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.

Monday, October 9, 2017

Founders FCU Partners with Clemson University and its Athletic Program

Clemson University, Founders Federal Credit Union (Fort Mill, SC) and JMI Sports announced a comprehensive seven-year partnership that expands Founders’ commitment to Clemson Athletics and Clemson University.

As part of this agreement, Founders is now the Official Credit Union Partner of the Clemson Tigers and Clemson University.

Founders will be the presenting sponsor of the Homecoming football game and its brand will be prominently displayed throughout Littlejohn Coliseum.

Additionally, Founders will actively sponsor major events and programs on campus year-round, including being a proud partner of Clemson’s new bike share program.

Founders, the state’s largest credit union, has made a total commitment of nearly $6 million over seven years to sponsorship investments in Clemson Athletics and Clemson University.

Read the media release.

Saturday, October 7, 2017

Consumer Credit at CUs Grew at a Slower Pace in August

The Federal Reserve reported that outstanding consumer credit at credit unions edged higher in August.

Consumer credit increased from $411.7 billion in July to $412.5 billion in August.

The growth in consumer credit was driven by an increase in revolving credit, as nonrevolving credit posted a small decrease.

Revolving credit at credit unions increased by $1 billion during August to $55.1 billion, while nonrevolving credit dropped by approximately $200 million to $357.4 billion.

The pace of consumer credit growth decelerated during August compared to July. During July, consumer credit grew at an annualized pace of $89.3 billion. During August, the growth in consumer credit slowed to $9.6 billion.

Read the G.19 Report.

Friday, October 6, 2017

Bethpage FCU Provides $20 Million Loan for Staten Island Shopping Center

Bethpage Federal Credit Union provided $20 million refinancing loan to Staten Island Expressway Plaza shopping center.

The loan is for seven years.

Westbury-based Kalikow Group and New Canaan, Connecticut-based Feldco Development received the loan.

Read the story.

Thursday, October 5, 2017

Portions of Vast Community Charter Did Not Meet the Standard of Being Local in 2004

The National Credit Union Administration (NCUA) in August approved a community charter for Utah Community FCU (Provo, UT) comprised of a Combined Statistical Area (CSA) serving 10 Utah counties.

Under NCUA's new field of membership rules, a CSA with up to 2.5 million people is viewed as a presumptive local, well-defined community, despite being a region.

The CSA includes the counties of Box Elder, Davis, Juab, Morgan, Salt Lake, Summit, Tooele, Utah, Wasatch, and Weber.

Let's look at the facts.

This CSA served a large geographic area and large population.

The community charter stretches east-to-west from the Wyoming border to the Nevada border. The geographic area also borders the state of Idaho.

The square mileage of the 10-county region is 23,356.18, which is larger than 9 states.

The population of the combined statistical area is almost $2.4 million.

The Salt Lake City-Provo-Orem CSA includes three metropolitan statistical areas and two micropolitan statistical areas.

However, in 2004, a Utah federal judge ruled that the six counties of Davis, Morgan, Salt Lake, Summit, Tooele, and Weber did not constitute a local, well-defined community. These six counties are part of the 10 county region approved by NCUA as a local, well-defined community.

So if these six counties did not constitute a local, well-defined community, how does this 10-county region represent a local, well-defined community?

Hopefully, the federal court invalidates this provision in NCUA's field of membership regulation.




Wednesday, October 4, 2017

Bill Would Exclude Business Loans to Vets from MBL Cap

Legislation (H.R. 3866) was introduced on September 28 to amend the Federal Credit Union Act by excluding extensions of credit made to veterans from the definition of a member business loan.

This bill would exclude these loans from the aggregate member business loan cap of 12.25 percent of assets.

The legislation was introduced by Rep. Vicente Gonzalez (D-TX) and cosponsored by Rep. Paul Cook (R-CA).

However, this bill represents a fundamental departure from other extensions of credit that are excluded from the definition of a member business loan (MBL).

The extensions of credit that are currently excluded from the definition of a MBL pose minimal risk to the National Credit Union Share Insurance Fund, as these loans are fully secured by shares or 1-to-4 primary residence, are fully insured or guaranteed by a governmental agency, or are less than or equal to $50,000.

Read the bill.

Tuesday, October 3, 2017

Trade Groups Sue CFPB over Arbitration Rule

The American Bankers Association, the U.S. Chamber of Commerce, the Consumer Bankers Association, the Financial Services Roundtable and several other national and regional trade associations on Friday filed suit in federal court to block the Consumer Financial Protection Bureau’s arbitration rule from taking effect.

The lawsuit was filed in the U.S. District Court for the Northern District of Texas, Dallas Division.

The groups challenged the rule on several grounds: that the Consumer Financial Protection Bureau (CFPB) itself is unconstitutional (a claim currently being appealed), that the CFPB violated the Administrative Procedures Act (APA) in its rulemaking, and that the bureau violated the Dodd-Frank Act by precluding use of a consumer-benefiting dispute mechanism.

“For years, our organizations have tried to work with the CFPB to promote strong consumer protection while maintaining a functional arbitration system,” the plaintiffs said in a joint statement. “Unfortunately, the CFPB chose to instead finalize a rule that will harm consumers and businesses by effectively banning arbitration and increasing speculative class action litigation. As Congress continues to consider action within its purview, we are filing this challenge to ensure all legal remedies are utilized to preserve arbitration for consumers.”

By ignoring the results of its own study, which showed that consumers who prevail in disputes under arbitration win 166 times the award that successful class action plaintiffs do, the bureau acted arbitrarily and capriciously in violation of the APA, the lawsuit said.

Read the lawsuit.

Republican Framework Will Seek to Modernize Special Tax Treatment of Certain Industries

The Republican framework for tax reform will look to modernize special tax regimes that govern the tax treatment of certain industries and sectors of our economy.

The framework proposes to limit opportunities by certain industries for tax avoidance and to ensure the tax code better reflects economic realities.

While the framework did not specifically mention credit unions, credit unions are an example of an industry that currently receives preferential tax treatment.

The framework was released on September 27.

Read Tax Reform Framework.

Monday, October 2, 2017

Shreveport FCU Closed, Members and Most Shares and Loans Assumed by Red River Employees FCU

The National Credit Union Administration on October 2 liquidated Shreveport Federal Credit Union of Shreveport, Louisiana.

Red River Employees Federal Credit Union of Texarkana, Texas, immediately assumed Shreveport Federal Credit Union’s membership and most shares, loans, and other assets.

Red River Employees Federal Credit Union serves 84,093 members and has assets of $807,144,475, according to the credit union’s most recent Call Report.

On April 13, NCUA placed the credit union into conservatorship. NCUA made the decision to liquidate Shreveport Federal Credit Union and discontinue its operations after determining the credit union was insolvent and has no prospect for restoring viable operations. As I pointed out earlier, Shreveport Federal Credit Union was critically undercapitalized with a net worth ratio of negative 1.68 percent.

At the time of liquidation and subsequent purchase by Red River Employees Federal Credit Union, Shreveport Federal Credit Union served 22,212 members and had assets of approximately $86 million, according to the credit union’s most recent Call Report.

Shreveport Federal Credit Union is the third federally insured credit union liquidation in 2017.

Read the press release.



Arbitration Rule Could Raise the Cost of Credit by 25 Percent

A study by the Office of the Comptroller of the Currency (OCC) found that the Consumer Financial Protection Bureau’s arbitration rule is likely to increase the cost of credit by about 25 percent once lenders factor in the cost of class action litigation, Acting Comptroller Keith Noreika said on September 28 at the Philadelphia Fed's fintech conference.

“What we found is that there could be as high as a three-and-a-half percent annual percentage rate increase for consumers who would be subject to the rule,” Noreika said. “That’s a 25 percent increase in credit costs for people who may live week to week. There’s a real, tangible economic effect that it may have on consumers.”

He said the OCC conducted the study because it wanted to review the effects of the CFPB’s rule -- which virtually bans mandatory arbitration agreements in contracts for financial products and services -- on banks and the customers they serve. “What originally caught my eye...was the potential impact that [the rule] may have on small institutions...that really may face a massive litigation exposure,” he said.

Bank and credit union trade groups ares backing efforts in Congress to overturn the arbitration rule. A Congressional Review Act resolution passed the House this summer and is awaiting action in the Senate.

Friday, September 29, 2017

American First CU Buys Naming Rights to University Arena

Southern Utah University announced that America First Credit Union (Riverdale, UT) will pay $1.5 million for the naming rights to the 5,300 seat Centrum Arena.

The agreement is for 10 years.

The arena will now be called America First Events Center.

America First is the largest credit union in the state of Utah with almost $9 billion in assets.

Read the story.

Thursday, September 28, 2017

TCCUSF to Close in 2017, NCUSIF NOL Increased to 1.39 Percent

The National Credit Union Administration (NCUA) Board voted to close the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) in 2017.

The funds, property, and other assets and liabilities of the TCCUSF will be transferred to the National Credit Union Share Insurance Fund (NCUSIF) on October 1, 2017.

In addition, the NCUA Board raised the normal operating level (NOL) for NCUSIF from 1.30 percent to 1.39 of insured shares, despite the objection of many credit union commenters.

The NCUA Board spent part of the meeting challenging the false narrative that an NCUSIF equity ratio of 1.30 percent would withstood the financial crisis. The Board presentation noted that even without the corporate credit union losses, the NCUSIF equity ratio in 2009 and 2010 would have fallen below 1.20 percent, the threshold requiring premium assessments. Without the premium assessment, the NCUSIF equity ratio would have dropped to 1.07 percent.

The Board also adopted a policy for setting the normal operating level.

Any change to the normal operating level of more than 1 basis point shall be made only after a public announcement of the proposed adjustment and opportunity for comment. In soliciting comment, the NCUA will issue a public report, including data supporting the proposal.

When setting the normal operating level, the Board will seek to satisfy the following objectives:
  • Retain public confidence in federal share insurance;
  • Prevent impairment of the one percent contributed capital deposit; and
  • Ensure the Insurance Fund can withstand a moderate recession without the equity ratio declining below 1.20 percent over a five-year period.
Read the Final Notice.

Wednesday, September 27, 2017

Tech CU Funds $3 Million Commercial Real Estate Loan

Technology Credit Union (San Jose, CA) on September 5 announced that it was originating a $3 million commercial real estate loan.

The loan will assist infunding the purchase of a 12,800 square foot, Class B commercial property in downtown San Jose, as well as provide for minor tenant improvement work and miscellaneous expenditures.

Technology Credit Union will finance commercial real estate loans up to $15 million.

Read the press release.

Tuesday, September 26, 2017

Credit Human to Receive $8.8 Million in Incentives to Relocate HQ

The City of San Antonio and Bexar County will provide Credit Human Federal Credit Union $8.8 million in tax and other incentives to move its headquarters to an office tower to be constructed at the Pearl.

Credit Human, formerly known as San Antonio Federal Credit Union, is the third largest credit union in San Antonio (TX).

The city has proposed offering up to $5.2 million in tax abatements and a $1.5 million tax rebate for the project, but the total value of both incentives would be capped at about $5.8 million, according to the Midtown Tax Increment Reinvestment Zone agenda.

The county is proposing a ten-year tax abatement worth a total of just under $3 million.

The project is expected to consist of two multi-story buildings, with the largest building being used for headquarters use for the credit union and mixed office and retail use. The 3.13 acre site on Broadway Avenue will comprise a total of 310,000 square feet of usable space and the construction of a total of 958 surface and underground parking spaces.

According to news reports, the price tag for the project is estimated at $113 million.

Under the incentive deal, the credit union would be required to pay its employees more than $11.83 an hour. After a year, 70 percent of the employees would have to make at least $15.68 an hour.

Read the agenda item.

Read story (subscription required).

Read an earlier story.


Research: Mixed Evidence that CU Tax Exemption Serves Intended Purpose

The Federal Reserve Bank of Richmond recently published an article, Credit Unions: A Taxing Question that suggests there is mixed findings as to whether the continuation of the credit union tax exemption is justified.

The paper analyzes the findings of various research papers on the credit union tax exemption.

The paper argues that there are two legislative justifications for the credit union tax exemption -- their mutual structure and their purpose of assisting those of modest means.

The paper points out that "[c]ritics of the credit union tax exemption have long used the repeal of the mutual savings bank tax exemption as evidence that credit unions should lose theirs." However, mutual savings banks lost their tax exemption because they were no longer "self-contained cooperative organizations." Despite the similarities between mutual savings banks and credit unions, the paper states credit unions still retain more of their cooperative qualities than mutual savings banks.

But I would note that the erosion of common bond is undermining the linkage between credit union borrowers and savers.

The paper then examines at the incidence of the tax subsidy. In other words, where does the tax subsidy go?

Citing work by Robert DeYoung and others, the authors found that the majority, but not all, of the tax subsidy was passed through to credit union members in the form of higher deposit rates. The authors also stated that an economically substantial amount of the subsidy was diverted away from credit union members, mainly by hiring too many workers and earning below marketr returns on investment securities.

While the credit union subsidy appears to be flowing to members, the other justification for the tax exemption is that credit unions target those of modest means. The evidence is mixed on whether this policy goal is being met. Credit unions claim that their common bond requirements may result in a selection bias that makes it harder for them to serve people of modest means. However, research looking at large Wisconsin credit unions with broad fields of membership found that large credit unions were targeting wealthier customers, as evidenced by the markets in which they locate branches and the income level of mortgage borrowers.

The paper concludes that "research performed on credit unions and the tax exemption reveals mixed results as to whether, on the whole, credit unions still serve the same purposes today as they did when they were first chartered in the early 20th century."

Monday, September 25, 2017

CU Taxi Medallion Lender Likened to Last Decade's Predatory Subprime Lenders

The Philadelphia Inquirer is compares the collapsing of the Philadelphia taxi market to the mortgage meltdown last decade and has some harsh comments about Melrose Credit Union (Briarwood, NY).

The article states:
"[L]enders drew up medallion loans with huge balloon payments, made to people who couldn’t afford them but who never worried about paying them off when they came due in three years. Why? Because the taxi business was golden, generating ample revenue. Meanwhile, just as with real estate, the value of medallions kept rising.

Besides, there was always another chance to refinance.

Until, suddenly, there wasn’t."

This sounds so familiar to the the subprime mortgage crisis.

At their peak in October 2013, taxi medallion prices were $530,000. However, after Uber and Lyft entered the market, taxi medallion prices dropped precipitously and as of August 2017 were at $52,000.

According to the Inquirer story, Melrose financed medallion loans through a broker to borrowers with bad or no credit history and who neither understand or spoke English. A complaint against Melrose alleges that underwriting of taxi medallion loans was non-existent.

It is estimated that Melrose lent more than $120 million to Philadelphia medallion owners.

Because the financing of medallion loans were through thee year balloon loans, that meant every three years borrowers needed new loans to pay off those balloon loans. This also ensured new fee revenues for Melrose.

The article further notes that after Melrose was seized by the New York regulator, the credit union exacerbated the decline in medallion values as it stopped lending in the market.

Read the article.

Friday, September 22, 2017

56 CUs Awarded $39.5 Million from CDFI Fund

The National Credit Union Administration (NCUA) is reporting that 56 federally-insured credit unions will receive awards from the Community Development Financial Institutions (CDFI) Fund.

The total amount of the awards were $39.5 million.

According to the press release, 27 credit unions were a first-time awardee.

Read the press release.

Thursday, September 21, 2017

To Get Tax Reform Right Treat Credit Unions Like Banks

Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, a senior fellow at the Manhattan Institute and an adjunct professor at George Washington University, wrote in U.S. News and World Report that tax reform should include ending the credit union industry's outdated tax exemption.

Furchtgott-Roth wrote that the credit union tax exemption does not make sense, since one principle of taxation is that similar businesses should be taxed the same.

Furchtgott-Roth noted that credit unions with $1 billion or more in assets are 4 percent of the credit union industry; but account for almost 75 percent of the tax benefit.

The opinion piece also stated the recent trend of tax-exempt credit unions buying taxpaying banks. Furchtgott-Roth pointed out: "This is no different from corporate inversions, except that no company has moved to Ireland."

Furchtgott-Roth concluded "[a]s Congress proceeds with tax reform, members should consider uprooting this outdated exemption and no longer picking winners and losers. Taxpayers should not have to subsidize a credit union's name on a stadium, or people's purchases of aircraft and boats."

Read the opinion piece.

Fox Communities CU Receives Waivers for Financing Exposition Center

The Wisconsin Office of Credit Unions on August 17, 2017 granted a waiver to Fox Communities Credit Union (Appleton, WI) with regard to construction and development loans and security and collateral requirements.

The National Credit Union Administration had no objections to the waiver approval as long as three contingencies were met.

According to information obtained in an Open Records Request, Fox Community was approved to provide $10.175 million in funding for a publicly owned exposition center, which would result in a loan-to-value ratio of 100 percent. However, the credit union management believes that its share of the funding is more likely to be $8 million. At $10 million, the loan will represent 6.67 percent of the credit union's net worth.

The total funding for the project is $31.5 million with the remainder of the financing coming from local/regional banks.

WI DFI-CU 72.04 2(a) requires a 25 percent equity interest in construction projects or 20 percent equity interest in a project being financed if the loan is for construction.

In addition, WI DFI-CU 72.07 (2) requires "[f]or a member business loan secured by collateral on which the credit union will have a first lien, a credit union may grant the loan with an LTV ratio in excess of 80% only where the value in excess of 80 percent is as follows:
(a) Covered through acquisition of private mortgage or equivalent type insurance provided by an insurer acceptable to the credit union, and the LTV ratio does not exceed 95 percent; or
(b) Insured or guaranteed, or subject to advance commitment to purchase, by an agency of the federal government, state, or any of its political subdivisions, and the LTV ratio does not exceed 95 percent.

The loan will be collateralized by a secured interest in a hotel room tax. Thirty percent of the 10 percent hotel room tax will be allocated to repay the loan. In addition, the borrower will establish a $1.5 million reserve account that can be used if hotel room tax revenues are insufficient.

Wednesday, September 20, 2017

46 NYC Taxi Medallions Sell for Under $200,000 in Auction

Crain's New York Business is reporting that 46 foreclosed New York City (NYC) taxi medallions sold at auction for $186,000 each.

The foreclosed tax medallions were bought by the hedge fund -- MPGE, Inc.

The $186,000-per medallion bid was for all 46 of the placards, which prevented the auction house from accepting one-off bids that would have priced a single medallion north of $200,000.

According to the story, taxi medallion prices have not been this low since the mid-1990s.

This would suggest additional losses await credit unions that originated or participated in NYC taxi medallion financing.

Read the press release.

Tuesday, September 19, 2017

NCUA Charters Clean Energy FCU

The National Credit Union Administration (NCUA) has granted a federal charter and Share Insurance Fund coverage to Clean Energy Federal Credit Union in Boulder, Colorado.

Clean Energy will have an association common bond serving the 4,300 members of the American Solar Energy Society (ASES).

The credit union’s primary mission will be meeting the financing needs of ASES members for the purchase and installation of solar panels and high-efficiency home energy improvements as well as the purchase of electric and hybrid vehicles.

But the credit union plans to expand its product offerings, once the credit union has the ability to support additional services.

Read the press release.

New Horizons CU Under Cease and Desist Order

The Alabama Credit Union Administration issued a cease and desist order against New Horizons Credit Union (Mobile, AL).

The cease and desist order found that the $221.5 million credit union and one or more of its institution-affiliated parties have engaged in unsafe or unsound practices, violation of law, rule, and regulations, and have violated the conditions set forth in an February 23, 2017 Letter of Understanding and Agreement (LUA).

Specifically, the cease and desist order found:
  • The credit union failed to comply with full and fair disclosure of its financial and operating conditions.
  • The board of directors failed to adequately supervise and direct credit union's management.
  • The credit union had inadequate management.
  • The credit union failed to address a number of material deficiencies listed in the Document of Resolution Status Report in a March 2017 Examination Report and comply with terms and conditions specified in the LUA.
  • The credit union operated with capital that was classified as adequately capitalized.
  • The credit union had ineffective credit risk management practice and poor underwriting practices that resulted in poor asset quality and high net charge offs.
  • The credit union did not timely charge off uncollectible loans.
  • The credit union failed to follow Generally Accepted Accounting Principles to calculate its allowance for loan and lease losses.
The cease and desist order mandated that the credit union needed to take a number of corrective actions.

The cease and desist order required the credit union to address corporate governance deficiencies. The credit union's board is expected to improve its oversight of the credit union's affairs.

The credit union is further required to form a director's committee. One of its duties is to identify at least 3 potential merger partners. Discussions with potential merger partners are to be reported to the credit union's board and the credit union's regulator in writing no later than October 1, 2017.

The credit union will implement a prompt corrective action plan to become well-capitalized.

The credit union must also address credit risk and compliance risk problems. For example, credit union management must immediately charge off all loans that meet or exceed the credit union's charge off policy. If loans 90 days or more past due are not charged off, management must document the reason why these loans are not charged off. the collateral repossessed, and the collateral is in the process of foreclosure and repossession.

The cease and desist order became effective on September 3, 2017.

Read the order.

Monday, September 18, 2017

Half of CUs Report Declining Year-over-Year Membership

The National Credit Union Administration reported that 50.3 percent of federally insured credit unions had fewer members at the end of the second quarter of 2017 than a year earlier.

At the median, the membership growth rate was negative one-tenth of a percent.

In 23 states, more than half of the credit unions had fewer members than a year ago. Excluding the territories of Guam and Virgin Islands, Pennsylvania had the lowest median year-over-year membership growth rate of minus 1.4 percent.

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

Read the press release.

Read the NCUA Quarterly Map Review.

Saturday, September 16, 2017

San Diego County Credit Union to Bid $500,000 for Stadium's Naming Rights

San Diego County Credit Union (SDCCU) is bidding $500,000 for the naming rights to a stadium.

On September 19, the San Diego City Council will vote on a proposal to rename its stadium from QUALCOMM Stadium to SDCCU Stadium.

According to the City's Stadium Sponsorship Sales Agreement, the city will receive 75 percent for the revenue.

If approved, the naming rights agreement wil run through the end of 2018.

SDCCU is currently the primary sponsor of the Holiday Bowl college football game that's held in the stadium.

Read the meeting agenda item.

Read the story.

Friday, September 15, 2017

Guardian CU Buys Two Branches from SouthCrest Financial Group

SouthCrest Financial Group, Inc. (Atlanta, GA) announced that the company has completed the sale of its two branches in Alabama and all related deposits and assets to Guardian Credit Union (Montgomery, AL).

The sale closed on September 8.

The two branches are located in Chilton County.

According to an earlier press release, Guardian CU would pay a 5 percent deposit premium on the total deposits transferred, which as of June 2016 were about $45.7 million, and purchase over $6 million worth of loans.

As of June 2016, the Summary of Deposit data reported that SouthCrest Bank had a deposit market share of 12.33 percent in Chilton County.

Read the press release.

Thursday, September 14, 2017

Auction of Foreclosed Taxi Medallions Did Not Get Any Bidder at $300,000

An auction of 49 foreclosed New York City taxi medallions held by Capital One did not get any bids.

According to Crain's New York Business, "the bank started the bidding at more than $300,000, did not get the bids it was looking for and bought the medallions itself for $335,000 apiece."

The article quotes Andrew Murstein, president of Medallion Financial, as saying "[w]e were prepared to bid, but not at the prices they were looking for."

The failure to get a bid indicates that taxi medallion prices are less than $300,000.

However, the article does suggest that taxi medallion prices may be bottoming, which is attracting the interest of wealthy investors.

Read the story.

DCU Paying $12 Million for 129,000 Square Foot Office Building

Digital Federal Credit Union (Marlborough, MA) paid $12 million for the former headquarters building of Kronos located in Chelmsford, Massachusetts.

The three story 129,000 square foot office building will provide the $8 billion credit union with the needed space to address its rapidly growing employee base.

DCU plans to start renovations as early as this month and expects to occupy the space in the first quarter of 2018.

Read the story.

Wednesday, September 13, 2017

Horizon FCU Gets Rural District FOM Expansion

The National Credit Union Administration recently approved an expansion in the field of membership (FOM) of Horizon Federal Credit Union (Williamsport, PA).

The credit union in 2011 converted to a community charter serving Lycoming and Clinton Counties in Pennsylvania.

The credit union added 9 additional counties to its existing community charter in July 2017.

Today, Horizon FCU can serve persons who live, work, worship, or attend school in, and businesses and other legal entities in the rural district of Bradford, Centre, Clinton, Columbia, Lycoming, Montour, Northumberland, Potter, Sullivan, Tioga, or Union Counties. The potential increase in membership for the credit union is 666,077.

But the only way Horizon could add these 9 counties to Horizon's existing FOM was by using the rural district.

However, this region appears to be rural in name only.

Eight of the 11 counties belong to seven different core bases statistical areas. The region includes three distinct metropolitan statistical areas and four micropolitan statistical areas.

Only three counties are not part of a core based statistical area -- Potter, Sullivan, and Tioga.

Five counties have population densities in excess of 100 persons per square mile.

According to the U.S. Census Bureau, almost 54 percent of the people in this so-called rural district live in urbanized areas or urban clusters.

Six of the counties have a majority of their residents residing in urban areas and clusters.


It appears that the agency has disregarded information that would have suggested that this region is not a rural district.

Once again, the agency has abused its discretion in designating this region as a rural district.


Tuesday, September 12, 2017

12 CUs Consent to Penalties for Late Filing Q1 Call Reports

Twelve credit unions consented to penalties totaling $2,853 for late filing their Call Reports in the first quarter of 2017, according to the National Credit Union Administration.

A year earlier, 30 credit unions agreed to penalties.

Individual penalties for the first quarter ranged from $74 to $382. The median penalty was $229.

Of the 12 credit unions agreeing to pay penalties for the first quarter, 11 had assets of less than $10 million, and one had assets between $10 million and $50 million. No credit unions with assets of more than $50 million filed late Call Reports.

Six of the late-filing credit unions had been late in a previous quarter.

Read the press release.

Monday, September 11, 2017

CU Business Lending Posted Robust Growth in the Second Quarter

The National Credit Union Administration (NCUA) is reporting strong business lending growth at federally insured credit unions during the second quarter of 2017.

Outstanding business loans plus unfunded commitments increased from $68.9 billion at the end of the first quarter to $72.5 billion as of June 2017. The quarterly change in business loans was 5.2 percent.

Over the last year, business loans grew at an annualized rate of 17.4 percent.

During the second quarter member business loans increased by 5.1 percent to almost $64 billion, while purchased business loans or participations to nonmembers jumped by 6.1 percent to $8.5 billion.

As of June 2017, business loans less unfunded commitments were 5.02 percent of the credit union industry's assets. This is up 40 basis points from a year ago.

Approximately 88 percent of business loans were real estate secured. During the second quarter, business loans secured by real estate grew by 5.8 percent to $63.5 billion. The fastest growing component of business lending secured by real estate during the second quarter was construction and development loans with dollar outstanding expanding by 11.8 percent and number of loans growing by 9.8 percent.

It appears the growth in construction and development loans benefited from recent regulatory changes to NCUA's Member Business Loan regulation. The NCUA Board removed the aggregate limit on construction and development loans of 15 percent of net worth and the minimum equity requirement of 25 percent.




Saturday, September 9, 2017

Consumer Credit Surges at CUs in July

The Federal Reserve reported a strong increase in outstanding consumer credit union at credit unions in July.

Outstanding consumer credit grew by $7.4 billion during July to $411.7 billion. This translates into an annual pace of growth of $89.3 billion for the month of July.

Revolving credit outstanding increased by approximately $800 million during July to $54.1 billion.

Outstanding nonrevolving credit rose from $350.9 billion in June to $357.6 billion in July.

Read the G.19 Report.

Friday, September 8, 2017

Ahead of Auction, Minimum Bid for 46 New York City Taxi Medallions Set at $165,000 Each

The Wall Street Journal is reporting that trustee liquidating part of New York taxi mogul Evgeny “Gene” Freidman’s holdings has found a bidder offering $165,000 for each of 46 taxi medallions ahead of a planned auction.

The stalking-horse offer, which requires bankruptcy court approval, would put a floor under the medallions’ price at a public auction scheduled to take place on September 18.

Even if bids come in higher than the floor of $165,000, this will probably be bad news for credit unions holding New York City taxi medallion loans, as they will see a significant mark down in the collateral backing these loans.

Read the story (subscription required).

Thursday, September 7, 2017

First Tech FCU Partners with NBA's Portland Trail Blazers

The National Basketball Association’s (NBA) Portland Trail Blazers announced a multi-year partnership deal with First Tech Federal Credit Union.

First Tech will become the Trail Blazers' first ever credit union partner.

Benefits of the deal for First Tech includes signage at the team’s Moda Center, digital media assets linked to Trail Blazers game broadcasts and social media platforms, and sponsorship of the ‘Block Party’ seating area.

First Tech FCU will also launch a Trail Blazers-branded affinity card.

First Tech Federal Credit Union is a $9.4 billion institution headquartered in Mountain View, California.

The price of the partnership deal was not disclosed.

Read the story.

Wednesday, September 6, 2017

Federally-Insured CUs Post Y-o-Y Double Digit Loan Growth

The National Credit Union Administration reported an increase in asset, loans, and shares at federally-insured credit unions during the second quarter.

Assets at credit unions increased by 1 percent during the second quarter to $1.35 trillion as of June 2017.

Loans increased at a double digit year-over-year (Y-o-Y) rate at the end of the second quarter of 2017. Year-over-year loan growth was 10.9 percent.

However, the pace of loan growth accelerated during the second quarter. Total loans increased by almost $28.5 billion or 3.2 percent during the second quarter to $913 billion. All major loan categories grew in second quarter.

Indirect loans grew by almost 5 percent during the quarter to $181.1 billion. As of June 2017, indirect loans accounted for 19.83 percent of loans.

Total shares and deposits rose by 0.7 percent during the second quarter to approximately $1.146 trillion dollars.

Because loan growth outpaced share growth, the loan to share (deposit) ratio increased from 77.73 percent at the end of the first quarter of 2017 to 79.70 percent as of June 2017.

Net Income on Annual Pace to Top $10 Billion

Net income for federally-insured credit unions was almost $5.1 billion for the first six months of 2017.

The industry's return on average assets (ROA) was 0.77 percent as of June 2017 -- up 6 basis points from March 2017. The median return on average assets across all federally insured credit unions was 36 basis points.

Factors positively impacting ROA during the quarter were net interest margin and fees and other income, while those factors that negatively affected ROA were operating expenses and provisions for loan and lease losses.

Net Worth Increased by 2 Percent During the Second Quarter

During the second quarter of 2017, the industry's net worth increased by $2.8 billion to $145.9 billion.

While the industry's net worth ratio fell by 5 basis points from a year ago, it was up 11 basis points to 10.80 percent compared to the first quarter.

As of June 2017, 97.51 percent of credit unions had a net worth ratio of at least 7 percent -- the minimum requirement for being well capitalized. However, 6 credit unions were critically undercapitalized with a net worth ratio below 2 percent. In comparison, no credit union was critically undercapitalized at the end of the first quarter.

Delinquency Rate Rose, Net Charge-off Rate Virtually Unchanged

Delinquent loans increased 12.3 percent during the second quarter of 2017 to $6.84 billion. The delinquency rate rose 6 basis points during the second quarter to 0.75 percent.

As of mid-year, credit unions reported $2.5 billion in net charge-offs. The net charge-off rate was 0.57 percent -- virtually unchanged from the the first quarter.

Federally-insured credit unions reported a 2.5 percent increase in their allowance for loan and lease losses (ALLL). As of June 2017, the industry reported ALLL of $8.15 billion.

As of June 2017, the industry's coverage ratio (ALLL to delinquent loans) was 119.08 percent.

Large Credit Unions Prospered, While Smaller Credit Unions Struggled

The National Credit Union Administration reported that credit unions with assets of at least $1 billion reported the strongest growth in loans, membership and net worth over the year ending in the second quarter of 2017. On the other hand, credit unions with less than $50 million in assets reported declines in loans, membership and net worth over the year.

Read the financial trends report.

Read the press release.

NCUSIF Equity Ratio of 1.30 Percent Is Not Normal

The National Credit Union Administration (NCUA) Board is proposing to increase the normal operating level of the National Credit Union Share Insurance Fund (NCUSIF) to 1.39 percent from its current level of 1.30 percent.

The Board will pay for the increase in the normal operating level to 1.39 percent by closing the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) in 2017, prior to its scheduled closing date in June 2021, and distributing all assets, property, and funds of TCCUSF to the NCUSIF.

By law, the normal operating level must be set by the NCUA Board between 1.20 percent and 1.50 percent of insured shares.

However, this proposal has been greeted by most of the credit union community like a skunk at the church picnic.

The Credit Union National Association (CUNA) believes a normal operating level of 1.39 percent is too high. But CUNA stated it is willing to accept a temporary 4 basis point increase in the equity ratio to insulate the NCUSIF from legacy asset volatility.

Joining the chorus, the National Association of Federally-Insured Credit Unions believes the current normal operating level for the NCUSIF is appropriate and a dramatic increase in the NCUSIF equity ratio to 1.39 percent in unnecessary.

Some credit unions commented that a normal operating level of 1.30 percent was sufficient to weather the recession and financial crisis.

However, this viewpoint that a normal operating level of 1.30 percent was sufficient to weather the financial crisis is not supported by the evidence.

The TCCUSF was created by Congress in 2009, because credit unions were looking at a 91 basis point hit to the NCUSIF in 2009. This means that credit unions would have been required to immediately expense a portion of their one percent NCUSIF capitalization deposit, as well as pay a premium assessment.

According to a September 2013 White Paper on the NCUSIF, the agency staff concluded that going forward a 1.3 percent equity ratio for the NCUSIF cannot be viewed as normal. The White Paper stated that "the NCUSIF needs an equity ratio of at least 2 percent to provide an asset base that would better enable the NCUSIF to withstand the types of pressure that arose during the recent financial crisis and recession." The agency estimated that the NCUSIF equity ratio needed to be at 2.17 percent of insured shares to prevent any depletion of a credit union's one percent NCUSIF capitalization deposit during the recent financial crisis and recession.

Moreover, there will be inevitable comparison between the NCUSIF to the Federal Deposit Insurance Corporation's Deposit Insurance Fund (DIF). The Federal Deposit Insurance Corporation has stated that a designated reserve ratio of at least 2 percent is an integral part of its comprehensive, long-range management plan for the DIF.

While credit unions will oppose any increase in the NCUSIF normal operating level, there will be political pressure on NCUA to increase the normal operating level.

As a first step, the NCUA Board should raise the normal operating level to its maximum level permitted by law of 1.50 percent, instead of the proposed 1.39 percent.

A second step would require legislation removing the statutory cap on the NCUSIF normal operating level.

Removing the statutory cap on the normal operating level would provide the NCUA Board with greater flexibility to manage the NCUSIF normal operating level. An equity ratio of 2 percent for the NCUSIF would provide an asset base, which could withstand losses that arose during the financial crisis and the Great Recession. It would also ensure parity between the NCUSIF and the DIF.

Tuesday, September 5, 2017

OMB Stays EEOC Revised Data Collection Requirement

The Office of Management and Budget (OMB) on August 29 stayed an Equal Employment Opportunity Commission (EEOC) rule that would have required the collection data on wages and hour worked by race/ethnicity and gender, while the OMB conducts a review to determine whether the revised form meets the standards of the Paperwork Reduction Act.

The stay on this data collection requirement will provide needed regulatory relief for banks and credit unions that are required to file the EEO-1 form.

The old EEO-1 required federal contractors and any company with more than 100 employees to submit data about their workforces — including breakdowns by race, ethnicity, gender and job category.

The new EEO-1 form would have lead to a 20-fold increase in data points to be collected to 3,660 data items per report.

The new data collection requirements were scheduled to go into effect on March 2018.

In announcing the stay, OMB expressed concerns that the revised data collection "lack practical utility, are unnecessarily burdensome, and do not adequately address privacy and confidentiality issues."

Credit unions and banks will be required to complete the old EEO-1 form for fiscal year 2017.

Read the stay memorandum.

Sunday, September 3, 2017

Federal Court Overturns Obama Administration Overtime Rule

A federal judge in Texas on August 31 overturned the Obama administration’s final rule doubling the salary level used to determine whether employees are classified as exempt from overtime under the Fair Labor Standards Act (FLSA).

The rule -- which would more than double the salary level for exemptions from $23,660 to $47,476, regardless of whether the employee would qualify for exemption under the test of “executive, administrative or professional” duties -- has been prevented from taking effect for nearly nine months pending litigation.

District Judge Amos Mazzant has now granted summary judgment for the plaintiffs in a lawsuit brought by 21 states and several business groups, invalidating the final overtime rule. It remains to be seen whether the Department of Labor will appeal the ruling; under the Trump administration, Labor Secretary Alex Acosta was expected to revisit the overtime rule and is currently seeking public comments on its projected impact.

Judge Mazzant ruled that in doubling the salary test, the Obama administration’s interpretation of the FLSA was not “reasonable” and therefore not warranting the “deference” otherwise shown by courts to regulatory actions under the Chevron precedent. “The Department has exceeded its authority and gone too far with the Final Rule,” he ruled. “Nothing in [FLSA] Section 213(a)(1) allows the Department to make salary rather than an employee’s duties determinative of whether a ‘bona fide executive, administrative, or professional capacity’ employee should be exempt from overtime pay.”

Read the order.

Saturday, September 2, 2017

Advia CU Completes Acquisition of Peoples Bank

Advia Credit Union (Parchment, MI) completed its acquisition of Peoples Bank (Elkhorn, WI).

People’s Bank had $230 million in assets and had four Wisconsin locations.

Advia Credit Union has $1.5 billion in assets and 28 branch locations.

Read the story.

Friday, September 1, 2017

Alabama CU Regulator Issues Cease and Desist Order to Craig Credit Union

The Alabama Credit Union Administration issued a cease and desist order against Craig Credit Union (Selma, AL).

The cease and desist order found that the $12.8 million credit union and one or more of its institution-affiliated parties have engaged in unsafe or unsound practices, violation of law, rule, and regulations, and have violated the conditions set forth in an April 24, 2017 Letter of Understanding and Agreement (LUA).

Among the items enumerated by the cease and desist order are the following:
  • The board of directors failed to adequately supervise and direct credit union's management.
  • The credit union had inadequate management.
  • The credit union failed to address material deficiencies and comply with terms and conditions specified in the LUA.
  • The credit union operated with a net loss or insufficient income to support net worth growth.
  • The credit union had declining net worth.
  • The credit union had ineffective loan and collection policies and practices.
  • The credit union failed to reduce delinquencies by 25 percent as specified in the LUA.
The order requires the board of directors to improve its oversight of the affairs of the credit union. Also, the board is expected to do its due diligence in identifying a merger partner.

The credit union is expected to retained qualified management.

The enforcement order further mandates a 50 percent reduction in delinquent loans by December 31, 2017 from December 31, 2016 levels.

Read the order.

Progressive CU CEO Familant Compensation Topped $10 Million in 2015

Taxi medallion lender Progressive Credit Union (New York, NY) reported that its chief executive officer/treasurer, Robert Familant, had a total compensation package of approximately $10.6 million in 2015.

Progressive Credit Union had total assets of $646 million at the end of 2015.

According to Progressive Credit Union's 2015 Form 990, Familant had base compensation of $1,977,204 and other reportable compensation of $8,569,406, which included $7,940,990 from the disbursement of funds from two 457(F) deferred compensation plans and a payment of $628,416 to cover his 2014 tax liability associated with imputed income from the transfer of ownership of non-cash keyman life insurance.

In 2014, Familant's total compensation was $5.9 million with a base pay of $999,727 and bonus and incentive compensation of $4,778,416.

Thursday, August 31, 2017

Regulator Suspends Operations of Tiny Chicago CU for 60 Days

The Illinois Division of Financial Institutions suspended the operations of St. Elizabeth's Credit Union (Chicago, IL) for 60 days in an order issued on August 9.

The Division of Financial Institutions found that the credit union was in danger of insolvency.

The order noted there were serious financial and management deficiencies at the credit union and that the true financial condition of the credit union could not be ascertained.

The credit union has 196 members and less than $125,000 in assets.

Northstar Credit Union was appointed as Manager-Trustee.

Read the order.

Wednesday, August 30, 2017

Study: Paying Board Members Reduces Likelihood of CU Insolvency

A study published earlier this year provides support for paying credit union directors.

The issue of whether or not to pay a credit union's board of directors is a controversial one within the credit union industry. There are those who argue that volunteer boards represent the cooperative nature of credit unions, while others argue that paying board members is necessary to attract qualified members to the board and ensure directors fulfill their duties.

The paper, To Pay or Not Pay: Directors’ Remuneration and Insolvency Risk in Credit Unions, hypothesized that highly compensated directors will have an incentive to more carefully monitor management behavior. The paper found that director pay reduced the likelihood of a credit union becoming insolvent, but only when board members are highly paid.

The research examined a sample of Australian credit unions, where the majority of institutions have moved from a traditional volunteer board nature to one that compensates directors.

The paper also concludes that director pay should be large enough to have a significant impact. If the remuneration is not quite sufficient, then it is better to not-to-pay at all.

The paper's findings have important implications, especially as more states enact laws allowing state chartered credit unions to pay their directors.

The trend is for more credit unions to move away from volunteer boards to paid boards.

The question confronting credit unions and regulators -- is what constitutes reasonable compensation for directors?

Based upon this study's finding, higher director pay should be encouraged.

But are these results only applicable to Australian credit unions?

The study of director pay and credit union insolvency risk needs to be replicated for the United States.

Read the paper.

Tuesday, August 29, 2017

Less Than 20 Percent of CUs That Became Significantly Undercapitalized Are Still Active

Less than 20 percent of credit unions that become significantly undercapitalized are still active or independent, according to the National Credit Union Administration.

Over a 20 year period ranging from the second quarter of 1996 through the second quarter of 2016, 2,502 federally insured credit unions fell below the well-capitalized threshold (net worth ratio below 7 percent) after having a net worth ratio above that threshold for at least one quarter.

This indicates that over the 20 year period approximately one in five credit unions fell below the well-capitalized threshold.

The net worth ratio of 825 of these 2,502 credit unions fell below 4 percent -- the threshold for being significantly undercapitalized. Only 151 of these credit unions (18 percent) remained active.

The net worth ratio of 490 of these 2,502 credit unions eventually fell below two percent -- critically undercapitalized. Importantly, only 15 percent of those credit unions whose net worth dropped below two percent sometime in this period remain active.

Monday, August 28, 2017

SRP FCU Buys Naming Rights to Minor League Ballpark

SRP Federal Credit Union (North Augusta, GA) has agreed to buy the naming rights for a new stadium being built by the Augusta GreenJackets.

The new ballpark will be closed SRP Park.

The new ballpark is scheduled to open next April.

The price of the naming rights deal was not disclosed.

Read the story.

CFPB Temporarily Raises HELOC Reporting Threshold, Makes HMDA Technical Corrections

The Consumer Financial Protection Bureau (CFPB) on Thursday issued a final rule making several technical corrections and clarifications to the expanded data collection under Regulation C, which implements the Home Mortgage Disclosure Act, as well as temporarily raising the threshold at which banks and credit unions are required to report data on home equity lines of credit (HELOC).

Under the rule as originally written, banks and credit unions originating more than 100 HELOCs would have been generally required to report under HMDA, but the final rule temporarily raises that threshold to 500 HELOCS for calendar years 2018 and 2019, allowing the bureau time to assess whether to make the adjusted threshold permanent.

The final rule contains a number of clarifications, technical corrections, and minor changes to the HMDA regulation. In finalizing the technical corrections, the CFPB backtracked on a proposal to define multifamily dwellings as including properties in multiple locations. The CFPB also clarified certain key terms, such as “temporary financing” and “automated underwriting system.”

Read the press release.

Friday, August 25, 2017

Advia CU Seeking Approval for 150,000-Square Foot Office Building

Advia Credit Union (Parchment, MI) plans to build a three-story, 150,000-square foot administration building in Oshtemo Township, as it has outgrown its space in Parchment.

However, the project needs the approval of the Township Board of Trustees, which sent a conditional zoning request back to the Planning Commission.

Advia will work on a revised application, which is expected to be on the September 14 agenda.

The credit union has not purchased the property.

The cost of the project was not disclosed.

Read the story.

Thursday, August 24, 2017

Consultant: Service Charges Are Vital for CUs

Research by Michael Moebs, Economist & CEO of Moebs $ervices, found that credit unions are more reliant on service charges than other depository institutions.

According to Moebs, service charges on deposit accounts include transaction fees - money orders, check cashing, etc., maintenance fees, ATM fees, overdraft fees, and other overdraft related items.

According to Moebs' analysis, service charges as a percent of assets were 0.59 percent for credit union in 2017 versus 0.22 percent for banks and 0.09 percent for thrifts.

Moreover, Moebs found that service charges at credit unions represented 83.6 percent of total net income. In comparison, service charges as a percent of net income for banks and thrifts were significantly lower at 21.4 percent and 8.1 percent, respectively.

Michael Moebs said: "Strategies such as price and account design are essential to credit unions in determining what will generate the most service charge revenue, while staying consumer friendly."

Tuesday, August 22, 2017

Canadian Regulator Suspends Advisory Restricting Use of Terms Bank, Banker, and Banking to Only Banks

The Canadian Office of the Superintendent of Financial Institutions on August 11 suspended its compliance expectations regarding the use of the terms "bank", "banker", and "banking" set forth in a June 30, 2017 advisory.

The Bank Act limits the use of these terms to only banks.

The decision to suspend compliance expectations arose from the issuance of a second consultation paper by the Department of Finance, which seeks views on the Bank Act restrictions on the use of the words "bank", "banker", and "banking".

Canadian credit unions have stated that they would be at a competitive disadvantage, if the could not use banking-related terms to describe their business activities.

Read the press release.

Read the second consultation paper.

Monday, August 21, 2017

Justice Department Ends Operation Chokepoint

In a letter to House Judiciary Committee Chairman Bob Goodlatte (R-Va.) on August 16, Assistant Attorney General Stephen Boyd formally confirmed that the agency has ended the misguided Operation Choke Point initiative.

Operation Chokepoint was launched under the Obama administration. The initiative sought to curtail legal but politically disfavored businesses by working through bank regulators to pressure financial institutions to end customer relationships with those businesses.

“All of the Department’s bank investigations conducted as part of Operation Choke Point are now over, the initiative is no longer in effect, and it will not be undertaken again,” wrote Assistant Attorney General Stephen Boyd. “The Department will not discourage the provision of financial services to lawful industries, including businesses engaged in short-term lending and firearms-related activities."

Read the letter.

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.
 

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