject to dramatic political shifts with each changing presidential administration.”

Read the letter.

Friday, June 23, 2017

NCUA Conserves Citizens Community CU

The National Credit Union Administration (NCUA) on June 23 placed Citizens Community Credit Union, located in Devils Lake, North Dakota, into conservatorship.

NCUA placed Citizens Community Credit Union into conservatorship because of unsafe and unsound practices at the credit union.

Citizens Community Credit Union posted a loss of $933,194 during the first quarter of 2017 due to provisions for loan losses of $978,000. A year earlier provisions for loan and lease losses were zero.

While the credit union was well-capitalized at the end of the first quarter, the credit union reported that 6.79 percent of its loans were 60 days or more past due. Delinquent loans were $10.8 million. Early delinquencies (loans 30 to 59 days past due) were almost $5.9 million.

Citizens Community Credit Union appears to be under-reserved with a coverage ratio (allowances for loan and lease losses to delinquent loans) of 27.47 percent.

Citizens Community Credit Union is a federally insured, state-chartered credit union with 11,399 members and assets of $201,255,973, according to the credit union’s most recent Call Report.

Read the press release.

NCUA Calls on Congress to Give It Regulatory Flexibility

In testimony before the Senate Committee on Banking, Housing, and Urban Affairs on June 22, National Credit Union Administration (NCUA) Acting Chairman J. Mark McWatters requested legislation to ease regulatory burdens on credit unions.

His testimony discussed steps that the agency had already taken or plans to take to provide regulatory relief to credit unions. But he also noted that there are limits on the agency's ability to provide regulatory relief.

Acting Chairman McWatters pointed out that the Federal Credit Union Act contains numerous rigid statutory requirements that ties the agency's hands. NCUA asked Congress to provide it with greater discretion to write rules to limit additional burdens on credit unions.

In addition, McWatters called on congressional action with regard to field of membership issues. NCUA believes that all federal credit unions, just not multiple common bond credit unions, should be allowed to add underserved areas. In addition, Congress should eliminate the requirement that the underserved areas be local communities and Congress could simplify the “facilities” test for determining if an area is underserved.

McWatters further requested that Congress eliminate the provision that requires a multiple common bond credit union to be within “reasonable proximity” to the location of a group the credit union wishes to serve.

He also asked Congress for the explicit authority for web-based communities as a basis for a credit union charter.

Other legislative initiatives advanced in his testimony included support for the Credit Union Residential Loan Parity Act (S. 836) and allowing more credit unions to access supplemental capital.

Read testimony.

Thursday, June 22, 2017

Riverdale Credit Union Conserved

The Alabama Credit Union Administration today placed Riverdale Credit Union, in Selma, into conservatorship and appointed the National Credit Union Administration (NCUA) as agent for the conservator.

The Alabama Credit Union Administration and NCUA placed Riverdale into conservatorship because of unsafe and unsound practices at the credit union.

The credit union was well-capitalized at the end of the first quarter of 2017 and had an annualized return on average assets of 3.88 percent. The credit union reported that 3.69 percent of its loans were 60 days or more delinquent. Net charge-offs as a percent of average loans was 1.88 percent.

Riverdale has 12,433 members and $76,181,951 in assets, according to the credit union’s most recent Call Report.

Read NCUA press release.

Study: CUs and Community Banks Face Serious Demographic Challenge

The Financial Brand recently commented that credit unions and community banks face the threat of generational obsolescence.

TA study by FIS examined the age composition of bank and credit union customers.

According to the study, approximately 32 percent of credit union members are millennials -- almost the same as regional banks (34 percent). In comparison, 18 percent of bank customers are millennials. On the other hand, the 50 largest banks have a millennial penetration rate of 42 percent.


While credit unions have roughly the same penetration rate as regional banks, credit unions are losing ground to the largest banks, as large and regional banks scoop up a disproportionately larger share of the millennial generation.

In addition, the FIS study found that community banks and credit unions tend to serve an older population base. Approximately 57 percent of community bank customers and 46 percent of credit union members are over the age of 52.

Read the story.

Wednesday, June 21, 2017

Anheuser-Busch Employees' CU Buys New HQ Building

Anheuser-Busch Employees’ Credit Union (St. Louis, MO) and its divisions, American Eagle Credit Union and Purina Credit Union, finalized the purchase of a state-of-the-art corporate headquarters building located at 423 Lynch Street in St. Louis, Missouri.

The credit union will take possession on October 1 and anticipates a 5 to 6 month renovation process.

Some of the property's amenities include an on-site cafe, a dramatic building lobby entrance, a fourth floor boardroom, a gated lot with 466 parking spaces, and a large sales training/meeting area.

The four-story, 129,397 square-foot building had a list price of $10.75 million.

However, the press release did not disclose the purchase price.

Read the story.

Read the property flyer.

Tuesday, June 20, 2017

A Class Action Complaint Filed Against Centra Credit Union for Violating FCRA

In case you missed it, a class action complaint was filed earlier this year against Centra Credit Union (Columbus, IN) for violating the Fair Credit Reporting Act (FCRA).

The complaint alleged that the credit union willfully, deliberately, and intentionally procured credit reports of consumers whose debts had been discharged in bankruptcy in violation of the FCRA.

The complaint further stated that the credit union obtained and used credit reports of consumers under false pretenses.

According to the complaint, the credit union is liable for statutory and punitive damages, as well as attorneys' fees and cost.

Read the complaint.

Monday, June 19, 2017

Company Chartering a Credit Union to Finance Loans to Its Customers Raises Policy Concerns

A clean energy company is looking to charter a new credit union to fund clean energy loans for its customers.

According to BizWest, Namasté Solar, an employee-owned solar-energy firm, has been working about three years to secure a federal charter.

Blake Jones, co-founder of Namasté Solar, stated that the he expects "to receive our charter sometime this summer."

Part of its motivation to start a credit union is due to the difficulty its customers have in securing loans for clean-energy projects.

Namasté Solar designs, installs and maintains solar-electric systems throughout the United States for commercial, nonprofit, government and residential customers.

If a charter is granted, the credit union will finance residential and commercial solar installations. Also, loans will be made for purchases of used electric vehicles and energy-efficient home-improvement projects.

While the credit union will be located in Colorado, it will operate nationwide.

However, it seems that the primary purpose of the credit union is to finance Namasté Solar projects to future customers.

Unfortunately, being a customer of this clean energy company is not a valid common bond.

But I suspect the National Credit Union Administration can creatively identify an association that would allow customers of the company to become eligible for membership.

Moreover, this proposed credit union charter raises a policy concern as it appears to breach the separation between banking and commerce.

In closing, this proposed credit union should not be allowed to become nothing more than a captive finance company of this clean energy company.

Read the story.

Friday, June 16, 2017

American Banker: Cross-Industry Mergers Expected to Grow

The American Banker is reporting that banks and credit unions should expect more cross-industry mergers; however, these cross-industry deals tend to be a one way street with credit unions acquiring banks.

The article notes that over the last 18 months seven banks have agreed to be sold to credit unions. These seven banks tended to be relatively small with an average asset size of almost $83 million.

The American Banker speculates that such cross-industry mergers are likely to continue as as regulatory costs, revenue pressure, succession and other issues spur more industry consolidation. One attorney commented that he is currently working on at least 13 deals, although some deals are not likely to occur.

One credit union official stated that a benefit for credit unions acquiring banks is the expansion of their customer base and footprint.

Moreover, the article stated that credit unions can be favorable acquirers of small, privately-held banks because credit unions can only pay cash and they tend to retain staff after the merger is completed.

Read the American Banker (subscription required).

Thursday, June 15, 2017

McWatters: Closing the Stabilization Fund and Reg Relief Are Top Priorities

Credit unions can expect more regulatory relief and streamlined operations from the National Credit Union Administration (NCUA) in the future, Acting Board Chairman J. Mark McWatters said at the annual conference of the National Association of Federally-Insured Credit Unions.

According to the press release, McWatters stated he wants the Board to revisit the risk-based capital and stress testing rules.

Earlier this week, The United States Department of the Treasury (Treasury) recommended raising the asset threshold for credit unions subject to stress testing rule from $10 billion to $50 billion. Also, Treasury recommended that NCUA either eliminate the risk-based capital requirement or raise the asset threshold for credit unions subject to the risk-based capital rule from $100 million to $10 billion.

Acting Chairman McWatters told the attendees that closing the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) is a top priority. This would allow the agency to return surplus funds to federally-insured credit unions in 2018. A plan for closing the TCCUSF is expected within weeks.

Other areas that McWatters would like to see the agency address include cyber security, fighting fraud, and identifying ways to help small and low-income credit unions to thrive.

Wednesday, June 14, 2017

Treasury Recommendations Could Impact Credit Unions and NCUA

The United States Department of the Treasury (Treasury) released on June 12th a report, A Financial System that Creates Economic Opportunities, on reforming the financial sector regulatory framework.

The report makes a number of regulatory and legislative recommendations that could impact credit unions and the National Credit Union Administration (NCUA).

First, Treasury recommended that Congress take action to reduce fragmentation, overlap, and duplication in the U.S. regulatory structure. This could include consolidating regulators with similar missions and more clearly defining regulatory mandates. For example, this could involve merging the NCUA with other federal banking regulators or merging the National Credit Union Share Insurance Fund with the Federal Deposit Insurance Corporation.

The report noted that the following two recommendations can be implemented by NCUA regulation.
  • Treasury recommendeds raising the asset size threshold for stress-testing requirements for federally-insured credit unions from its current level of $10 billion in assets to $50 billion in assets. This would mean only one credit union, Navy Federal Credit Union, would be subject to stress-testing.
  • Treasury believed that NCUA should revise its risk-based capital requirements to only apply to credit unions with total assets in excess of $10 billion or eliminate altogether risk-based capital requirements for credit unions satisfying a 10 percent simple leverage (net worth) requirement. Treasury noted that if the asset threshold for the risk-based capital requirement is raised to $10 billion in assets, it would support allowing such credit unions to rely in part on appropriately designed supplemental capital to meet a portion of their risk-based capital requirements. If NCUA eliminates the risk-based capital rule, then the agency does not need to pursue its supplemental capital proposal.

Treasury notes that if supplemental capital is made available to all credit unions to meet their net worth leverage ratio, this action would require Congressional action.

As with banks, credit unions should be granted relief from the current level, design, and lack of notice and transparency of the supervision and examination processes. Examination should be more tailored and cost efficient to avoid burdensome and unnecessary procedures. This would require coordination between NCUA, CFPB, and state regulators. Procedures that are redundant between regulators should be streamlined.

Moreover, Treasury recommends that Congress raise the asset threshold for small banks and credit unions to be eligible for an 18-month examination cycle.

Treasury believes that a significant restructuring in the authority and regulatory responsibilities of the Consumer Financial Protection Bureau (CFPB) is necessary. The report notes that the CFPB's unaccountable structure and unduly broad regulatory powers have led to predictable regulatory abuses and excesses. Treasury stated the CFPB has hindered consumer access to credit, limited innovation, and imposed unduly high compliance burdens, particularly on small institutions.

Treasury’s recommendations include: making the Director of the CFPB removable at will by the President or, alternatively, restructuring the CFPB as an independent multi-member commission or board; funding the CFPB through the annual appropriations process; adopting reforms to ensure that regulated entities have adequate notice of CFPB interpretations of law before subjecting them to enforcement actions; and curbing abuses in investigations and enforcement actions.

The CFPB’s Consumer Complaint Database should be reformed to make the underlying data available only to federal and state agencies, and not to
the general public.

Treasury recommended raising the total asset threshold for making Small Creditor Qualified Mortgage loans from the current $2 billion to a higher asset threshold of between $5 and $10 billion to accommodate loans made and retained by small depository institutions.

In addition, Treasury is recommending that the CFPB delay the 2018 implementation of the new Home Mortgage Disclosure Act reporting requirements until borrower privacy is adequately addressed and the industry is better positioned to implement the new requirements. The new requirements should be examined for utility and cost burden, particularly on smaller lending institutions.

Treasury recommended that Congress repeal Section 1071 of the Dodd-Frank Act. Section 1071 requires the CFPB to establish regulations and issue guidance for small business loan data collection. The purposes of section 1071 include enabling creditors to identify the needs of small, minority-owned, and women-owned businesses, and to facilitate enforcement of fair lending laws.

Read the report.

Tuesday, June 13, 2017

Fifty-one Percent of CUs See Year-over-Year Decline in Membership

More than half of the nation's federally insured credit unions reported fewer members at the end of the first quarter of 2017 compared to a year ago.

The National Credit Union Administration reported that 51 percent of federally insured credit unions had fewer members at the end of the first quarter of 2017 than a year earlier. This is the third consecutive quarter where over half of all federally insured credit unions had fewer members compared to the same quarter a year earlier.

The median year-over-year credit union membership growth rate was -0.1 percent.

Median membership growth was negative in 22 states. At the median, membership declined the most in the District of Columbia (-2.4 percent), followed by Pennsylvania (-1.5 percent). Other states reporting median year-over-year membership growth rate of negative 1 percent or less were Ohio (-1 percent), Nebraska (-1.1 percent), New Jersey (-1.2 percent), Oklahoma (-1.2 percent), and Montana (-1.3 percent).

About 75 percent of credit unions with declining membership had assets of less than $50 million.

Read the press release.

Monday, June 12, 2017

Almost 1300 Federally Insured CUs Reported a Loss in Q1 2017

According to Call Report data, 1,294 credit unions reported a loss for the first quarter of 2017.

In other words, 22.6 percent of federally insured credit unions had a loss.

Thirteen credit unions reported a quarterly loss of $1 million or more for the quarter (see table below). Three of the credit unions reporting a loss of $1 million or more are currently under conservatorship -- Melrose CU, Shreveport FCU, Community United FCU.

Friday, June 9, 2017

Almost 20 Percent of CU Industry Loans Were Indirect Loans

The National Credit Union Administration (NCUA) this week reported that at the end of the first quarter 2017 19.5 percent of all federally insured credit union loans were indirect loans.

As of the end of the first quarter of 2017, 1,901 federally insured credit unions had outstanding indirect loans, according to a NCUA spokesperson.

Credit unions reported $172.6 billion in outstanding indirect loans as of March 31, 2017 -- up almost 21 percent or $29.9 million from a year earlier.

In comparison, total loans outstanding grew by 10.6 percent over the same time period.

Since the end of 2012, indirect lending at credit unions has more than doubled. Outstanding indirect loans were $78.2 billion at the end of 2012. Almost 13.1 percent of all loans were indirect loans.

I suspect that indirect lending has played an important role in the membership growth at credit unions over the last couple of years.

 

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