Thursday, May 31, 2018

NCUA Opines on Loan Participation Agreements

In a March 22 legal opinion letter, the National Credit Union Administration wrote that certain provisions of the loan participation regulation must be met throughout the life of the transaction.

The letter noted that Section 701.22(d) "emphasizes the need for adequate documentation and due diligence from before the time of purchase throughout the life of the loan."

NCUA further noted that the "loan participation agreement identify each participated loan, enumerate servicing responsibilities for that loan, and include disclosure requirements regarding the ongoing financial condition of that loan, the borrower, and the servicer." The legal opinion letter stated if a loan participation agreement involves multiple loans, the documentation requirement can be met by an addendum or schedule, which identifies each loan and a participant’s interest in that loan.

However, NCUA stated that its "regulation does not prohibit servicing practices that may make administering multiple loan participations more efficient", such as netting payments across multiple performing loans.

Read the legal opinion letter.

Wednesday, May 30, 2018

ROTTEN PLUMS

As a general rule, I do not publish guest columns. However, today I am making an exception, as I was not planning to opine on the following topic.

Below is a guest column by Jim Blaine, former CEO of State Employees' Credit Union (Raleigh, NC).
The recent little hatchet chop on Mark McWatters, Chairman of the NCUA, by the Washington Post ("This man runs a federal agency...", May 11th [link]) has rightfully received little notice or comment - even in Credit Union Watch! Guess most folks, including bankers, can still spot faux news and "potted plants" (i.e. planted potshots), especially when sourced out of Washington, D.C. The impression the WaPo reporter attempts to create of Mr. McWatters is mostly just foolishness, a somewhat silly fabrication - basically pure rubbish.

McWatters is in truth a breath of fresh air (and intelligence) in an agency long noted for rear-view mirror regulation and for attempting to create and solve problems which usually do not exist. The agency bureaucracy is in-bred, self-perpetuating and generally limited in vision to what they already know. NCUA's all-time low point in credibility came in a 2015 appearance before the House Financial Services Committee [ here's the link - see particularly 0:26.30; 0:32.00; and 1:21.54] in which the agency leadership aggressively dissed both Democratic and Republican representatives alike, culminating in the infamous avowal: "I don't believe that credit unions necessarily represent their members." [0:34.54] Which Representative Mick Mulvaney accurately and hilariously described as: "Self-serving crazy talk!" [1:24.00]

Which brings us to the rotten plum dilemma! As most folks know, many high level policy positions in the federal government are considered "plum jobs" filled by political insiders, party loyalists, and bureaucrats seeking to top-off lucrative 30-year pension payouts. Particularly in less important "backwaters" of government; knowledge of, experience with, and competence in the task at hand are often not foremost appointment criteria, rather political expedience and who you know are key. For the NCUA, this system of spoils has rarely assured appointment of the sharpest or brightest crayons in the Crayola box.

Credit unions, the NCUA, the American taxpayer simply got lucky with the appointment of McWatters to the Board and hit a one-in-a-million jackpot with his appointment as Chair. Clearly, the NCUA Board no longer qualifies as a political backwater. Credit unions can no longer afford the luck of the political draw for leadership at the NCUA. The financial marketplace is now far too dangerous a place - volatile and complex - and too much is at stake to risk leadership by amateurs, political or otherwise. McWatters' experience and credentials - of Federal Reserve appointee quality - should become the new standard for future NCUA Board member candidates.

Certainly the future safety of $1+ trillion in savings from 100+ million American credit union members deserve only the best and brightest? Why should we accept less?

Dr. Leggett, hoping you and the ABA will help us with this new campaign: "PLUM IS DUMB"! Can we count on your support?

Tuesday, May 29, 2018

Bills Delaying Implementation of Risk-Based Capital Rule Advance

Last week, the House of Representatives moved forward two bills that would delay the implementation of the National Credit Union Administration's risk-based capital rule.

The House Appropriations Subcommittee on Financial Services and General Government on May 24 advanced to the full committee legislation that included language to delay the implementation of the risk-based capital rule by two years from January 1, 2019 to January 1, 2021.

The same provision delaying the risk-based capital rule was also included as part of the Foreign Investment Risk Review Modernization Act of 2018 (H.R. 5841). H.R. 5841 was passed by the House Financial Services Committee on May 22.

Friday, May 25, 2018

CUs Accounted for 9.7 Percent of All Mortgage Originations in 2017

Credit unions accounted for about 9.7 percent of all mortgage originations in 2017, according to Home Mortgage Disclosure (HMDA) data. This is up from 9 percent in 2016.

In 2017, 1,706 credit unions were HMDA reporters.

Out of these 1,706 credit unions, 781 credit unions made fewer than 100 loans and 198 credit unions originated fewer than 25 loans.

Credit unions originated 237 thousand home-purchase loans in 2017 and 209 thousand refinance loans. A home-purchase loan or refinance loan is first lien mortgage for a one-to-four family, owner occupied, site-built homes.

Approximately 85 percent of home-purchase loans originated by credit unions were conventional mortgages, while almost 95 percent of refinance loans originated credit unions were conventional mortgages.

Credit unions are more likely than other lenders to hold mortgage loans they originated in portfolio. Credit unions sold about 44.9 percent of the home-purchase loans they originated and about 32.2 percent of the refinance loans they originated.

Credit unions reported that 4.3 percent of its conventional home-purchase mortgages were higher-priced loans, while 3 percent of its refinance loans were higher-priced loans.

Navy Federal Credit Union was the twelfth largest mortgage originator in 2017 and the only credit union to appear among the top 25 originators. Roughly 38 percent of the home purchase loans were conventional mortgages and approximately 23 percent of these conventional mortgages were higher-priced loans.

Read the report.

Thursday, May 24, 2018

More Problem CUs, But Fewer Assets and Deposits in Problem CUs as of March 2018

The number of problem credit unions edged higher during the first quarter of 2018, according to the National Credit Union Administration (NCUA).

At the end of the first quarter of 2018, there were 200 problem credit unions. In comparison, there were 196 problem credit unions at the end of 2017.

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

Total assets and shares (deposits) in problem credit unions fell during the first quarter. Assets in problem credit unions were $9.2 billion at the end of the first quarter of 2018 -- down from $9.6 billion at the end of 2017. Shares in problem credit unions decreased to 8.3 billion as of March 31, 2018 from $8.7 billion as of December 31, 2017.

NCUA reported that 90 percent of problem credit unions have less than $100 million in assets, while 1.5 percent have more than $500 million in assets.

At the end of the first quarter, 0.76 percent of total insured shares were in problem credit unions. At the end of 2017, 0.80 percent of total insured shares were in problem credit unions.

NCUA reported that reserves for the National Credit Union Share Insurance Fund (NCUSIF) increased from $925.5 million at the end of 2017 to $935.8 million at the end of the first quarter 2018.


Public Policy Groups Defend CU Tax Status

Thirteen public policy organizations wrote Senate Finance Committee Chairman Orrin Hatch (R -UT) defending the tax status of credit unions.

The group stated that lawmakers should "be wary of any proposal that penalizes the millions of Americans who have chosen to join credit unions."

The letter also noted the importance of credit unions to our troops.

The group wrote: "The two largest credit unions do have substantial assets, but they are essentially limited to serving the families of active-duty military and veterans and some civilian defense employees."

The group concluded that the goal of free-market tax reform is to reduce or eliminate double-taxation and the committee should discard any proposal that would double tax certain types of financial institutions and their customers.

Read the letter.

Wednesday, May 23, 2018

House Passes Reg Relief Bill for Banks and CUs

The House of Representatives by a bipartisan 258 to 159 vote passed S. 2155, Economic Growth, Regulatory Relief and Consumer Protection Act.

The legislation provides much needed regulatory relief for both banks and credit unions.

The legislation passed the Senate in March.

President Trump is expected to sign the bill into law.

Click here to see how your member of the House of Representatives voted.

Read the bill.

Monday, May 21, 2018

Federal Preemption Extended to FISCUs over Use of Term Bank

The National Credit Union Administration (NCUA) recently expanded the federal preemption to federally-insured state chartered credit unions (FISCUs).

In a May 11 legal opinion letter, NCUA stated that the Federal Credit Union Act (FCUA) and the agency’s advertising regulation preempted two Wisconsin Statutes, which barred state chartered credit unions from using the terms “bank” or “banking” in any form (with limited exceptions).

NCUA wrote that Wisconsin Law conflicted with NCUA's advertising rule.

NCUA contended that "[p]rohibiting federally insured credit unions from using these terms inhibits their ability to compete and, thus, jeopardizes their safety and soundness."

NCUA further stated that this preemption would level the playing field between state chartered credit unions and federal credit unions, which are not burdened by such state laws.

Moreover, NCUA stated that it does not believe the use of the word bank or its derivative as a verb is a deceptive trade practice, despite the Wisconsin Department of Financial Institutions thinking otherwise.

The legal opinion letter, however, stated that a credit union cannot call itself a bank or banking organization.

This legal opinion will allow credit unions in other states to push back on state laws that restrict the use of the term bank or banking in their advertising.

I wonder how the National Association of State Credit Union Supervisors and the states will react to this encroachment by NCUA onto their turf.

Read the letter.

Saturday, May 19, 2018

Financial Trades Support Harmonizing Reg J and Reg CC

Four financial trade groups earlier this week wrote supporting a Federal Reserve proposal to harmonize Regulation J -- which governs the collection of checks or other items by Federal Reserve banks and funds transfers through Fedwire -- with Regulation CC, which implements the Expedited Funds Availability Act.

The proposal would realign Reg J with recent amendments to Reg CC, which updated the check collection framework to reflect a system that is now largely electronic. It would also clarify that financial messaging standards for Fedwire transfers do not confer or connote legal status or responsibilities with respect to Fedwire funds transfers.

The groups noted that the Fed’s proposal “will help to improve consistency between, and reduce unnecessary duplication within, the two regulations.” However, they urged the Fed to further clarify Reg J to ensure that Federal Reserve banks make the Reg CC electronic check warranties to the same recipients (including the drawer and owner of the check).

The four trade associations that signed the letter are the American Bankers Association, The Clearing House, the Credit Union National Association, and the National Association of Federally-Insured Credit Unions.

Read the letter.

Friday, May 18, 2018

Bay Ridge FCU Is Undercapitalized

Problem taxi medallion loans caused Bay Ridge Federal Credit Union (Brooklyn, NY) to post a loss for the first quarter of 2018 and to become undercapitalized.

After reporting a loss of $4.3 million for 2017, Bay Ridge FCU posted a loss of almost $2.4 million for the first quarter of 2018. The loss arose from a provision for loan and lease losses of $3.1 million during the first quarter -- this was up from $500,000 from a year ago.

Over the last year, the credit union's net worth fell by 35 percent to $12.3 million. As of March 2018, the credit union's net worth ratio was 6.55 percent; however, its risk based net worth requirement was 7.45 percent. As a result, the credit union was classified as undercapitalized.

The $188 million credit union reported holding $69.6 million in commercial loans not secured by real estate, as of March 2018. At least some of these loans were to finance taxi medallions.

Delinquent loans at the credit fell by almost 50 percent during the first quarter of 2018 to almost $3.9 million. However, early delinquencies (30 to 59 days past due) rose by 61 percent to $13.8 million.

Delinquent commercial loans not secured by real estate fell 71.6 percent to $1 million during the first quarter of 2018. But early delinquencies increased by 74 percent to almost $12 million.

Net charge-offs were nearly $2.1 million at the end of the first quarter. In comparison, a year ago net charge-offs were $104,259.

Troubled debt restructured (TDR) commercial loans not secured by real estate were $19.3 million at the end of March 2018. Almost $893 thousand of these TDR loans were 60 days or more past due; but approximately $5.9 million in these TDR commercial loans were 30 to 59 days past due.

The credit union's allowance for loan and lease losses increased by just over $1 million during the quarter to $7.5 million as of March 31, 2018. The increase in allowance for loan and lease losses coupled by a decline in delinquent loans caused its coverage ratio (allowance for loan and lease losses divided delinquent loans) to more than double during the quarter to 193.09 percent.



Thursday, May 17, 2018

Estimated Loss to NCUSIF and Reasons for CU Failures, Oct 2017 thru Mar 2018

The National Credit Union Administration Office of the Inspector General (OIG) reported that there were 8 credit union failures between October 1, 2017 and March 31, 2018 that were not subject to a Material Loss Review.

A Material Loss Review is initiated, if the National Credit Union Share Insurance Fund (NCUSIF) incurs a loss of at least $25 million.

During this time period, no credit union failures were subject to a Material Loss Review.

According to the OIG's Semiannual Report to Congress. these 8 failures resulted in an estimated loss of $27.1 million to the NCUSIF.

The following chart provides information on the estimated loss to the NCUSIF and reasons for the failure for each credit union between October 1, 2017 and March 31, 2018 (click on image to enlarge).




Wednesday, May 16, 2018

Delinquent Loans Flat During the First Quarter at Progressive CU

Unlike taxi medallion lenders LOMTO and Melrose, Progressive Credit Union (New York, NY) reported a profit during the first quarter.

The credit union earned $3.6 million during the first quarter of 2018, after recording a loss of $95 million for the full year of 2017.

The credit union reported a substantial reduction in provision for loan and lease losses during the first quarter of approximately $4.2 million versus provision for loan and lease losses of $26.4 million for the same quarter a year ago. For all of 2017, provision for loan and lease losses was $87.3 million.

The credit union had $324.7 million in commercial loans not secured by real estate as of March 31, 2018. This was down from $338.5 million from the prior quarter.

These commercial loans not secured by real estate are presumably taxi medallion loans and were 69.3 percent of the credit union's assets.

The credit union saw a 115 basis point improvement in its net worth ratio during the quarter to 22.29 percent. The combination of fewer assets and higher net worth contributed to the increase in the net worth ratio.

Delinquent loans were largely flat during the first quarter at $84.5 million. The delinquency rate for Progressive edged higher by 44 basis points to 19.55 percent during the first quarter of 2018. Almost $77.4 million of the delinquent loans were commercial loans not secured by real estate.

Progressive had net charge-offs of $7.3 million as of March 2018 compared to $34.8 million a year earlier.

Troubled debt restructured (TDR) commercial loans not secured by real estate increased by $3 million during the quarter to $131 million. Roughly 34 percent of these TDR commercial loans were 60 days or more past due.

Because net charge-offs exceeded provision for loan and lease losses, allowance for loan and lease losses fell by almost $3.2 million to $92 million. Its coverage ratio was 108.84 percent as of the end of the first quarter of 2018.

About one-third of the credit union's funding is coming from uninsured shares and deposits. Progressive has $279.8 million in shares and deposits at the end of the first quarter of 2018, of which $90.2 million were uninsured.

During the quarter, total shares and deposits fell by $9.4 million, as nonmember deposits accounted for all of the decline.



Tuesday, May 15, 2018

Taxi Medallion Lender LOMTO FCU Reported Loss of $5.2 Million

Battered by the decline in the taxi industry, LOMTO Federal Credit Union (Woodside, NY) reported a loss of $5.2 million during the first quarter of 2018, after recording a 2017 loss of $51.2 million.

The first quarter loss was due to a provision for loan and lease losses of $4.3 million during the first quarter of 2018.

The quarterly loss caused the credit union's net worth to fall to minus $42.7 million as of the end of March 2018. The credit union's net worth ratio was minus 25.08 percent.

LOMTO had $132.6 million in commercial loans not secured by real estate. These loans were to finance taxi medallions. Medallion loans were approximately 80 percent of the credit union's assets.

The credit union reported delinquent loans of $18.2 million, almost all were member commercial loans not secured by real estate. This means that 13.10 percent of its loans were 60 days or more past due.

In addition, $16.9 million in loans were 30 to 59 days past due.

Net charge-offs during the first quarter were almost $8.4 million. In 2017, net charge-offs were $46.8 million.

Troubled debt restructured (TDR) commercial loans not secured by real estate were $14.8 million. As of March 2018, 4.75 percent of TDR commercial loans were 60 days or more past due.

Despite the increase in provisioning for loan and lease losses, allowance for loan and lease losses fell by 26.8 percent during the first quarter to $23.5 million. The credit union's coverage ratio was 129.35 percent.

LOMTO has tapped $85 million of its $110 million credit line. This $110 million credit line is guaranteed by the National Credit Union Share Insurance Fund.

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


Monday, May 14, 2018

Taxi Medallion Lender Melrose's Net Worth Ratio Is Minus 24.75 Percent

Plummeting taxi medallion values created a deeper hole for taxi lender Melrose Credit Union (Briarwood, NY). Melrose Credit Union was placed into conservatorship on February 10, 2017.

The credit union reported a loss of $111.2 million for the first quarter of 2018, due to a provision for loan and lease losses of $102.1 million for the quarter.

Due to the quarterly loss, the credit union's net worth fell to negative $299.1 million as of March 31, 2018. The credit union's net worth ratio was a minus 24.75 percent at the end of the first quarter, compared to minus 13.79 percent the prior quarter.

Commercial loans not secured by real estate were $952.6 million as of March 2018 -- down from $1.226 billion as of September 2017. Most, if not all of these loans, were to finance taxi medallions. As of March 2018, almost 79 percent of the credit union's assets were in commercial loans not secured by real estate.

Melrose reported $450.6 million in delinquent loans at the end of the first quarter of 2018. This was down 5 percent from the prior quarter. Almost one third (32.74 percent) of the credit union's loans were 60 days or more past due.

The credit union had $438.6 million in delinquent member commercial loans not secured by real estate. This means that 46.49 percent of its non-real estate member secured commercial loans were at least 60 days past due.

Melrose recorded a net charge-off of $35.5 million during the first quarter, after reporting net charge-offs of $195.6 million for all of 2017. All of the net charge-offs during the first quarter were commercial loans not secured by real estate.

In addition, troubled debt restructured commercial loans not secured by real estate were $227.2 million, according to the most recent call report. Roughly 64 percent of these TDR commercial loans were delinquent.

Due to the increase in provision for loan and lease losses in the first quarter, the credit union reported a 29 percent increase in allowance for loan and lease losses to $306.6 million. The credit union's coverage ratio (allowance for loan and lease losses divided by delinquent loans was 68.04 percent, up from 50.09 percent from the previous quarter.

At the end of the first quarter, Melrose has drawn $191 million of its $300 million credit lines at corporate credit unions. These credit lines are guaranteed by the National Credit Union Share Insurance Fund.



Sunday, May 13, 2018

Washington Post Scrutinizes NCUA Chairman Working from His Home in Dallas

The Washington Post is reporting that National Credit Union Administration (NCUA) Chairman McWatters is leading the agency from his home in Dallas.

Government watchdogs say that it is almost unheard of for the head of an agency to work from home.

A NCUA spokesperson stated that his physical absence from the corporate headquarters in Alexandria (VA) has not affected the operations of the agency and that "McWatters travels to Alexandria at his own expense for monthly board meetings and other occasions when his duties ... require that he be there."

The investigative report also looked into the spending of McWatters.

The article notes that shortly after joining the NCUA Board in 2014, McWatters bought nearly $22,000 worth of furniture for his office in Alexandria, which he rarely used.

The Washington Post cited his use of limousine services while traveling to meetings around the country and spending $12,000 for air travel to a conference in Barcelona.

The article quoted the last two NCUA Chairmen about the importance of being at the Alexandria office every day.

Read the article (subscription may be required).







Saturday, May 12, 2018

Summit CU Sued over Overdraft Practices

A lawsuit filed on March 9 in federal court accuses Summit Credit Union (Madison, WI) of charging unlawful overdraft fees.

The plaintiff, Matthew Dooman, alleges the credit union charged overdraft fees when there was sufficient funds to cover the transaction.

For example, the plaintiff claimed that he was charged an overdraft fee of $25 on a debit card purchase of $4.63. Plaintiff stated that he had a positive balance of $85.51 in his checking account.

According to the complaint, the credit union's practice of charging overdraft fees is not consistent with how Summit CU describes the circumstances under which overdraft fees are assessed.

The complaint seeks class certification.

Read the complaint.

Friday, May 11, 2018

Taxi Medallions Weigh on the Performance of Several NJ Credit Unions

Problem taxi medallion loans weigh on the performance of several New Jersey credit unions.

Aspire Federal Credit Union (Clark, NJ)

Aspire Federal Credit Union reported a loss of almost $1.1 million during the first quarter of 2018, after posting a loss of approximately $6.1 million for 2017.

The credit union reported provision for loan and lease losses of almost $1.4 million at the end of the first quarter of 2018.

Due to the loss, the credit union's net worth ratio fell by 64 basis points to 6.62 percent.

The credit union had almost $10.5 million in commercial loans not secured by real estate. Presumably these loans financed taxi medallions.

Delinquent loans fell by 24.5 percent during the first quarter of 2018 to $6.7 million. The delinquency rate declined from 7.13 percent to 5.64 percent during the quarter.

Roughly 45 percent ($3 million) of all delinquent loans were commercial loans not secured real estate. As of March 2018, 29 percent of these commercial loans were delinquent.

Additionally, another $1.5 million of commercial loans not secured by real estate were 30 to 59 days past due.

Aspire FCU had $1.9 million in net charge-offs, of which almost $1.4 million were for commercial loans not secured real estate. The net charge-off rate for commercial loans was 44.35 percent.

In addition, troubled debt restructured (TDR) commercial loans were $3.2 million at the end of the first quarter of 2018, down from $3.9 million at the end of 2017.

Because net charge-offs exceeded provision for loan and lease leases during the first quarter of 2018, the allowance for loan and lease losses fell by 6.7 percent to $7.9 million as of March 31, 2018. The coverage ratio (allowance for loan and lease losses divided by delinquent loans) rose from 94.99 percent to 117.39 percent during the first quarter.

First Financial Federal Credit Union (Freehold, NJ)

First Financial FCU reported a loss of $1.7 million during the first quarter of 2018, due to provision for loan and lease losses of almost $1.7 million.

Due to its first quarter loss, the credit union became undercapitalized with a net worth ratio of 5.10 percent. Its net worth was $9.6 million.

The credit union had roughly $10.9 million in commercial loans not secured by real estate as of March 31, 2018. However, this is down 32.8 percent from the end of 2017. Most, if not all, of these loans were to finance taxi medallions.

Delinquent loans fell by 33 percent during the first quarter to almost $4.2 million. Nonmember commercial loans not secured by real estate accounted for $1.6 million of these delinquencies.

The delinquency rate for nonmember commercial loans was 15.03 percent.

TDR commercial loans not secured by real estate were $6 million as of March 2018, down 18.6 percent from the prior quarter.

The credit union reported a 41.8 percent increase in allowance for loan and lease losses during the quarter to $4.7 million. This provided the credit union with a coverage ratio of 112.58 percent, up from 53.03 percent at the end of 2017. The improvement in the coverage ratio was due to a decline in delinquent loans and an increase in loan loss reserves.

United Teletech Financial Federal Credit Union (Tinton Falls, NJ)

While the headline numbers show an improvement in United Teletech Financial FCU's performance, the credit union reported a surge in early delinquencies during the first quarter of 2018.

The credit union reported an improvement in delinquencies, positive net income, and higher net worth ratio.

Loans 30 to 59 days delinquent more than doubled during the first quarter to $13.3 million as of March 2018.

The credit union had $24 million in commercial loans not secured by real estate -- most were taxi medallion loans.

Approximately $1.1 million of these loans were 60 days or more past due. However, $6.1 million of these loans are 30 to 59 days past due. Thus, 22.46 percent of commercial loans were at least 30 days or more delinquent.

At the end of the first quarter of 2018, TDR commercial loans were $12.3 million. Almost $3 million of these loans were in the early stage of delinquency.

Allowance for loan and lease losses were just shy of $10 million at the end of March 2018. Its coverage ratio was 188.93 percent. This means the credit union can right off all loans 60 days or more past due and have loan loss reserves left over.


Thursday, May 10, 2018

Quorum FCU Posted Q1 Loss, As It Addresses Defaulting Taxi Medallion Participation Loans

Quorum Federal Credit Union (Purchase, NY) reported a loss of $2.7 million for the first quarter of 2018, as the $867 million credit union increased provisions to cover troubled taxi medallion participation loans.

Provision for loan and lease losses was almost $6.3 million for the first quarter. In comparison, provision for loan and lease losses was $1.8 million a year earlier and $2.8 million for the fourth quarter of 2017.

Due to the first quarter 2018 loss, the net worth of the credit union fell from $67.3 million at the end of 2017 to $64.6 million as of March 31, 2018. The net worth ratio fell by 38 basis points during the quarter to 7.44 percent.

Quorum, as of March 2018, reported holding $58.7 million in commercial loans not secured by real estate. Presumably most, if not all, were taxi medallion participation loans. This was down from $64.4 million at the end of 2017.

The credit union had $42.7 million in delinquent loans, of which $31 million was participation loans. The delinquency rate on all loans was 5.87 percent at the end of the first quarter of 2018. However, the delinquency rate on participation loans was 30.93 percent.

Troubled debt restructured (TDR) commercial loans not secured by real estate were $23.5 million at the end of the first quarter, of which $17.1 million in nonaccrual status. Delinquent TDR commercial loans not secure by real estate were $8.1 million. In other words, 34.34 percent of these loans were 60 days or more past due. But this is an improvement from the end of 2017, when the delinquency rate was 59.48 percent.

The credit union had a net charge-offs of $6.9 million during the first quarter of 2018. Participation loans accounted for almost $5.5 million in net charge-offs. The net charge-off rate for participation loans was 21.13 percent. Quorum charged off $3 million in TDR commercial loans not secured by real estate.

Despite the increase in provision for loan and lease losses, allowance for loan and lease losses fell during the quarter from $34.15 million to $33.5 million due to higher net charge-offs. But the drop in delinquencies cause the coverage ratio (delinquent loans to allowance for loan and lease losses) to increase to 78.44 percent at the end of the first quarter from 62.48 percent at the end of 2017.

Wednesday, May 9, 2018

Utah to Fine Broker-Dealers over Credit Union Violations

Utah Division of Securities will fine fine three large independent broker-dealers, Cetera Advisor Networks, LPL Financial and CUSO Financial Services, a combined $2.25 million for violating industry rules stemming from how broker-dealers do business with credit unions, according to Investment News.

The three petitions found that the broker-dealers "failed to comply with the regulatory requirements governing networking arrangements between broker-dealers and credit unions, approved the use of misleading sales and advertising materials and other information provided to customers and the public, failed to follow and enforce [their] policies and procedures and failed to reasonably supervise the businesses run through the credit unions."

Utah is looking to fine Cetera Advisor Networks $1 million, LPL Financial $750,000 and CUSO Financial Services $500,000.

The news story has a link to the petition against Cetera Advisor Networks.

Tuesday, May 8, 2018

Municipal CU CEO Charged with Defrauding the Credit Union

The CEO and President of Municipal Credit Union (New York, New York), Kam Wong, was charged in Manhattan federal court with fraud, embezzlement, and aggravated identity theft offenses related to defrauding the credit union in connection with hundreds of thousands of sham expense reimbursements.

From at least 2013 through January 2018, Wong engaged in a long-running multi-faceted scheme to obtain money from the credit union to which he was not entitled, and took steps to conceal what he had done.

CNBC is reporting that Kam Wong is accused of defrauding Municipal Credit Union out of approximately $6 million with a series of scams that included reimbursements for fake dental work and a previously covered long-term disability insurance policy.

It is alleged that at least $3.55 million was spent on New York State Lottery tickets.

Read the press release.

Provision to Tax Iowa CUs Not Included in Final Tax Reform Bill

Iowa Republican leaders reached an agreement on tax reform, touting it as the largest tax cut in state history. However, the final bill left out a provision to apply the same state franchise tax to credit unions that banks pay.

The Senate version of the bill included a provision to tax credit unions. This provision was kept on the table throughout final discussions between Senate and House leaders and Gov. Kim Reynolds, but was ultimately dropped.

The Iowa Bankers Association stated that this issue is not going away and it is already working on this issue in preparation for the 2019 legislative session.

John Sorensen, CEO of the Iowa Bankers Association, stated to The Gazette: "ĂŹ think we made real headway. The bill passed the Senate. That's never happened before."

Northwest FCU Secures Naming Rights to Minor League Baseball Field

Northwest Federal Credit Union (Herndon, VA) has signed a partnership deal with the Potomac Nationals, the minor league affiliate of the Washington Nationals.

The $3.4 billion credit union bought the naming rights to the field, which will be called Northwest Federal Field at Pfitzner Stadium.

Along with field naming rights, the credit union is now the “Official Credit Union” of the Potomac Nationals.

The price tag of the deal was not disclosed.

Read the announcement.

Monday, May 7, 2018

Consumer Credit at CUs Increased During March

The Federal Reserve reported that outstanding consumer credit at credit unions grew during March 2018, according to the G.19 report.

Total outstanding consumer credit at credit unions rose from $426.4 billion in February to $432.4 billion in March.

Revolving credit at credit unions fell by approximately $300 million during March to $56.9 billion. This was the third consecutive monthly decline in revolving credit.

Nonrevolving credit increased by $6.3 billion during March to $375.5 billion.

Average Chief Executive Compensation at Large State Chartered CUs Tops $1 Million in 2016

Chief executives of state chartered credit unions with at least $1 billion in assets earned on average $1.051 million in total compensation in 2016.

Median compensation in 2016 was $784,360.

This is the third consecutive year in which average chief executive pay topped $1 million.

There were 155 state chartered credit unions with $1 billion or more in assets at the end of 2016. Compensation information was obtained for all but one credit union, DFCU Financial CU (Dearborn, MI).

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

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

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

Fifty-three credit union executives reported total compensation of at least $1 million.

Base compensation averaged $485,308. Median base compensation was $475,703. The following graph looks at base pay with respect to asset size.

One hundred thirty-nine executives received bonus and incentive compensation in 2016. For these 139 executives, the average bonus compensation was $185,907 with a median compensation of $133,360. The following graph examines the relationship between bonus and incentive pay and asset size.

Below is information on compensation for chief executives at state chartered credit unions with at least $1 billion in assets (click on image to enlarge).

Update: an earlier version of this post stated that Lake Michigan Credit Union did not disclose the compensation information for Sandy Jelinski. The credit union in an e-mail reconsidered its position to not disclose this information. Here is the information provided. Base and bonus compensation was $1,638,000, other compensation was $42,735.20, and deferred compensation was $49,950.00.



Sunday, May 6, 2018

Trade Groups Petition FCC for Clarification of Autodialer

A coalition of industry trade groups, including bank and credit union trade associations, asked the Federal Communications Commission (FCC) for new rules that would ensure that customers can receive important communications from their financial institutions and other businesses.

In a joint petition to the FCC, the groups asked the FCC to issue a new interpretation of a key term in the Telephone Consumer Protection Act (TCPA) -- the definition of an “automatic telephone dialing system,” commonly known as an “autodialer.” The TCPA imposes restrictions on calls made by financial institutions and other businesses when using an autodialer.

The petition comes after a federal appellate court in March struck down the portion of a 2015 FCC order that had defined “autodialer” expansively to include, for example, ordinary smartphones -- and potentially covering nearly every type of dialing equipment that a business would use to call its customers.

“The TCPA landscape is dysfunctional and in need of clarity from the FCC,” the groups wrote to the FCC. “The statute, originally intended to target a specific abusive telemarketing practice, has been expanded by courts and the FCC, turning it into a breeding ground for frivolous lawsuits against legitimate businesses trying to communicate with their customers.”

If the FCC reinterprets the term autodialer in line with the TCPA’s text and congressional intent, it would significantly reduce the number of calls made by banks and credit unions that are subject to the TCPA’s restrictions, lowering compliance and litigation costs.

Read the letter.

Friday, May 4, 2018

Credit Union One to Acquire Hantz Bank

Credit Union One (Ferndale, MI) is acquiring Hantz Bank (Southfield, MI).

Hantz Bank has $220 million in assets and six branches. The bank has paid almost $3 million in applicable income taxes in 2016 and 2017, according to its most recent call reports.

Credit Union One has $1.2 billion in assets and 20 branches.

Terms of the deal were not disclosed. The acquisition is subject to regulatory approval and expected to close later this year.

Read the story.

Appeals Court Rejects Lawsuit from Taxi Industry and CUs

In another legal setback for the New York City taxi medallion industry, the Second Circuit Court of Appeals rejected a lawsuit challenging how New York City regulates ride-sharing companies, affirming a lower court decision.

The taxi industry along with credit unions that financed taxi medallions sued the City of New York, the Taxi & Limousine Commission (TLC) and its Chair Meera Joshi for allegedly violating their rights to equal protection and due process and that they suffered a taking.

The court acknowledged that "that the plaintiffs may have suffered a decrease in the value of their medallions as a consequence of regulations imposed by the TLC. But this decrease is not something that violates the Due Process Clause.”

The court noted that "taxi medallions authorize the owners to own and operate taxis." It does not protect them from competition.

The court also ruled that the takings claim was not ripe, because the plaintiffs have failed to avail themselves of state procedures for seeking compensation.

Read the decision.





Thursday, May 3, 2018

Bill Would Create Postal Bank

U.S. Senator Kirsten Gillibrand (D - NY) introduced legislation (S. 2755) to create a Postal Bank, which would establish a retail bank in all of the U.S. Postal Service’s 30,000 locations.

Between 1910 and 1967, the U.S. Post Office offered banking services. However by the 1950s, the need for the Postal Savings System was being questioned and in 1965 the Postmaster General recommended abolishing the system.

According to Senator Gillibrand, permitting the post office to offer basic banking services would benefit low-income Americans by wiping out the predatory payday lending industry.

According to the press release, the Postal Bank would offer small-dollar checking accounts, small-dollar savings accounts, small-dollar loans, transaction services, and remittance services.

A 2015 survey of consumers by Raddon's National Consumer Research found that 9 percent of consumers would be extremely or very likely to use the post office to access their financial services. These consumers tended to have income below $50,000 and to be 44 years old or younger.

As I wrote in July 28, 2014 blog post, "[t]he danger to banks and credit unions is that this new postal savings bank could be perceived by many as a government-endorsed and preferred provider of financial products and the last thing we need is more government competition with the private sector."

Read the press release.

Tuesday, May 1, 2018

Taxi Medallion TDRs Surge at San Francisco FCU

San Francisco Federal Credit Union reported a surge in troubled debt restructured (TDR) commercial loans during the first quarter of 2018.

TDR commercial loans not secured by real estate increased from $2.9 million at the end of 2017 to almost $9.3 million as of March 31, 2018.

As of March 31, 2018, the credit union reported $48.4 million in commercial loans not secured by real estate. Presumably most of these commercial loans were taxi medallion loans.

While TDR commercial loans increased during the first quarter, delinquent commercial loans fell during the quarter from $6.9 million at the end of 2017 to $2.2 million at the end of the first quarter of 2018. The delinquency rate for commercial loans not secured by real estate was 4.57 percent, as of March 31, 2018.

However, the pipeline of early delinquent commercial loans not secured by real estate (30 to 59 days past due) increased by almost 50 percent to $4 million. This means the delinquency rate for these commercial loans was 8.3 percent.

The credit union reported charging off $911,250 in commercial loans not secured by real estate with recoveries of $68,182 during the first quarter.

San Francisco FCU is suing the San Francisco Municipal Transportation Agency over the collapse of the taxi medallion market in San Francisco.

Despite the increase in commercial loan TDRs, the credit union was profitable and well-capitalized.

 

The content is provided for educational purposes only, with the understanding that neither the authors, contributors, nor the publishers of this site are engaged in rendering legal, accounting or other expert or professional services. If legal or other expert assistance is required, the services of a competent professional should be sought.

Comments appearing in response to articles appearing on this site do not necessarily reflect the views of the ABA. ABA makes no representations regarding the truth or accuracy of commentary or opinions that may be posted in response to the articles that appear on this website.

The inclusion herein of any link to a website, either in the text of an article or in a comment, does not denote any approval, sponsorship, or endorsement by the ABA, and ABA is not responsible for the content or opinions expressed on those linked websites or related commentary. This content is not licensed to third parties sites and is not affiliated with any third party site. Any reference to the author or this content on any third party site on the Internet is not authorized by the ABA.

It is the policy of the American Bankers Association to comply fully with all antitrust laws. Certain discussions should be considered off-limits, including those that contain competitively sensitive data such as price and cost information, or statements that could be construed as reflecting an attempt or desire to control or influence a particular market or markets. Future pricing or other prospective competitive information should never be shared.