The State of Michigan Department of Insurance and Financial Services liquidated Valley State Credit Union of Saginaw, Michigan, and named the National Credit Union Administration (NCUA) as liquidating agent.
ELGA Credit Union of Burton, Michigan, immediately assumed Valley State Credit Union’s members, assets, shares, and loans. ELGA Credit Union is a federally insured, state-chartered credit union with assets of $498,512,717 and 64,058 members, according to its most recent Call Report.
The Department of Insurance and Financial Services made the decision to liquidate Valley State Credit Union and discontinue its operations after determining the credit union was insolvent with no prospect for recovery. The Department placed Valley State Credit Union into conservatorship on Aug. 17, 2016 and named NCUA as conservator on Nov. 9, 2016.
According to the credit union's most recent Call Report, the credit union was significantly undercapitalized with a net worth ratio of 2.90 percent. Delinquent loans were 7.42 percent of total loans and 154.59 percent of net worth. At the end of 2016, the credit union recorded a loss of almost $2.1 million.
Valley State Credit Union is the second federally insured credit union liquidation in 2017 and the first credit union to fail in Michigan since Veterans Health Administration Credit Union (Detroit, MI) on March 29, 2016.
Read the NCUA press release.
Friday, March 31, 2017
GAO: Privately Insured CUs Comply with Disclosure Requirements; But Rules Can Be Clarified
The Government Accountability Office (GAO) reported that privately insured credit unions largely complied with the Bureau of Consumer Financial Protection (CFPB) requirements to disclose that they do not have federal deposit insurance.
Federal law (12 U.S.C. § 1831t(b)) requires that any depository institution that does not have federal deposit insurance clearly and conspicuously disclose that the institution is not federally insured.
Regulation I, which is administered by the CFPB, requires disclosure that an institution does not have federal deposit insurance (1) at locations where deposits are normally received (stations or windows) except enumerated exceptions, (2) on the institution’s main Internet page (website), (3) in all advertising except enumerated exceptions, and (4) in periodic statements and account records. Also, Regulation I generally requires depository institutions to obtain a written acknowledgment from depositors that the institution does not have federal deposit insurance.
GAO found that 45 of the 47 privately insured credit unions that they visited displayed a disclosure at teller windows. However, 7 of the 17 credit unions with drive-through windows did not have disclosures at the window. GAO noted that the dimensions and font sizes of the disclosure signage varied among credit unions, with some having signage too small to be easily read, or not placed conspicuously.
GAO also reviewed 102 privately insured credit union websites and found that almost all of these websites complied with CFPB’s requirement to disclose on their main Internet page that the institution is not federally insured. However, on 28 of 99 websites the disclosures were not easily seen or readable. Over half of the websites used used a font size that was smaller than that used for the other text on the same webpage.
With respect to printed material, 8 of the 36 credit unions had at least one item that did not contain a disclosure.
While compliance with Regulation I is high, GAO believes that Regulation I may be interpreted and enforced differently by different credit unions and state regulators. GAO wrote: "Without clarity on whether or not drive-through windows are required to have disclosures, some credit unions may continue to not display them at these windows. Additionally, without more clarity or guidance around dimensions and font sizes for disclosures, the disclosures may be too small to be easily read or noticed."
GAO recommended that the CFPB should issue guidance to:
Read the GAO Report.
Federal law (12 U.S.C. § 1831t(b)) requires that any depository institution that does not have federal deposit insurance clearly and conspicuously disclose that the institution is not federally insured.
Regulation I, which is administered by the CFPB, requires disclosure that an institution does not have federal deposit insurance (1) at locations where deposits are normally received (stations or windows) except enumerated exceptions, (2) on the institution’s main Internet page (website), (3) in all advertising except enumerated exceptions, and (4) in periodic statements and account records. Also, Regulation I generally requires depository institutions to obtain a written acknowledgment from depositors that the institution does not have federal deposit insurance.
GAO found that 45 of the 47 privately insured credit unions that they visited displayed a disclosure at teller windows. However, 7 of the 17 credit unions with drive-through windows did not have disclosures at the window. GAO noted that the dimensions and font sizes of the disclosure signage varied among credit unions, with some having signage too small to be easily read, or not placed conspicuously.
GAO also reviewed 102 privately insured credit union websites and found that almost all of these websites complied with CFPB’s requirement to disclose on their main Internet page that the institution is not federally insured. However, on 28 of 99 websites the disclosures were not easily seen or readable. Over half of the websites used used a font size that was smaller than that used for the other text on the same webpage.
With respect to printed material, 8 of the 36 credit unions had at least one item that did not contain a disclosure.
While compliance with Regulation I is high, GAO believes that Regulation I may be interpreted and enforced differently by different credit unions and state regulators. GAO wrote: "Without clarity on whether or not drive-through windows are required to have disclosures, some credit unions may continue to not display them at these windows. Additionally, without more clarity or guidance around dimensions and font sizes for disclosures, the disclosures may be too small to be easily read or noticed."
GAO recommended that the CFPB should issue guidance to:
- clarify whether drive-through windows require disclosures;
- describe what constitutes clear and conspicuous disclosure, including minimum signage dimensions and font size for disclosures; and
- explain and provide examples of which communications are advertising.
Read the GAO Report.
Thursday, March 30, 2017
Alaska USA Expands Presence in Arizona
The Phoenix Business Journal is reporting that Alaska USA Federal Credit Union (Anchorage, AK) recently paid $17 million for a 2-story, 185,000-square-foot office building in Glendale, Arizona.
The building is located near the credit union's existing data center, branch and vacant land purchased over the last several years.
The article notes that Alaska USA has about 11,000 members in Arizona.
Alaska USA operates in Alaska, Arizona, California, and Washington.
Read the story.
The building is located near the credit union's existing data center, branch and vacant land purchased over the last several years.
The article notes that Alaska USA has about 11,000 members in Arizona.
Alaska USA operates in Alaska, Arizona, California, and Washington.
Read the story.
Tuesday, March 28, 2017
Median CU Overdraft Fees Almost Doubled Since 2000
The median overdraft fee at a credit union has almost doubled since 2000.
According to research from Moebs $ervices, the median overdraft fee at credit unions is $29, up from $15 in 2000.
In comparison, the median overdraft fee at banks rose by 50 percent over the same period from $20 to $30.
When the overdraft fee is controlled for inflation, Moebs $ervices found that only 8 percent of the credit unions charged an overdraft fee that is less than or equal to the inflation-adjusted overdraft fee. The inflation-adjusted overdraft fee for credit unions would equal $20.86 per item.
Michael Moebs stated: "Credit unions have an image of being more consumer friendly. When taking a look at the history of overdraft prices, credit unions have been increasing their price at a much quicker rate and now almost on par with banks."
Read the MarketWatch article.
According to research from Moebs $ervices, the median overdraft fee at credit unions is $29, up from $15 in 2000.
In comparison, the median overdraft fee at banks rose by 50 percent over the same period from $20 to $30.
When the overdraft fee is controlled for inflation, Moebs $ervices found that only 8 percent of the credit unions charged an overdraft fee that is less than or equal to the inflation-adjusted overdraft fee. The inflation-adjusted overdraft fee for credit unions would equal $20.86 per item.
Michael Moebs stated: "Credit unions have an image of being more consumer friendly. When taking a look at the history of overdraft prices, credit unions have been increasing their price at a much quicker rate and now almost on par with banks."
Read the MarketWatch article.
Monday, March 27, 2017
FCU's Statutory Interest Rate Cap Is Archaic
During its February 23rd National Credit Union Administration (NCUA) Board meeting, Board Member Metsger stated that the existing interest rate cap in the Federal Credit Union Act is archaic and should be revisited by Congress.
The Federal Credit Union Act sets the maximum interest rate on loans at 15 percent in 1980. However, the NCUA Board has the discretion to raise rates above the statutory cap for periods not to exceed 18 months, if two conditions are met.
According to the transcript, "[t]he NCUA Board has raised this ceiling every 18 months ..., since exactly 1980. ... The ceiling has remained unchanged at 18 percent since May of 1987, or approximately 30 years."
Metsger furthermore stated that 40 percent of the states that do have state supervisors do not have a statutory usury cap. Among states that have a fixed rate usury cap, the statutory interest rate ranges between eight percent and 60 percent, with a median of 21 percent.
According to Metsger, NCUA should ask Congress "to either adjust the statutory ceiling to reflect the reality of the marketplace over the last four decades, or to give the Board broader authority to set the rate for longer periods of time."
Metsger concluded that the 18 percent cap is no longer the exception, but rather the norm.
Acting NCUA Chairman McWatters concurred with Board Member Metsger's statement.
However, if NCUA wants real reform, it should request that Congress repeal the statutory usury cap.
Abolishing the statutory cap will reduce some regulatory burden on federal credit unions. It would allow NCUA to eliminate two lines in the Call Report that apply to federal credit unions requiring them to report on the dollar amount of loans that exceed the 15 percent cap and the weighted average interest rate on these loans.
As an economist, I am opposed to interest rate ceilings or price controls. Price controls distort the market. It interferes with the allocation of credit and has unintended consequences of harming those individuals that the price controls are intended to help.
The Federal Credit Union Act sets the maximum interest rate on loans at 15 percent in 1980. However, the NCUA Board has the discretion to raise rates above the statutory cap for periods not to exceed 18 months, if two conditions are met.
According to the transcript, "[t]he NCUA Board has raised this ceiling every 18 months ..., since exactly 1980. ... The ceiling has remained unchanged at 18 percent since May of 1987, or approximately 30 years."
Metsger furthermore stated that 40 percent of the states that do have state supervisors do not have a statutory usury cap. Among states that have a fixed rate usury cap, the statutory interest rate ranges between eight percent and 60 percent, with a median of 21 percent.
According to Metsger, NCUA should ask Congress "to either adjust the statutory ceiling to reflect the reality of the marketplace over the last four decades, or to give the Board broader authority to set the rate for longer periods of time."
Metsger concluded that the 18 percent cap is no longer the exception, but rather the norm.
Acting NCUA Chairman McWatters concurred with Board Member Metsger's statement.
However, if NCUA wants real reform, it should request that Congress repeal the statutory usury cap.
Abolishing the statutory cap will reduce some regulatory burden on federal credit unions. It would allow NCUA to eliminate two lines in the Call Report that apply to federal credit unions requiring them to report on the dollar amount of loans that exceed the 15 percent cap and the weighted average interest rate on these loans.
As an economist, I am opposed to interest rate ceilings or price controls. Price controls distort the market. It interferes with the allocation of credit and has unintended consequences of harming those individuals that the price controls are intended to help.
Sunday, March 26, 2017
ITT Tech Nightmare Won't Go Away for Indianapolis CU
The Indianapolis Business Journal is reporting that the bankruptcy of ITT Technical Institute (ITT) continues to haunt Elements Financial Federal Credit Union, formerly called Eli Lilly FCU.
Elements Financial partnered with six other credit unions to provide loans to students attending ITT. However, the loans performed poorly causing a $14 million loss for Elements Financial in 2012.
Now, the bankruptcy trustee in a court filing is considering suing the credit unions and the advisory firm that crafted the loan program.
The draft complaint alleges that lenders received tens of millions of dollars in “fraudulent transfers.” The trustee contends that these payments to lenders occurred at a time when ITT was insolvent or contributed to ITT's insolvency. The draft complaint also alleges that lenders engaged in aiding and abetting fraud.
In addition, the trustee is seeking to invalidate claims from lenders claiming that they are owed $157 million as a result of unfulfilled commitments by ITT to step in and make payments itself if losses surpassed certain thresholds.
The trustee filed the draft complaint in an effort to block the credit unions’ efforts to seize $8.8 million in cash in an ITT account.
Read the story.
Elements Financial partnered with six other credit unions to provide loans to students attending ITT. However, the loans performed poorly causing a $14 million loss for Elements Financial in 2012.
Now, the bankruptcy trustee in a court filing is considering suing the credit unions and the advisory firm that crafted the loan program.
The draft complaint alleges that lenders received tens of millions of dollars in “fraudulent transfers.” The trustee contends that these payments to lenders occurred at a time when ITT was insolvent or contributed to ITT's insolvency. The draft complaint also alleges that lenders engaged in aiding and abetting fraud.
In addition, the trustee is seeking to invalidate claims from lenders claiming that they are owed $157 million as a result of unfulfilled commitments by ITT to step in and make payments itself if losses surpassed certain thresholds.
The trustee filed the draft complaint in an effort to block the credit unions’ efforts to seize $8.8 million in cash in an ITT account.
Read the story.
Friday, March 24, 2017
Guardian CU Named Title Sponsor of College Football Kickoff Game
Guardian Credit Union will be the titled sponsor of a college football game starting the 2017 season in Montgomery, Alabama.
The game will be called "Guardian Credit Union FCS Kickoff."
The game will feature Jacksonville State against Tennessee-Chattanooga.
The price tag of the sponsorship was not disclosed.
Read the story.
The game will be called "Guardian Credit Union FCS Kickoff."
The game will feature Jacksonville State against Tennessee-Chattanooga.
The price tag of the sponsorship was not disclosed.
Read the story.
Thursday, March 23, 2017
1,118 Credit Unions Reported A Loss for 2016
At the end of 2016, 1,118 credit unions reported a loss. This means 19.3 percent of all credit unions were unprofitable for the full year of 2016.
Forty-nine credit unions reported losses in excess of $1 million for all of 2016.
It should not come as a surprise that the three credit unions with the largest losses were the three large New York City taxi medallion lending credit unions -- Melrose, Progressive, and LOMTO.
The following table lists the 10 credit unions with the largest losses for 2016.
Forty-nine credit unions reported losses in excess of $1 million for all of 2016.
It should not come as a surprise that the three credit unions with the largest losses were the three large New York City taxi medallion lending credit unions -- Melrose, Progressive, and LOMTO.
The following table lists the 10 credit unions with the largest losses for 2016.
Wednesday, March 22, 2017
Disclosures, Supplemental Capital, and Material Risk
The National Credit Union Administration (NCUA) is seeking input regarding disclosures for credit unions issuing supplemental capital.
The credit union Call Report does not provide adequate disclosures about material facts affecting a credit union to protect investors.
According to the Advanced Notice of Proposed Rulemaking, "[t]he disclosure must not contain any untrue statement of a material fact and must not omit to state a material fact ... the disclosure must be clear, accurate and verifiable."
Topics that should be covered in the disclosure include:
In addition, to protect investors, credit union regulators will need to end their practices of not publishing enforcement actions. In 2015, there were 286 outstanding unpublished Letters of Understanding and Agreement. These unpublished enforcement actions identify material risks that are affecting the operation of credit unions. This is information that investors would find important.
Moreover, credit unions will be expected to provide "ongoing communications with investors, reporting of compliance with the contractual covenants, and sharing of information with current and prospective investors."
The Board notes that "[f]ailure to comply with the investment contracts or to properly monitor communications and sharing of information could subject the credit union to liability, which could negatively impact the Share Insurance Fund."
The credit union Call Report does not provide adequate disclosures about material facts affecting a credit union to protect investors.
According to the Advanced Notice of Proposed Rulemaking, "[t]he disclosure must not contain any untrue statement of a material fact and must not omit to state a material fact ... the disclosure must be clear, accurate and verifiable."
Topics that should be covered in the disclosure include:
- Material risks relating to the issuer and the industry in which the issuer operates;
- Material risks relating to the security being offered;
- The issuer’s planned uses for the proceeds of the offering;
- Regulatory matters impacting the issuer and its operations;
- Tax issues associated with the security being offered; and
- How the securities are being offered and sold, including any conditions to be met in order to complete the offering.
In addition, to protect investors, credit union regulators will need to end their practices of not publishing enforcement actions. In 2015, there were 286 outstanding unpublished Letters of Understanding and Agreement. These unpublished enforcement actions identify material risks that are affecting the operation of credit unions. This is information that investors would find important.
Moreover, credit unions will be expected to provide "ongoing communications with investors, reporting of compliance with the contractual covenants, and sharing of information with current and prospective investors."
The Board notes that "[f]ailure to comply with the investment contracts or to properly monitor communications and sharing of information could subject the credit union to liability, which could negatively impact the Share Insurance Fund."
Tuesday, March 21, 2017
Teachers Credit Union Signs 10-Year Naming Rights Deal for High School Gym
Teachers Credit Union (South Bend, IN) has signed a 10-year naming rights agreement with Warsaw Community Schools.
The gymnasium at Warsaw High will be called Tiger Den TCU Court.
Signage noting the name change will be installed both outside and inside the building.
The price tag of the 10-year deal was not disclosed.
Read the press release.
The gymnasium at Warsaw High will be called Tiger Den TCU Court.
Signage noting the name change will be installed both outside and inside the building.
The price tag of the 10-year deal was not disclosed.
Read the press release.
Monday, March 20, 2017
Jury Orders 4Front CU to Pay over $1 Million
A jury directed 4Front Credit Union (Traverse, MI) to pay $1,132,124 in damages to John M Floyd & Associates Inc.
John M Floyd & Associates provided overdraft and courtesy pay services for Members First Credit Union.
Members First Credit Union merged with Bay Winds Credit Union to create 4Front in 2015.
Floyd & Associates argued the contract between Members First CU and Floyd & Associates would be extended through 2017 if the credit union shared the company’s services with another entity, according to records filed in 13th Circuit Court.
Jurors determined that 4Front violated the terms of the contract and ordered the credit union to repay John M Floyd & Associates.
Read the story.
John M Floyd & Associates provided overdraft and courtesy pay services for Members First Credit Union.
Members First Credit Union merged with Bay Winds Credit Union to create 4Front in 2015.
Floyd & Associates argued the contract between Members First CU and Floyd & Associates would be extended through 2017 if the credit union shared the company’s services with another entity, according to records filed in 13th Circuit Court.
Jurors determined that 4Front violated the terms of the contract and ordered the credit union to repay John M Floyd & Associates.
Read the story.
Saturday, March 18, 2017
Marketplace: New York Taxi Industry Implodes
Marketplace on Friday night looked at the hardship confronting New York City's Yellow Cabs arising from the growing popularity of ride-sharing apps.
The story notes that taxi medallions were once a solid investment and viewed as low risk by lenders.
However, after Uber entered New York City in 2011, Yellow Cab ridership started to decline. The story notes that Yellow Cab ridership is down 30 percent over the last three years.
This has caused financial hardship for taxi medallion owners and large losses for lenders that financed medallions.
Read and listen to the story.
The story notes that taxi medallions were once a solid investment and viewed as low risk by lenders.
However, after Uber entered New York City in 2011, Yellow Cab ridership started to decline. The story notes that Yellow Cab ridership is down 30 percent over the last three years.
This has caused financial hardship for taxi medallion owners and large losses for lenders that financed medallions.
Read and listen to the story.
Friday, March 17, 2017
Florida Conference AME Church FCU Closed
The National Credit Union Administration (NCUA) liquidated Florida Conference AME Church (FCAMEC) Federal Credit Union of Tallahassee, Florida.
Gulf Winds Federal Credit Union, of Pensacola, Florida, has assumed the members and deposits of the former Florida Conference AME Church Federal Credit Union.
NCUA made the decision to liquidate the Florida Conference AME Church Federal Credit Union and discontinue its operations after determining the credit union was insolvent and had no prospect for restoring viable operations.
As of December 31, 2016, the credit union was significantly undercapitalized with a net worth ratio of 2.75 percent. The credit union posted a small loss of $9,601 for 2016 after posting a loss of $104,541 for 2015.
Florida Conference AME Church Federal Credit Union served 560 members and had assets of $1,760,664 at the end of 2016. The credit union had a low-income designation.
This is the first credit union to be liquidated in 2017.
Read the press release.
Read the press release on Gulf Wind's assumption of deposits and members.
Gulf Winds Federal Credit Union, of Pensacola, Florida, has assumed the members and deposits of the former Florida Conference AME Church Federal Credit Union.
NCUA made the decision to liquidate the Florida Conference AME Church Federal Credit Union and discontinue its operations after determining the credit union was insolvent and had no prospect for restoring viable operations.
As of December 31, 2016, the credit union was significantly undercapitalized with a net worth ratio of 2.75 percent. The credit union posted a small loss of $9,601 for 2016 after posting a loss of $104,541 for 2015.
Florida Conference AME Church Federal Credit Union served 560 members and had assets of $1,760,664 at the end of 2016. The credit union had a low-income designation.
This is the first credit union to be liquidated in 2017.
Read the press release.
Read the press release on Gulf Wind's assumption of deposits and members.
Thursday, March 16, 2017
Fifty-one Percent of CUs Had Fewer Members Compared to a Year Ago
The National Credit Union Administration (NCUA) reported that over half of all federally insured credit unions reported a year-over-year decline in credit union membership at the end of 2016.
While overall credit union membership increased for the four quarters ending December 31, 2016, the median membership growth rate fell by 0.1 percent.
In comparison, the median membership growth rate was negative 0.2 percent for the four quarters ending December 31, 2015.
Fifty-one percent of all federally insured credit unions reported fewer members as of December 31, 2016 compared to a year ago.
NCUA noted that 75 percent of the credit unions reporting fewer members compared to a year ago had less than $50 million in assets.
Twenty-three states reported negative median membership growth rate for the four quarters ending on December 31, 2016. At the median, the membership growth rate for credit unions in the District of Columbia was minus 1.9 percent, followed by Pennsylvania at minus 1.5 percent and New Jersey at negative 1.4 percent.
On the other hand, credit unions in Alaska and Maine reported the fastest median membership growth rates at 2.4 percent and 2.0 percent, respectively.
Read the report.
While overall credit union membership increased for the four quarters ending December 31, 2016, the median membership growth rate fell by 0.1 percent.
In comparison, the median membership growth rate was negative 0.2 percent for the four quarters ending December 31, 2015.
Fifty-one percent of all federally insured credit unions reported fewer members as of December 31, 2016 compared to a year ago.
NCUA noted that 75 percent of the credit unions reporting fewer members compared to a year ago had less than $50 million in assets.
Twenty-three states reported negative median membership growth rate for the four quarters ending on December 31, 2016. At the median, the membership growth rate for credit unions in the District of Columbia was minus 1.9 percent, followed by Pennsylvania at minus 1.5 percent and New Jersey at negative 1.4 percent.
On the other hand, credit unions in Alaska and Maine reported the fastest median membership growth rates at 2.4 percent and 2.0 percent, respectively.
Read the report.
Wednesday, March 15, 2017
WESTconsin CU to Settle Class Action Lawsuit
WESTconsin Credit Union (Menomonie, WI) has agreed to a preliminary settlement of $700,000 to end a class action lawsuit that claimed the credit union violated Wisconsin's Driver’s Privacy Protection Act.
The plaintiffs, Mary Eggen and Bradley Eggen, filed this class action on December 16, 2014.
As background, the plaintiffs defaulted on a consumer loans from WESTconsin Credit Union. The credit union sued them in state court in 2010. Included in defendant’s publicly filed court documents were plaintiffs’ Social Security numbers and driver license numbers. The plaintiffs claimed that the disclosure of that information violated the Driver’s Privacy Protection Act.
On February 26, 2016, the court certified the following class under Federal Rule of Civil Procedure 23(b)(3): “All individuals whose driver license numbers defendant WESTconsin disclosed on or after December 16, 2010 in an action filed in Wisconsin circuit court to recover unpaid loan balances.” According to the lawsuit, there were 382 class members.
Under the terms of the agreement, WESTconsin Credit Union agreed to pay $700,000.16, which will be distributed as follows: (a) $1,149.15 to each of the 381 class members (a total of $437,826.15); (b) $5,000 to each class representative; (c) $231,000 for attorney fees; and (d) $21,174.01 for litigation costs.
A hearing on final approval of the settlement agreement will be held on April 6, 2017.
Read the opinion and order.
The plaintiffs, Mary Eggen and Bradley Eggen, filed this class action on December 16, 2014.
As background, the plaintiffs defaulted on a consumer loans from WESTconsin Credit Union. The credit union sued them in state court in 2010. Included in defendant’s publicly filed court documents were plaintiffs’ Social Security numbers and driver license numbers. The plaintiffs claimed that the disclosure of that information violated the Driver’s Privacy Protection Act.
On February 26, 2016, the court certified the following class under Federal Rule of Civil Procedure 23(b)(3): “All individuals whose driver license numbers defendant WESTconsin disclosed on or after December 16, 2010 in an action filed in Wisconsin circuit court to recover unpaid loan balances.” According to the lawsuit, there were 382 class members.
Under the terms of the agreement, WESTconsin Credit Union agreed to pay $700,000.16, which will be distributed as follows: (a) $1,149.15 to each of the 381 class members (a total of $437,826.15); (b) $5,000 to each class representative; (c) $231,000 for attorney fees; and (d) $21,174.01 for litigation costs.
A hearing on final approval of the settlement agreement will be held on April 6, 2017.
Read the opinion and order.
Tuesday, March 14, 2017
Outstanding Enforcement Actions Fell in 2016
The National Credit Union Administration (NCUA) in its 2016 Annual Report wrote that the number of enforcement actions has steadily declined over the last several years.
Enforcement actions include preliminary warning letters, letters of understanding and agreement (LUA), cease-and-desist orders, and conservatorships.
The number of total outstanding enforcement actions for federally insured credit unions decreased, from 359 at the end of 2015 to 303 at the end of 2016.
Both federal credit unions and federally-insured state-chartered credit unions reported a drop in outstanding enforcement actions.
NCUA attributed the decline in the number of outstanding enforcement actions to an improved economy and the implementation of corrective actions at credit unions to mitigate identified risks.
Enforcement actions include preliminary warning letters, letters of understanding and agreement (LUA), cease-and-desist orders, and conservatorships.
The number of total outstanding enforcement actions for federally insured credit unions decreased, from 359 at the end of 2015 to 303 at the end of 2016.
Both federal credit unions and federally-insured state-chartered credit unions reported a drop in outstanding enforcement actions.
NCUA attributed the decline in the number of outstanding enforcement actions to an improved economy and the implementation of corrective actions at credit unions to mitigate identified risks.
Monday, March 13, 2017
The Value of Taxi Medallions
What is the value of taxi medallions in New York City and Chicago?
The recent 8-K filing by Medallion Financial on March 7 provides some guidance.
Medallion Financial wrote:
This would suggest that the estimated value for New York City taxi medallions are down approximately 50 percent from their peak in 2014 and the estimated value for Chicago taxi medallions are down about 80 percent from their peak.
Medallion Financial further stated:
The financial filings by publicly traded banks will provide insights into what will probably occur at credit unions with exposure to taxi medallion loans.
The recent 8-K filing by Medallion Financial on March 7 provides some guidance.
Medallion Financial wrote:
"[W]e have reduced the estimated value of New York City unrestricted medallion collateral to $500,000 for individual medallions and to $550,000 for corporate medallions, and reduced Chicago medallions to $60,000."
This would suggest that the estimated value for New York City taxi medallions are down approximately 50 percent from their peak in 2014 and the estimated value for Chicago taxi medallions are down about 80 percent from their peak.
Medallion Financial further stated:
"For non-performing medallion loans and the owned Chicago medallions, we have taken unrealized depreciation adjustments in accordance with these estimated collateral values."
The financial filings by publicly traded banks will provide insights into what will probably occur at credit unions with exposure to taxi medallion loans.
Sunday, March 12, 2017
Self-Help FCU Buys Branches and Deposits of Failed Seaway Bank & Trust
The remnants of failed Seaway Bank & Trust, which was acquired by Dallas, Texas-based State Bank of Texas in January from the Federal Deposit Insurance Corporation, is being sold to Self-Help Federal Credit Union (Durham, NC).
State Bank of Texas is selling Seaway's branches and deposits to the North Carolina-based credit union.
State Bank of Texas will continue to hold and manage Seaway's existing loans and will operate the foreign-exchange concessions at O'Hare and Midway airports.
Read the story.
State Bank of Texas is selling Seaway's branches and deposits to the North Carolina-based credit union.
State Bank of Texas will continue to hold and manage Seaway's existing loans and will operate the foreign-exchange concessions at O'Hare and Midway airports.
Read the story.
Saturday, March 11, 2017
Oops! CU Trade Groups Retract Statement Saying ICBA Had Missed the Appeals Deadline
Credit union trade groups issued a correction after saying the legal deadline had passed for community bankers to file an appeal in their lawsuit against the National Credit Union Administration's Member Business Loan rule.
In a statement, the Credit Union National Association and National Association of Federally-Insured Credit Unions acknowledged that the Independent Community Bankers of America (ICBA) has until March 27 to appeal the case.
In an earlier statement, the credit union trade groups had stated that ICBA had missed a February 23 deadline to appeal the case.
Read the statement.
In a statement, the Credit Union National Association and National Association of Federally-Insured Credit Unions acknowledged that the Independent Community Bankers of America (ICBA) has until March 27 to appeal the case.
In an earlier statement, the credit union trade groups had stated that ICBA had missed a February 23 deadline to appeal the case.
Read the statement.
Friday, March 10, 2017
Family Security Credit Union Acquires Bank of Pine Hill
Family Security Credit Union (Decatur, AL) has completed its acquisition of the Bank of Pine Hill, which has $20 million in assets.
Family Security Credit Union has 21 branches and $578.8 million in assets.
Read the story.
Family Security Credit Union has 21 branches and $578.8 million in assets.
Read the story.
San Diego County CU Buys the Naming Rights to the Holiday Bowl
San Diego County Credit Union will become the title sponsor of the Holiday Bowl.
The college football bowl game will be called the San Diego County Credit Union Holiday Bowl.
San Diego County Credit Union had been the title sponsor of the Poinsettia Bowl for the past 12 years. The decision was made to discontinue the Poinsettia Bowl earlier this year.
The financial terms of the sponsorship were not disclosed. However, it is reported that bowl games played prior to New Year's typically sell their naming rights for $500,000 to $1 million annually.
Read the press release.
The college football bowl game will be called the San Diego County Credit Union Holiday Bowl.
San Diego County Credit Union had been the title sponsor of the Poinsettia Bowl for the past 12 years. The decision was made to discontinue the Poinsettia Bowl earlier this year.
The financial terms of the sponsorship were not disclosed. However, it is reported that bowl games played prior to New Year's typically sell their naming rights for $500,000 to $1 million annually.
Read the press release.
Thursday, March 9, 2017
Be Careful What You Wish For
The banking industry, as well as this blogger, has commented that the National Credit Union Administration (NCUA) should allow public comments regarding a community charter application before the agency makes a decision on the application.
Speaking at the Credit Union National Association (CUNA) Governmental Affairs Conference on February 28, Acting NCUA Chairman McWatters appears to have partially granted the banking industry's wish. Acting Chairman McWatters stated:
Clearly, permitting public comments on certain community charter applications will be a burr under the saddle for the credit union industry.
But this is a smart move on the part of NCUA to seek comment on community charter applications.
By requiring comment, the ball will now be in the court of bankers and bank trade associations.
If bankers and bank trade associations fail to comment on certain proposed community charters, it will probably make it more difficult for the banking industry to do an as applied challenges to NCUA's community charter decisions in the courts.
Speaking at the Credit Union National Association (CUNA) Governmental Affairs Conference on February 28, Acting NCUA Chairman McWatters appears to have partially granted the banking industry's wish. Acting Chairman McWatters stated:
"The final field-of-membership rule should also afford enhanced due process rights for those that wish to register public comment regarding certain proposed community-based field-of-membership applications prior to definitive action by the agency."
Clearly, permitting public comments on certain community charter applications will be a burr under the saddle for the credit union industry.
But this is a smart move on the part of NCUA to seek comment on community charter applications.
By requiring comment, the ball will now be in the court of bankers and bank trade associations.
If bankers and bank trade associations fail to comment on certain proposed community charters, it will probably make it more difficult for the banking industry to do an as applied challenges to NCUA's community charter decisions in the courts.
Wednesday, March 8, 2017
Who Should Be Allowed to Purchase Alternative Capital?
The National Credit Union Administration (NCUA) Board is requesting comment on whether the sale of secondary and supplemental capital should be limited to only institutional investors, include accredited investor, or allow for anyone to purchase.
I do not believe that the NCUA Board should allow anyone to purchase secondary or supplemental capital.
Many people lack financial sophistication. For people lacking financial sophistication, this product would not be suitable.
NCUA should either require credit unions issuing alternative capital to comply with the Security and Exchange Commission's Regulation D or issue regulations comparable to Regulation D.
Under Regulation D, an organization can issue debt or equity through a private offering without officially registering the offering to “go public”. This exemption reduces the amount of paperwork required, lessening the time and money it takes to actually raise capital.
However, the Securities and Exchange Commission encourages or requires companies to work with accredited investors when raising capital through a private offering. The rule gives room for 35 non-accredited investors to participate so long as disclosure requirements are met and any non-accredited investor must be a sophisticated investor.
Accredited investor is defined as an individual that has made $200,000 or more on an annual basis for the past two out of three years and is likely to make that same amount this year. If it is a couple qualifying together that amount is raised to $300,000. If they do not meet the income requirements, they can qualify using a net worth of over $1 million excluding their primary residence.
A sophisticated investor is defined as someone that has superior knowledge of business and financial matters.
I do not believe that the NCUA Board should allow anyone to purchase secondary or supplemental capital.
Many people lack financial sophistication. For people lacking financial sophistication, this product would not be suitable.
NCUA should either require credit unions issuing alternative capital to comply with the Security and Exchange Commission's Regulation D or issue regulations comparable to Regulation D.
Under Regulation D, an organization can issue debt or equity through a private offering without officially registering the offering to “go public”. This exemption reduces the amount of paperwork required, lessening the time and money it takes to actually raise capital.
However, the Securities and Exchange Commission encourages or requires companies to work with accredited investors when raising capital through a private offering. The rule gives room for 35 non-accredited investors to participate so long as disclosure requirements are met and any non-accredited investor must be a sophisticated investor.
Accredited investor is defined as an individual that has made $200,000 or more on an annual basis for the past two out of three years and is likely to make that same amount this year. If it is a couple qualifying together that amount is raised to $300,000. If they do not meet the income requirements, they can qualify using a net worth of over $1 million excluding their primary residence.
A sophisticated investor is defined as someone that has superior knowledge of business and financial matters.
Tuesday, March 7, 2017
Consumer Credit at CUs Grew by $4.2 Billion in January 2017
The Federal Reserve reported today that outstanding consumer credit at credit unions grew by $4.2 billion to $386.2 billion for the month of January 2017, according to the G.19 Report.
Revolving credit fell from $53.1 billion in December 2016 to $52.5 billion in January 2017.
Non-revolving credit at credit unions grew by $4.8 billion in January to $333.7 billion.
Revolving credit fell from $53.1 billion in December 2016 to $52.5 billion in January 2017.
Non-revolving credit at credit unions grew by $4.8 billion in January to $333.7 billion.
Monday, March 6, 2017
Federally-Insured CUs Posted Strong Loan and Deposit Growth in 2016
The National Credit Union Administration (NCUA) reported that federally-insured credit unions (credit unions) had strong deposit and loan growth in 2016.
Total loans outstanding increased $82 billion, or 10.4 percent, over the year to $869.1 billion.
Compared to a year ago,
Insured shares and deposits rose $67 billion, or 7.0 percent, over the four quarters of 2016 to more than $1 trillion.
Due to loans growing at a faster pace than shares, the loans-to-shares ratio rose almost 210 basis points to 79.55 percent in the fourth quarter of 2016, up from 77.46 percent in the fourth quarter of 2015.
Net Income Up 10.6 Percent from a Year Ago
Net income totaled $9.6 billion in 2016, up $0.9 billion, or 10.6 percent, from 2015. Gross income increased by $5 billion over the last year to $60 billion at the end of 2016. Interest income rose 8.6 percent in 2016 to $42.6 billion and non-interest income increased 9.9 percent to $17.4 billion.
On the other hand, interest expense totaled $6.6 billion in 2016 up 8.8 percent from one year earlier. Non-interest expenses grew 6.9 percent to $38.7 billion in 2016. Rising labor expenses, which were up $1.3 billion, accounted for roughly half of the increase in non-interest expenses.
The credit union system’s provision for loan and lease losses rose $1 billion, or 24.8 percent, to $5.1 billion in 2016.
The return on average assets (ROA) edged higher by 2 basis points in 2016 to .77 percent. Factors increasing the industry's ROA compared to a year ago were higher net interest margin, higher fee and other income, lower operating expenses, and higher non-interest income. If it was not for the increase in provisions for loan losses, the industry's ROA would have been 6 basis points higher.
Delinquent Loans Increased in 2016
Delinquent loans rose from $6.39 billion at the end of 2015 to $7.22 billion at the end of 2016.
The delinquency rate on loans at federally insured credit unions was 83 basis points in the fourth quarter of 2016, little changed from 81 basis points one year earlier.
Net charge offs rose by 25 percent from a year ago to $4.56 billion. As a result, the net charge-off ratio for all federally insured credit unions was 55 basis points in the fourth quarter of 2016 -- up 7 basis points from a year ago.
Ninety-eight Percent of Credit Unions Have Net Worth Ratios of 7 Percent or Higher
The credit union system’s net worth increased by $9.3 billion, or 7.1 percent, over the year to $140.8 billion. The aggregate net worth ratio – net worth as a percentage of assets – stood at 10.89 percent in the fourth quarter of 2016, compared with 10.92 percent one year earlier.
At the end of 2016, 5,666 credit unions have a net worth ratio of 7 percent or higher. Less than one percent of credit unions were undercapitalized at the end of 2016.
Chart book.
Total loans outstanding increased $82 billion, or 10.4 percent, over the year to $869.1 billion.
Compared to a year ago,
- New auto loans jumped by 16.8 percent to to $116.9 billion.
- Used auto loans rose 12.3 percent to $181.8 billion.
- Net member business loan balances, including unfunded commitments, increased 14.6 percent to $66.6 billion in the fourth quarter.
Insured shares and deposits rose $67 billion, or 7.0 percent, over the four quarters of 2016 to more than $1 trillion.
Due to loans growing at a faster pace than shares, the loans-to-shares ratio rose almost 210 basis points to 79.55 percent in the fourth quarter of 2016, up from 77.46 percent in the fourth quarter of 2015.
Net Income Up 10.6 Percent from a Year Ago
Net income totaled $9.6 billion in 2016, up $0.9 billion, or 10.6 percent, from 2015. Gross income increased by $5 billion over the last year to $60 billion at the end of 2016. Interest income rose 8.6 percent in 2016 to $42.6 billion and non-interest income increased 9.9 percent to $17.4 billion.
On the other hand, interest expense totaled $6.6 billion in 2016 up 8.8 percent from one year earlier. Non-interest expenses grew 6.9 percent to $38.7 billion in 2016. Rising labor expenses, which were up $1.3 billion, accounted for roughly half of the increase in non-interest expenses.
The credit union system’s provision for loan and lease losses rose $1 billion, or 24.8 percent, to $5.1 billion in 2016.
The return on average assets (ROA) edged higher by 2 basis points in 2016 to .77 percent. Factors increasing the industry's ROA compared to a year ago were higher net interest margin, higher fee and other income, lower operating expenses, and higher non-interest income. If it was not for the increase in provisions for loan losses, the industry's ROA would have been 6 basis points higher.
Delinquent Loans Increased in 2016
Delinquent loans rose from $6.39 billion at the end of 2015 to $7.22 billion at the end of 2016.
The delinquency rate on loans at federally insured credit unions was 83 basis points in the fourth quarter of 2016, little changed from 81 basis points one year earlier.
Net charge offs rose by 25 percent from a year ago to $4.56 billion. As a result, the net charge-off ratio for all federally insured credit unions was 55 basis points in the fourth quarter of 2016 -- up 7 basis points from a year ago.
Ninety-eight Percent of Credit Unions Have Net Worth Ratios of 7 Percent or Higher
The credit union system’s net worth increased by $9.3 billion, or 7.1 percent, over the year to $140.8 billion. The aggregate net worth ratio – net worth as a percentage of assets – stood at 10.89 percent in the fourth quarter of 2016, compared with 10.92 percent one year earlier.
At the end of 2016, 5,666 credit unions have a net worth ratio of 7 percent or higher. Less than one percent of credit unions were undercapitalized at the end of 2016.
Chart book.
Saturday, March 4, 2017
DayMet Credit Union Becomes Privately Insured
The National Credit Union Administration on January 30th approved the application of DayMet Credit Union (Dayton, OH) to switch from federal to private insurance.
Going forward, the credit union will be insured by American Mutual Share Insurance (ASI).
Credit unions in nine states can opt for private share (deposit) insurance.
Going forward, the credit union will be insured by American Mutual Share Insurance (ASI).
Credit unions in nine states can opt for private share (deposit) insurance.
Friday, March 3, 2017
Issued PWLs in 2016 Were Up, Issued LUAs in 2016 Were Down
Information obtained under a Freedom of Information Act showed that in 2016 there was an increase in the issuance of preliminary warning letters (PWL) and a decrease in the issuance of letters of understanding and agreement (LUA) by the National Credit Union Administration (NCUA).
ALL LUAs were unpublished in 2016.
One LUA was issued by field staff to Servco FCU (Bensalem, PA) on February 25, 2016 -- just weeks before NCUA liquidated the credit union. If it was not for the Material Loss Review issued in February, we would not have known about the LUA.
The following table reports the trend in PWLs, LUA, and cease and desist orders (C&D) issued by NCUA from 2013 through 2016.
ALL LUAs were unpublished in 2016.
One LUA was issued by field staff to Servco FCU (Bensalem, PA) on February 25, 2016 -- just weeks before NCUA liquidated the credit union. If it was not for the Material Loss Review issued in February, we would not have known about the LUA.
The following table reports the trend in PWLs, LUA, and cease and desist orders (C&D) issued by NCUA from 2013 through 2016.
Thursday, March 2, 2017
PenFed on Merger Spree
Since November 1, 2015, Alexandria,VA-based Pentagon Federal Credit Union (PenFed) has been on a merger binge.
PenFed has completed 8 mergers between November 1, 2015 and January 1, 2017, according to the Federal Financial Institutions Examination Council's National Information Center.
In addition, there are 5 mergers waiting to be completed. Three include credit unions that were in poor financial conditions
These thirteen acquisitions, when all are completed, will add more than $1 billion in assets to PenFed.
PenFed has completed 8 mergers between November 1, 2015 and January 1, 2017, according to the Federal Financial Institutions Examination Council's National Information Center.
In addition, there are 5 mergers waiting to be completed. Three include credit unions that were in poor financial conditions
These thirteen acquisitions, when all are completed, will add more than $1 billion in assets to PenFed.
Wednesday, March 1, 2017
Merger Creates $2.8 Billion Credit Union
California Credit Union (Glendale, CA) and North Island Credit Union (San Diego, CA) announced that their merger has received regulatory approval as well as approval by a majority vote of North Island's membership.
California Credit Union has 13 branches throughout the Los Angeles area with more than 86,000 members and assets of nearly $1.4 billion.
North Island Credit Union has $1.3 billion in assets, 11 branches and 75,000 members.
The combined organization will hold $2.8 billion in assets and will serve 165,000 members with 24 branches across Los Angeles and San Diego counties, will take on the California Credit Union name and charter as the continuing credit union.
Credit union operations in San Diego County will retain the North Island name, operating as a division of California Credit Union.
The merger became effective on March 1, 2017.
Read the press release.
California Credit Union has 13 branches throughout the Los Angeles area with more than 86,000 members and assets of nearly $1.4 billion.
North Island Credit Union has $1.3 billion in assets, 11 branches and 75,000 members.
The combined organization will hold $2.8 billion in assets and will serve 165,000 members with 24 branches across Los Angeles and San Diego counties, will take on the California Credit Union name and charter as the continuing credit union.
Credit union operations in San Diego County will retain the North Island name, operating as a division of California Credit Union.
The merger became effective on March 1, 2017.
Read the press release.
McWatters Outlines His 15-Point Plan for Loosening CU Regulation
National Credit Union Administration (NCUA) Acting Chairman J. Mark McWatters discussed his 15-point plan of loosening credit union regulation at the Credit Union National Association's Governmental Affairs Conference in Washington, D.C.
Acting Chairman McWatters stated that the goal is "to reduce the regulatory and supervisory burden on the credit union community without threatening the safety and soundness of the National Credit Union Share Insurance Fund."
Addressing credit union fears about a possible premium assessment this year, McWatters stated that it is his top priority in 2017 to merge the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund) into the National Credit Union Share Insurance Fund (NCUSIF). He stated that such a merger would allow NCUA to minimize or avoid a premium assessment this year and would start a multi-year process of rebating surplus funds from the NCUSIF to federally insured credit unions But before the NCUA Board votes to close the Stabilization Fund, the agency needed to thoroughly research and evaluate accounting, legal, and financial issues.
Another elements of his plan would include revisiting the agency's controversial risk-based net worth regulation and other needlessly burdensome rules.
McWatters also stated that the agency would abolish its examination reliance on “best practices,” which lack statutory or regulatory support.
He called on the agency to develop an improved appeals process for examinations and other matters of controversy. In addition, NCUA needs to create a credit union advisory council in order for the agency to hear and learn from credit unions.
The agency should require all merger solicitation documents to provide, without limitation, a discussion of any change-in-control payments and other management compensation awards and agreements, and that such disclosures are written in plain language and delivered to voting members in a reasonable time prior to the scheduled merger vote.
He further stated that NCUA would support updating the Federal Credit Union Act to foster credit union opportunity and growth.
Read McWatters' speech.
Acting Chairman McWatters stated that the goal is "to reduce the regulatory and supervisory burden on the credit union community without threatening the safety and soundness of the National Credit Union Share Insurance Fund."
Addressing credit union fears about a possible premium assessment this year, McWatters stated that it is his top priority in 2017 to merge the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund) into the National Credit Union Share Insurance Fund (NCUSIF). He stated that such a merger would allow NCUA to minimize or avoid a premium assessment this year and would start a multi-year process of rebating surplus funds from the NCUSIF to federally insured credit unions But before the NCUA Board votes to close the Stabilization Fund, the agency needed to thoroughly research and evaluate accounting, legal, and financial issues.
Another elements of his plan would include revisiting the agency's controversial risk-based net worth regulation and other needlessly burdensome rules.
McWatters also stated that the agency would abolish its examination reliance on “best practices,” which lack statutory or regulatory support.
He called on the agency to develop an improved appeals process for examinations and other matters of controversy. In addition, NCUA needs to create a credit union advisory council in order for the agency to hear and learn from credit unions.
The agency should require all merger solicitation documents to provide, without limitation, a discussion of any change-in-control payments and other management compensation awards and agreements, and that such disclosures are written in plain language and delivered to voting members in a reasonable time prior to the scheduled merger vote.
He further stated that NCUA would support updating the Federal Credit Union Act to foster credit union opportunity and growth.
Read McWatters' speech.