Wednesday, June 26, 2019

Iowa Credit Union to Buy Branches, Loans, and Deposits from First American Bank

GreenState Credit Union (North Liberty, IA) announced on June 25 that it will purchase seven First American Bank (Fort Dodge, IA) branch locations in central Iowa.

The acquisition, which includes the bank's Des Moines metro and Fort Dodge locations, includes approximately $200 million in loans and $500 million in deposits.

GreenState Credit Union was formerly known as University of Iowa Community Credit Union.

GreenState CU is the largest Iowa credit union with almost $5.4 billion in assets.

The transaction is subject to regulatory approval and is expected to close in the fourth quarter.

Earlier this year, First American Bank announced that it was selling its three branches and assets in Florida to MIDFLORIDA Credit Union (Lakeland, FL).

Read the press release.

Senator to NCUA: Proposed Delay of Risk-Based Capital Rule Is Unacceptable

Senator Sherrod Brown (D - OH) criticized the National Credit Union Administration for proposing to delay its risk-based capital rule for two years until January 1, 2022.

This is the second delay of the agency's risk-based capital rule. The risk-based capital rule was initially scheduled to go into effect on January 1, 2019.

In a statement, Senator Brown stated:

“I am disturbed that ten years after the financial crisis, the NCUA is once again delaying important rules to increase capital at large credit unions. I commend Board Member Harper for opposing this unnecessary extension and demanding that NCUA focus on strengthening supervision and identifying risks to credit unions.”

Read the press release.

Tuesday, June 25, 2019

Chartway FCU Buys Naming Rights to ODU Arena

Old Dominion University (ODU) and Chartway Federal Credit Union (Virginia Beach, VA) have signed a 10-year naming rights agreement for the 8,400-seat arena in the Ted Constant Convocation Center complex.

The arena will now be named Chartway Arena in recognition of the $4.25 million agreement. Chartway will also become the official credit union of ODU Athletics.

The agreement also establishes the Chartway-Constant Athletic Scholarship Fund. The fund will award a total of $25,000 in scholarships annually to student-athletes. The fund will continue each year throughout the contract.

Read the press release.

Monday, June 24, 2019

Bill Gives NY CUs Access to Bank Development District Program

The New York Assembly passed legislation (A.3320) allowing credit unions access to the state's Banking Development District Program.

Earlier, the Senate passed the same bill (S.727-A).

The Banking Development District Program was established in 1997 to encourage financial institutions to establish branches in underserved communities throughout New York. Institutions that are approved for a Banking Development District designation are eligible to receive up to $10 million in subsidized public deposits and other benefits, including below market-rate deposits from the state of New York.

The justification to expand the program to credit unions was due to the modest number of applications from banks and other financial institutions.

The bill awaits the signature of Governor Andrew Cuomo.

Read more.

Friday, June 21, 2019

Blinder: Does NCUA and the Federal Reserve Have Same Insight to Systemic Financial Risk?

In an op-ed in the Wall Street Journal, Alan Blinder, a professor of economics and public affairs at Princeton University and a former vice chairman of the Federal Reserve, discusses flaws in the structure of the Financial Stability Oversight Council (FSOC).

The Dodd-Frank Act created FSOC. FSOC is a 10-member panel consisting mainly of the heads of the nation’s top financial regulatory agencies.

However, Blinder questions the design of FSOC.

For example, Blinder wrote:
"[Y]ou might question the FSOC’s voting structure: every agency gets one vote. So it gives equal weight to the chairmen of the Fed and the National Credit Union Administration. Do you think they have equal insight into systemic financial risk?"

Read the op-ed (subscription required).

Thursday, June 20, 2019

NCUA Board Proposes Delaying Risk-Based Capital Rule by Two-Years

The National Credit Union Administration Board on June 20th voted on a proposal to delay by two-years the implementation date of its risk-based capital rule until January 1, 2022.

Currently, the risk-based capital rule was scheduled to go into effect on January 1, 2020.

NCUA staff stated that the delay would not pose undue risk to the National Credit Union Share Insurance Fund.

Also, the delay would allow the NCUA Board to examine whether asset securitization should be accounted for by NCUA's capital standards; whether certain forms of subordinated debt should qualify as capital for risk-based capital purposes; and whether a community bank leverage ratio analog should be integrated into NCUA's capital standard.

NCUA Chairman Hood stated that he intends to bring forth a proposed rule allowing subordinated debt count towards a risk-based capital standard by the end of this year.

NCUA further stated that the delay would benefit credit unions by allowing them to allocate resources to implementing the Financial Accounting Standards Board current expected credit loss (CECL) standard.

Moreover, the time delay would allow NCUA to direct additional time and resources toward modernizing its examination systems.

Board member McWatters and Chairman Hood voted for the proposal.

Board member Harper dissented to delaying the risk-based capital rule and voted no on the proposal.

Read the proposed rule.

Wednesday, June 19, 2019

16 Foreclosed Taxi Medallions Owned by Aspire FCU to be Auctioned

On June 27, 16 New York City taxi medallions foreclosed by Aspire Federal Credit Union (Clark, NJ) will be auctioned.

The minimum bid is $130,000 for unrestricted medallions. At their peak, New York City taxi medallions were valued at more than $1 million.

There are 15 unrestricted medallions. One medallion is for a handicap medallion.

Bidders may present bids for one, multiple, or all medallions.

Read details of the auction.

Tuesday, June 18, 2019

Verve CU to Acquire Chicago-based Community Bank

Crain Chicago Business is reporting that Verve Credit Union (Oshkosh, WI) has entered into a deal to buy South Central Bank (Chicago, IL).

This is the second Illinois bank to be acquired by an out-of-state credit union in the last 7 months..

Verve Credit Union has $986 million in assets.

South Central Bank has 5 locations and $295.9 million in assets.

While the sales price was not disclosed, Crain Chicago stated that the price was "higher than the going rate of about 1.5 times book value for community banks in Chicago."

Read the story.

86 Percent of CUs Reported Positive Net Income as of Q1 2019

The percentage of federally insured credit unions that were profitable in the first quarter of 2019 grew compared to a year ago.

At the end of the first quarter of 2019, 86 percent of all federally insured credit unions reported positive net income, according to the National Credit Union Administration. In comparison, 83 percent of federally insured credit unions had positive net income a year earlier.

There is a positive relationship between asset size and a credit union reporting net income.

The following table shows the number and percent of credit unions reporting positive net income by asset size groups.

Monday, June 17, 2019

14 States Report Negative Median Y-o-Y Membership Growth

Fourteen states reported negative median year-over-year (Y-o-Y) membership growth for the year ending in the first quarter of 2019.

At the median, membership fell the most in Illinois at negative 1.4 percent. This was followed by New Jersey and Pennsylvania, which each recorded negative membership growth rates of 1.3 percent.

Other states with negative year-over-year median membership growth include the District of Columbia, Massachusetts, Nebraska, Connecticut, Mississippi, North Dakota, Delaware, Michigan, Wyoming, New York, and Oklahoma.

Friday, June 14, 2019

Student CU Connect CUSO Settles with CFPB over ITT Private Student Loan Program

The Consumer Financial Protection Bureau (CFPB) on June 14 announced a settlement with Student CU Connect CUSO, LLC (CUSO), a company set up to hold and manage private loans for students at ITT Technical Institute.

Student CU Connect CUSO is headquartered in Overland Park, Kansas.

In a complaint, the CFPB alleged that the CUSO provided substantial assistance to ITT Educational Services, Inc. in engaging in unfair acts and practices.

Under the terms of the proposed stipulated judgment, CUSO must stop collecting on all outstanding CUSO loans, discharge all outstanding CUSO loans, and ask all consumer reporting agencies to which CUSO furnished information to delete tradelines relating to CUSO loans. The order also requires CUSO to provide notice to all consumers with outstanding CUSO loans that their debt has been discharged and is no longer owed and that CUSO is seeking to have the relevant tradelines deleted. The total amount of loan forgiveness is currently estimated to be $168 million.

Forty-four states plus the District of Columbia have also settled with CUSO today on the same terms.

Read the complaint.

Read the settlement.

Tuesday, June 11, 2019

Georgia CU Statute Amended

Georgia Governor Brian Kemp signed House Bill 185 into law on May 7, 2019.

The bill revises statutory provisions governing banks, credit unions, trust companies, bank holding companies, money service businesses, mortgage lenders and brokers, and mortgage loan originators, as well as certain provisions addressing the Department of Banking and Finance’s general powers.

The following provisions in the bill will affect credit unions. The bill:
  • expressly provides that if a credit union acquires a bank, the depositors and borrowers of the bank will be deemed members of the credit union at the time of the acquisition;
  • enables credit unions to adopt a policy to expel members for non-participation;
  • removes a limitation on the ability of credit unions to sell or purchase certain loans;
  • revises the bylaw requirements for credit unions;
  • renames the supervisory committee to the audit committee for credit unions
The provisions in the bill will go into effect on July 1, 2019.

Read the bill.

Monday, June 10, 2019

CBO: SAFE Banking Act Will Increase Insured Deposits at Banks and CUs

The SAFE Banking Act (H.R. 1595) would change federal policies governing services currently offered by banks and credit unions to cannabis-related businesses.

The bill would prevent the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) from taking action against banks or credit unions that serve cannabis-related businesses.

In addition, the bill would prevent those regulators from limiting access to financial institutions by cannabis-related businesses.

At the end of 2018, there were 438 banks and 113 credit unions offering services to cannabis-related businesses.

The Congressional Budget Office (CBO) believes the bill will result in additional deposits at banks and credit unions. CBO estimates that beginning in 2022 insured deposits at banks and credit unions will increase by about $1.2 billion and $200 million, respectively. By 2029, insured deposits will increase to $2.1 billion and $350 million at banks and credit unions, respectively.

However, CBO cautions that the lack of data on deposits from cannabis-related businesses at financial institutions means its estimates new deposits could be greater or smaller than predicted.

Read the report.

Sunday, June 9, 2019

CU Organizations Agree to Pay $7.5 Million to Settle ITT Student Loan Nightmare

Credit union organizations agreed to a motion to settle claims with ITT Technical Institute bankruptcy trustee.

As part of the settlement agreement, credit union organizations will pay almost $7.5 million.

The credit union organizations covered by the motion include Student CU Connect CUSO, LLC, The Rochdale Group, Inc., Elements Financial Federal Credit Union (formerly known as Eli Lilly Federal Credit Union), Bellco Credit Union, Credit Union of America, Directions Credit Union, Veridian Credit Union, Workers Credit Union and CommunityAmerica Credit Union.

Also, Student CU Connect CUSO will have an allowed general unsecured claim in the amount of $127,844,857, which constitutes a 15 percent reduction of the amount claimed by the CUSO.

Read the motion.

Read the Indianapolis Business Journal article.

Saturday, June 8, 2019

Lawsuit Alleges Improper OD Practices at Mountain America CU

Mountain America Credit Union (Sandy, UT) is being sued for alleged improper overdraft (OD) practices.

The complaint claims that the credit union routinely assessed overdraft fees on debit card transactions that did not actually overdraw the checking account.

The complaint alleges the credit union of breach of contract.

The lawsuit is seeking class action status.

The lawsuit was filed in the United States District Court District of Utah, Central Division.

Read the complaint.

Friday, June 7, 2019

Consumer Credit At CUs Grew by Almost $3.4 Billion in April

Outstanding consumer credit at credit unions grew at a faster pace in April 2019 compared to March 2019, according to the Federal Reserve's G.19 report released on June 7.

After growing by approximately $300 million in March, outstanding consumer credit increased by $3.4 billion in April to $475 billion.

Outstanding revolving credit expanded by $300 million during April 2019 to $61.8 billion.

Nonrevolving credit balances grew by almost $3.2 billion during April 2019 to approximately $413.2 billion.

Thursday, June 6, 2019

FICUs Report Weak Loan Growth in Q1

National Credit Union Administration reported that federally insured credit unions (FICUs) had strong share (deposit) growth in the first quarter of 2019, but weak loan growth.

Assets at FICUs expanded by 3.6 percent during the first quarter to $1.51 trillion. The number of FICUs fell by 40 during the quarter to 5,335.

Total loans grew by 0.4 percent during the first quarter of 2019 to $1.048 trillion. The following loans contracted during the first quarter -- credit card loans, other unsecured loans, Payday Alternative loans, new vehicle loans, and commercial loans not secured by real estate.

However, total shares and deposits increased by 4,4 percent during the quarter to $1.273 trillion as of March 31, 2018.

As a result of shares growing faster than loans, the loan to share fell from 85.56 percent at the end of 2018 to 82.36 percent at the end of the first quarter of 2019.

Return on Average Assets Up in Q1 2019

Net income for FICUs credit unions was $3.5 billion for the first quarter of 2019. Over the last year, net income was $14.1 billion, which was up 11.9 percent.

The return on average assets (ROAA) was 0.95 percent, 3 basis points higher than the ROAA at the end of 2018. The median ROAA was 56 basis points, down 1 basis point from the end of 2018.

Factors contributing to the improvement in ROAA during the first quarter were lower operating expenses (+3 basis points), provisions for loan and lease losses (+3 basis points), and non-operating income (+5 basis points). Factors negatively impacting ROAA were net interest margins (-2 basis points) and fee and other income (-6 basis points).

Net Worth Up, New Worth Ratio Fell

Net worth of FICUs grew by 2.1 percent during the quarter to $167.8 billion.

Secondary capital at credit unions expanded by 4.7 percent during the first quarter to $277.2 million.

Because assets grew at a faster pace than net worth, the net worth ratio for the industry fell by 16 basis points to 11.14 percent.

As of March 2019, 98.35 percent of FICUs had a net worth ratio of 7 percent or higher (the minimum requirement for being well capitalized). The number of FICUs that were undercapitalized at the end of the first quarter of 2019 was 34, up from 30 at the end of 2018.

Asset Quality Improved

Delinquent loans at FICUs fell by 18.4 percent during the quarter to $6.1 billion as of March 31, 2019. At the end of the first quarter of 2019, the delinquent loan ratio was 0.58 percent, down from 0.71 percent at the end of 2018.

Net charge-offs were $1.5 billion at the end of the first quarter of 2019. The net charge-off rate was down 1 basis point at the end of the first quarter of 2019 at 0.57 percent.

Allowances for loan and lease losses was $9.24 billion, down 0.3 percent from the end of 2018. However, the industry's coverage ratio rose during the first quarter to 152.59 percent as of March 2019, up from 124.83 percent as of December 2018.

Financial Trends Report.

Quarterly Data Summary.

Wednesday, June 5, 2019

Minority Designated CUs Statistics

There were 529 federally insured credit unions that were designated as minority depository institutions (MDIs) at the end of 2018, according to the National Credit Union Administration (NCUA).

To be designated as a MDI, a credit union must affirm that more than 50 percent of its current members, eligible potential members, and board of directors are from one of the four minority categories specified under Section 308 of the Financial Institutions Reform, Recovery, and Enforcement Act.

Thirty-seven states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands reported having MDIs. The states with the most MDIs were Texas, California, New York, Hawaii, Illinois, and Louisiana.

In aggregate, MDIs serve 3.9 million members and manage $38.5 billion in assets. Texas, by far, has the highest number of members with more than 1.5 million followed by Hawaii, California, Maryland, and New Mexico. Hawaii, California, Maryland, New Mexico, the District of Columbia, and North Carolina, each have more-than $1 billion in aggregate MDI assets.

According to NCUA, the agency during 2018 approved the chartering and field of membership expansions for 28 MDIs.

Also during 2018, 21 MDIs merged into other credit unions with five of the continuing credit unions being MDIs.

Tuesday, June 4, 2019

Arizona FCU Announces Planned Acquisition of Pinnacle Bank

Arizona Federal Credit Union (Phoenix, AZ) announced it plans to acquire Pinnacle Bank (Scottsdale, AZ).

Arizona FCU has almost $1.7 billion in assets.

Pinnacle Bank has $236 million in assets and four branches in Tempe, Scottsdale and Phoenix.

Arizona FCU stated that the acquisition of Pinnacle Bank would grant its member-owners access to additional mortgage services, expanded small business services, SBA financing options and commercial lending services.

The transaction, which is subject to regulatory and Pinnacle Bank shareholder approval, is expected to be completed in the fourth quarter of 2019.

This is the first transaction of a credit union acquiring a bank in Arizona.

Read the announcement.

Trade Groups Urge FCC Protect Lawful Calls

Ten trade groups on May 30 urged that the Federal Communications Commission (FCC) to seek feedback before moving forward on its proposal to allow telephone companies to block unwanted calls.

The FCC’s draft declaratory ruling—which is expected to be voted on during the agency’s June 6 meeting—would permit voice service providers to enroll customers automatically in a call-blocking program that is “based on any reasonable analytics designed to identify unwanted calls.” The ability for customers to opt out of the program would be required. If adopted, the ruling would be effective immediately.

The trade associations expressed concern that legitimate bank calls are currently being incorrectly labeled as spam or nuisance and may be blocked under the declaratory ruling. “Public safety alerts, fraud alerts, data security breach notifications, product recall notices, healthcare and prescription reminders and power outage updates all could be inadvertently blocked under the draft declaratory order, among other time-sensitive calls,” the groups said.

The trade groups that signed the letter were the American Bankers Association, ACA International, American Association of Healthcare Administrative Management, American Financial Services Association, Consumer Bankers Association, Credit Union National Association, Independent Community Bankers of America, Mortgage Bankers Association, National Association of Federally-Insured Credit Unions, and National Retail Federation.

Read the letter.

Read the draft declaratory ruling.

Monday, June 3, 2019

Alabama Credit Union Statute Amended

Alabama Governor Kay Ivey sgned into law legislation amending the state's credit union statute.

The bill, SB33, would:
  • authorize the Alabama Credit Union Administration Board to appoint the National Credit Union Administration as conservator of a state-chartered credit union;
  • provide that credit union supervisory committees may consist of more than three members;
  • permit payment or reimbursement of reasonable and proper travel costs of a member of the board or any committee and one guest per member traveling on official business of the state-chartered credit union;
  • increase the meeting notice period prior to the meeting to vote and approve a merger plan of a merging credit union; and
  • expand the definition of an official who may serve on the Alabama Credit Union Administration Board.
Read the bill.

Saturday, June 1, 2019

Credit Union One Completes Acquisition of Hantz Bank

Credit Union One (Ferndale, MI) has received approval from the Michigan Department of Insurance and Financial Services and the National Credit Union Administration to acquire and merge Hantz Bank (Southfield, MI).

As part of the transaction, Credit Union ONE gained approval from Michigan and Ohio regulators to expand its membership base outside of Michigan to include six counties in Ohio.

The effective date for completion of this transaction is June 1, 2019.

Read the press release.

Thursday, May 30, 2019

Numerica CU Buys Naming Rights to Pavilion

Numerica Credit Union (Spokane Valley, WA) bought the naming rights to the Pavilion at the Southridge Sports and Events Center in Kennewick, Washington.

The credit union will pay $680,000 for the naming rights agreement.

The term of the sponsorship agreement is for 8 years and can be renewed for another 5 years.

The city council approved the naming rights deal on May 21.

Read agenda item 7a.

Tuesday, May 28, 2019

NCUA Board Proposes Expansion in Nonmember Deposit Cap

The National Credit Union Administration (NCUA) Board on May 23 proposed a rule that would significantly expand the ability of a federal credit union (FCU) to use public unit and nonmember deposits to fund its operation.

The proposed rule increases the current nonmember deposit limit from 20 percent of total shares to 50 percent of paid-in capital and unimpaired capital and surplus less any public unit and nonmember shares.

Public units include the federal government, states and territories, counties and municipalities and tribal entities.

NCUA acknowledged in its proposal that the 20 percent cap dates to the late 1980s and was imposed “because of the asset/liability management problems related to public unit and nonmember shares that arose at certain FCUs, which resulted in material losses for the National Credit Union Share Insurance Fund.”

Under the proposal, designated low-income FCUs, which account for 57 percent of all FCUs, would be able to accept deposits from any nonmember up to the 50 percent level.

The proposal would require a federal credit union to develop a specific use plan if its nonmember shares, combined with its borrowings, exceeds 70 percent of paid-in and unimpaired capital and surplus.

Comments on the proposal are due 60 days after publication in the Federal Register.

Read the proposed rule.

Monday, May 27, 2019

Senator Schumer Writes NCUA over Predatory Taxi Medallion Lending

In a May 21 letter to the National Credit Union Administration, Senate Minority Leader Chuck Schumer (D-N.Y.) asked the regulator to conduct an immediate review of its supervisory practices in the wake of “deeply troubling conduct” by credit unions involved in New York’s taxi medallion business.

Schumer pointed to a recent investigation by the New York Times that found that many NCUA-regulated institutions “worked to artificially inflate taxi medallion prices while hooking taxi drivers with reckless, exploitative loans. As a result of these predatory practices, taxi drivers lost their life savings and were left with crushing debt once the market crashed and the value of these medallions rapidly decreased.”

A recent NCUA Inspector General report suggested that with a timelier and more aggressive supervisory approach, some of the losses cab drivers experienced could have been mitigated, Schumer added. He requested that NCUA to respond to Congress with changes that should be made to its current supervisory practices to protect these consumers against this type of predatory lending in the future.

Read the letter.

Sunday, May 26, 2019

Northeast Community CU Buys Naming Rights to Minor League Ballpark

Northeast Community Credit Union (Elizabethton, TN) bought the naming rights to Joe O'Brien Field in Elizabethton, Tennessee.

The ballpark will be called Joe O’Brien Field at Northeast Community Credit Union Park.

The ballpark is the home of the Elizabethton Twins of the Appalachian Rookie League.

The price tag of the naming rights deal was not disclosed.

Read the story.

Saturday, May 25, 2019

American 1 CU Buys Naming Rights to Arena

American 1 Credit Union (Jackson, MI) bought the naming rights to a sports venue at Spring Arbor University.

American 1 CU paid $250,000 for the renovation of McDonald Athletic Center and the naming rights to the Arena.

The sports venue will be called “The Arena Sponsored by American 1 Credit Union”.

Read more.

Thursday, May 23, 2019

Problem CUs Increased during Q1 2019

The number of problem credit unions increased during the first quarter of 2019, according to the National Credit Union Administration (NCUA).

At the end of the first quarter of 2019, there were 202 problem credit unions. In comparison, there were 193 problem credit unions at the end of 2018.

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

Total assets in problem credit unions were unchanged during the first quarter. Assets in problem credit unions were $11.8 billion at the end of the first quarter.

Shares in problem credit unions fell during the first quarter to $10.4 billion as of March 2019 versus $10.6 billion as of December 2018. At the end of the first quarter, 0.91 percent of total insured shares were in problem credit unions. This was down 2 basis points from December 2018.

Most problem credit unions were small credit unions.

The number of problem credit unions with less than $100 million rose by 9 to 174 during the first quarter. But the number of problem credit unions with more than $100 million in assets was unchanged during the quarter.

NCUA reported that 86.1 percent of problem credit unions have less than $100 million in assets, while 1.5 percent of problem credit unions have more than $500 million in assets.

Wednesday, May 22, 2019

Bank and CU Trade Groups Write in Opposition of Amendment to Reinstate Flawed Arbitration Rule

Bank and credit union trade groups wrote a joint letter on May 21 to members of the House of Representatives opposing a proposed amendment to H.R. 1500 (Consumers First Act) that would reinstate the Consumer Financial Protection Bureau's arbitration rule.

The trade group wrote: "Returning to this flawed rule would undermine the ability of the members of our organizations to continue to offer arbitration, which is a convenient, simple, and efficient dispute resolution process for our customers."

Congress under the Congressional Review Act in 2017 disapproved the arbitration rule.

The amendment was introduced by Representative Al Green (D-TX).

The House of Representatives is expected to consider H.R. 1500 and its amendments in the coming days.

The trade groups signing the letter are the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Credit Union National Association, and the National Association of Federally Insured Credit Unions.

Read the letter.

NCUA to Pay $160.1 Million in NCUSIF Dividends during the Week of May 20

The National Credit Union Administration (NCUA) will pay $160.1 million in dividends to eligible credit unions from the National Credit Union Share Insurance Fund (NCUSIF) during the week of May 20.

NCUA stated that over 5,500 credit unions would be eligible for the distribution from the NCUSIF.

The NCUA Board approved the distribution in March after it was determined that the NCUSIF equity ratio of 1.39 percent at the end of 2018 exceeded the normal operating level of 1.38 percent.

This is the second distribution from the NCUSIF after the merger of the Temporary Corporate Credit Union Stabilization Fund into the NCUSIF.

Read the press release.

Tuesday, May 21, 2019

New York Attorney General to Launch Inquiry into Taxi Medallion Lending

The New York State Attorney General's Office announced on May 20th that it is beginning an inquiry into the lending and business practices that led to the taxi medallion crisis in New York City.

This inquiry comes after a two-part investigative report appearing in the New York Times. I reported on this earlier today.

The Attorney General's Office stated that the allegations in the New York Times story "are serious and must be thoroughly scrutinized."

Investigative Story Looks at the Rise and Fall of the New York City Taxi Medallions

A two-part story in the New York Times (subscription required) investigated the role of lenders, regulators, and city officials in the rise and collapse in taxi medallion values in New York City.

Over 10 months, the New York Times spoke to 450 people, built a database on every medallion sales, and reviewed thousands of loans and other documents,

The articles cited risky lending practices at banks and credit unions, which devastated taxi drivers. For example, many lenders by 2013 were not requiring a down payment. Also, many of these loans were interest only.

According to Monte Silberger, LOMTO Credit Union’s controller and then chief financial officer, “It got to a point where we didn’t even check their income or credit score.”

The article also states that regulators, especially the National Credit Union Administration (NCUA), ignored warnings from examiners regarding these risky lending practices. The story points out that NCUA granted waivers to regulations requiring at least a 20 percent down payment for taxi medallion loans to help credit unions compete with other lenders.

The article notes that the New York City Taxi and Limousine Commission became a cheerleader for medallion sales, as prices for taxi medallions soared. The city collected more than $855 million by selling taxi medallions and collecting taxes on private sales.

The article points out that many people were enriched during the medallion bubble, including Progressive Credit Union's Robert Familant, who made $30 million in salary and deferred payments.

Read Part 1.

Read Part 2.

Monday, May 20, 2019

NCUA Charters Otoe-Missouria FCU

The National Credit Union Administration (NCUA) chartered on May 20th the Otoe-Missouria Federal Credit Union in Red Rock, Oklahoma.

The federal credit union will serve approximately 4,200 members and employees of the Otoe-Missouria Tribe as well as 17 tribal-owned businesses.

The Otoe-Missouria Federal Credit Union was designated by NCUA as a low-income credit union, based on its potential membership. This designation gives the credit union the ability to accept non-member deposits, obtain grants and loans from the Community Development Revolving Loan Fund, offer secondary capital accounts, and qualify for exemptions from statutory limits on member business lending.

This is the first federal credit union to be chartered in 2019.

Read the press release.

Sunday, May 19, 2019

Two CUs Move Forward with New HQ Buildings

Two credit unions are moving forward with new headquarters buildings.

Advia Credit Union (Parchment, MI) broke ground on a new 150,000-square-foot headquarters building in Oshtemo Township.

The new headquarters building will include a branch, ATM and night deposit box.

It will include seminar rooms, as well as retail spaces for lease by local businesses on the first floor.

The design also calls for outdoor terraces that will overlook a landscaped water feature.

Hampden Township Planning Commission (PA) recommended a plan for a three-story 172,000-square-foot corporate headquarters building for Members 1st Federal Credit Union (Mechanicsburg, PA).

The plan can come up for approval before the Hampden Township Board of Commissioners as early as May 30.

The price tag for each project was not disclosed.

Friday, May 17, 2019

Municipal Credit Union Conserved

The New York State Department of Financial Services (DFS) on May 17th took possession of Municipal Credit Union (MCU), located in New York City, and appointed the National Credit Union Administration (NCUA) as conservator.

“DFS is taking possession of MCU and appointing the NCUA as conservator in order to continue the close joint DFS/NCUA monitoring of the credit union’s condition, operations, and controls, to ensure that member funds are protected and that member services continue without interruption,” Acting Superintendent Lacewell said.

In 2017 DFS had uncovered deficiencies in board oversight that had facilitated the multi-million-dollar embezzlement by the former CEO, Kam Wong. Wong was charged by the Manhattan U.S. Attorney with embezzlement and banned from the credit union industry by the NCUA in May 2018. He pleaded guilty to embezzling nearly $10 million from MCU in November 2018.

The Department removed MCU’s Supervisory Committee in May 2018, and its board of directors in June 2018 due to severe deficiencies in their oversight of the over-all management of the affairs of the credit union and designated an on-premises Administrator to oversee the general management of the credit union. Based on ongoing supervision by DFS and NCUA, DFS made the decision today to appoint NCUA as conservator and terminate the Administrator’s engagement.

Municipal Credit Union has more than $3 billion in assets.

Read DFS press release.

Read the NCUA press release.

Thursday, May 16, 2019

Sanders, AOC Propose Postal Banking

Some bad ideas seem to never die.

Last week, Senator Sanders (I - VT) and Representative Ocasio-Cortez (D - NY) advocated for allowing the U.S. Postal Service to engage in basic banking services.

Sanders and Ocasio-Cortez wrote that the Postal Service should use its existing authority to implement a pilot program offering basic and affordable financial services.

They called on Congress to enact the Postal Service Protection Act that Senator Sanders introduced in 2013

Basic financial services would include basic checking and savings accounts, low interest loans, debit cards, automatic teller machines, check cashing, money wiring services, and online banking services.

But does the post office have the expertise to engage in banking?

This idea should be stamped: Return to Sender.

Wednesday, May 15, 2019

Struggling with Taxi Medallion Loans, Van Cortlandt Cooperative CU to Merge into USAlliance FCU (Updated)

Credit unions continue to experience collateral damage from the disruption of the taxi industry from ride sharing apps.

The latest casualty is Van Cortlandt Cooperative Federal Credit Union (Bronx, NY).

The National Credit Union Administration in the first quarter approved the merger of Van Cortlandt Cooperative FCU into USAlliance Federal Credit Union (Rye, NY).

While the official reason cited for the merger is expanded services, the credit union was being negatively impacted by participation loans financing taxi medallions.

Since the beginning of 2018, the credit union charged off almost $6.5 million in commercial loan participations not secured by real estate.

In addition, the credit union recorded losses of $91,630 for 2018 and $69,709 for the first quarter of 2019.

Update: Credit Union Journal is reporting that the merger between the two credit unions has been cancelled.

Tuesday, May 14, 2019

Trade Groups Encourage All Banks and CUs to Join Sheltered Harbor

The CEOs of six major financial industry trade groups wrote to the CEOs of all U.S. banks and credit unions today with “one simple message: Join Sheltered Harbor.”

A non-profit subsidiary of the Financial Services Information Sharing and Analysis Center, Sheltered Harbor was created to protect customers, financial institutions, and public confidence in the financial system if a catastrophic event like a cyberattack causes critical systems—including backups—to fail. Implementing the Sheltered Harbor standard prepares institutions to provide customers timely access to balances and funds in such a worst-case scenario. As of March, Sheltered Harbor members accounted for 71% of U.S. deposit accounts and 55% of U.S. retail brokerage client assets.

“The reason for Sheltered Harbor is simple: once improbable threat scenarios are now plausible,” the CEOs said. “In response, traditional business continuity and disaster recovery planning is not enough. The only way to minimize the impact of a devastating disruption is to prepare for it. Implementing the Sheltered Harbor standard prepares institutions to provide customers timely access to balances and funds in such a worst-case scenario.” Read the letter. Join Sheltered Harbor.

The six financial trade groups that signed the letter are the American Bankers Association, Bank Policy Institute, Credit Union National Association, Financial Services Forum, Financial Services Information Sharing and Analysis Center, and Securities Industry and Financial Markets Association.

Read the letter.

Sufflok FCU to Buy Naming Rights at Community Colllege

Suffolk County Community College is proposing a naming rights deal with Suffolk Federal Credit Union (Medford, NY), according to Newsday.

The credit union will pay at least $1.798 million for the naming rights to various school facilities and campus grounds.

The community college's board will vote on the proposed resolution on May 16. the resolution does not specify the term of the agreement or the type of signage.

Monday, May 13, 2019

Opinion Piece Critical of NCUA's Proposed Appraisal Threshold Rule

The National Credit Union Administration Board's proposal to quadruple the appraisal threshold for nonresidential real estate loans to $1 million could significantly undermines the safety and soundness of the commercial lending market, according to an op-ed in the American Banker.

In a BankThink piece, Stephen Wagner, the president of the Appraisal Institute, expressed deep concerns regarding this proposed rule.

Wagner wrote that increasing the appraisal threshold to $1 million "would drastically increase the number of nonresidential real estate loans that would not require an appraisal."

He worries that this would result in a lower level of risk mitigation and will create an environment of loan driven-production.

Wagner points out that NCUA's threshold would be double that of the other federal banking regulators at $500,000 and he believes that this could cause bank regulators to further relax their appraisal requirements.

Wagner also expressed concern about the lack of experience of NCUA regulating commercial real estate loans. He wrote that NCUA is "the agency with the least direct experience in overseeing business and commercial real estate lending," but it will be driving appraisal policies for the entire financial regulatory system.

Read the BankThink piece.

Thursday, May 9, 2019

9 CUs Agree to Pay Penalties for Late Filing Call Reports in Q3 of 2018

The National Credit Union Administration reported that 9 federally insured credit unions consented to civil monetary penalties for late filing their Call Reports in the third quarter of 2018.

The fines totaled $4,069 and ranged from $205 to $1,368.

Three factors determine the size of the fine: the credit union’s asset size, its Call Report filing history, and the length of the filing delay.

Click here for the list of credit unions and the fines paid.

Wednesday, May 8, 2019

Wealth Management Team Leaves University of Iowa Community CU

The entire wealth management team of University of Iowa Community Credit Union (North Liberty, IA) left the credit union on April 26, according to a story appearing in the Corridor Business Journal.

The wealth management team is launching its own firm, United Iowa Financial, and took their clients' business with them.

The article stated that the wealth management team managed $851 million in custodied assets as of February 2019.

The CEO of the credit union stated that the mass departure will give the credit union an opportunity to review and restructure its wealth management operations.

The credit union's wealth management web page stated the credit union is currently not accepting new wealth management clients.

The article did not give a reason for the mass exodus of the credit union's wealth management team.

The story appeared in the print edition of the Corridor Business Journal.

Tuesday, May 7, 2019

Consumer Credit at CUs Edged Higher During March 2019

Outstanding consumer credit at credit unions inched higher during the month of March 2019, according to the Federal Reserve's G. 19 report.

Outstanding consumer credit at credit unions increased by approximately $300 million during March 2019 to $471.6 billion.

Outstanding revolving credit was flat in March 2019 at $61.5 billion. For the quarter, revolving credit at credit unions fell from $62.6 billion to $61.5 billion.

Nonrevolving credit at credit unions grew by roughly $200 million during March to $410 billion. During the first quarter of 2019, nonrevolving credit increased by almost $3.4 billion.

Bank Groups Write CFPB to Not Cede Supervisory Authority of Large CUs to NCUA

The American Bankers Association and the Consumer Bankers Association on May 3 wrote to the Consumer Financial Protection Bureau (CFPB) director expressing strong opposition to a recent request for the bureau to cede its supervisory authority for the nation’s largest credit unions to the National Credit Union Association (NCUA).

The letter was in response to a years-long campaign waged by credit unions, their trade associations, and, remarkably, their federal prudential regulator, seeking special treatment from the CFPB for the credit union industry.

The associations pointed out that the Dodd-Frank Act clearly communicates Congress’ intention that the credit unions be held to the same supervisory standards as other large depository institutions. Granting the request for special treatment to credit unions with at least $10 billion in assets would be in direct conflict with congressional intent and would contribute to an unlevel regulatory playing field between banks and credit unions, they said.

“While we believe that the bureau should take every opportunity to reduce the regulatory burden for all financial institutions and eliminate duplicative supervision, we strongly disagree with the premise that the consumer financial services offered by credit unions inherently differ from those offered by other financial institutions competing in the marketplace,” the groups wrote. “Policymakers have reason to seriously question the appropriateness of the special treatment being sought by credit unions and their federal prudential regulatory authority, the National Credit Union Administration.”

Read the letter.

Monday, May 6, 2019

St. Louis Fed Examines the Topic of CUs Acquiring Banks

An article in the Federal Reserve Bank of St. Louis Regional Economist examines the topic of credit unions acquiring banks.

The article notes that the acquisition of another financial institution by a credit union is a faster way to grow compared to organic growth.

One possible reason for a credit union acquiring bank is an expansion of its business loan portfolio.

"The average ratio of business loans to total loans for the acquiring credit unions in the quarter before the transaction was 8.6 percent, whereas the average for the acquired banks was 33.8 percent. The acquisitions of the commercial banks raised the business-loans-to-total-loans ratio in the credit unions to 10.9 percent."

In addition, smaller community banks are an attractive acquisition target, because they have a strong relationship their communities.

However, the article points out that field of membership issues can act as an obstacle to these mergers.

Read the article.

Hudson Valley FCU to Defect to State Charter

Another large federal credit union is defecting from the federal charter.

Hudson Valley Federal Credit Union (Poughkeepsie, NY) is seeking to convert to a New York State charter.

In a notice to members, the $5 billion credit union stated that field of membership limitations were restricting its future growth opportunity.

As a federal credit union, the credit union can only serve its four-county footprint of Dutchess, Ulster, Orange and Putnam.

If members vote yes, the credit union will expand its community field of membership to include Westchester, Rockland, Columbia, Greene, Albany, Rensselaer, Schenectady, and Saratoga Counties.

The credit union will change its name to Hudson Valley Credit Union.

Members must approve the switch of charter.

Friday, May 3, 2019

MIDFLORIDA CU to Acquire Community Bank & Trust of Florida

MIDFLORIDA Credit Union (Lakeland, FL) announced its intends to acquire the $739-million Community Bank & Trust of Florida (Ocala, FL).

Community Bank & Trust of Florida has 11 offices in the counties of Alachua, Marion, and Sumter.

If the deal is completed, it will be the largest acquisition of a bank by a credit union to date.

In addition, MIDFLORIDA announced it intends to purchase assets of First American Bank (Fort Dodge, IA), which are in southwest Florida.

The acquisition of the Florida assets of First American Bank of Iowa is expected to happen in November 2019, while the merger with Community Bank & Trust of Florida is expected to close at year end.

Both the acquisition and the merger are subject to all required regulatory requirements and approval as well as fulfillment of all customary closing conditions.

The terms of the deals were not disclosed.

This is the fifth announced acquisition of a Florida Bank this year and the sixth whole bank deal announced this year.

Read the press release.

CUs Offsetting Higher Operating Expenses with Higher Service Charges on Deposits

A study found that credit unions are offsetting higher operating expenses with higher service charges on deposits. But it questions how long this can continue.

According to Moebs Services, non-interest expense-to-asset ratio at credit unions was an average 3.07 percent, almost 20 percent higher than the average at banks.

However, service charges on deposits at credit unions are more than double the service charges on deposits at banks, 61 basis points versus 24 basis points.

But Michael Moebs, Economist & CEO of Moebs Services, noted that "offsetting costly operational expenses with high service charges cannot go on forever.”

Thursday, May 2, 2019

Florida Regulator Approves Vystar's Acquisition of Bank

The Florida Office of Financial Regulation on April 18 approved the application to merge Citizens State Bank (Gainesville, FL) into Vystar Credit Union (Jacksonville, FL).

The shareholders of Citizens State Bank have approved the transaction.

Both applicants state that the transaction will not result in Vystar engaging in any nonconforming or impermissible activities.

Vystar also stated that it would not amend its field of membership to include any customers of Citizens State Bank that do not fall within its fild of membership.

The approval is conditioned on the Federal Deposit Insurance Corporation and the National Credit Union Administration given their written consents to the transaction.

Read the final order.

Wednesday, May 1, 2019

Union Yes FCU Seeks to Raise $4 Million in Secondary Capital

The American Banker is reporting that a undercapitalized credit union in Orange, California, is looking to raise $4 million in secondary capital.

The $63.4 million-asset Union Yes Federal Credit Union recently launched a capital campaign, offering subordinated debt with fixed and variable interest rates of 4 percent to 4.5 percent with maturities of five to seven years.

The minimum size of the investment is $250,000.

While many credit unions can only build capital through retained earnings, low-income credit unions, such as Union Yes FCU, are permitted to raise secondary capital from investors.

According to the prospectus, the credit union has been experiencing very strong growth and needs the capital to fund new membership growth.

However, investors are going to receive a higher rate of return on their investment than credit union members. For example, the highest current rate for the 60-month CD is 0.35 percent.

This higher rate of return is compensation to investors for potential credit risk, if the credit union fails.

But it also means that the credit union tax subsidy is going to investors instead of the members.

Read the article (subscription required).

Monday, April 29, 2019

Teachers CU to Acquire New Buffalo Savings Bank

Teachers Credit Union (South Bend, IN), and New Bancorp, Inc., the holding company of New Buffalo Savings Bank (New Buffalo, MI), announced on April 26 that the organizations have signed a definitive purchase and assumption agreement whereby Teachers CU will acquire the assets and assume the liabilities of New Bancorp and New Buffalo in an all-cash transaction.

Following the completion of this transaction, New Bancorp will settle its remaining obligations and distribute the remaining transaction proceeds to its shareholders.

New Buffalo operates three bank branches in New Buffalo, Sawyer and Three Oaks, Michigan and had $119.5 million in assets as of December 31, 2018.

The transaction is valued at $21.3 million or approximately 128.5 percent of New Bancorp’s tangible book value as of December 31, 2018.

This strategic acquisition will increase Teachers CU total number of branches to 57 and total assets to approximately $3.2 billion.

Read the press release.

Thursday, April 25, 2019

Texas Regulator: Early Delinquencies on the Rise

The Texas Credit Union Department in its April Newsletter noted that after several years of strong loan growth some credit unions are experiencing an increase in early delinquencies.

The newsletter stated that early delinquencies can result in higher future losses and could impact the financial health of the credit union.

The Texas regulator encouraged that credit union management provide monthly trend reports to its board members regarding loans 30 to 59 days past due. it also encouraged a dialogue between management and board members regarding collection efforts on these loans.

Credit union management and board are encouraged to identify and address causes for the deterioration in loan quality, such as loosening underwriting standards, limited collection activities, and lending by credit risk tiers. This is essential for controlling and managing credit risk.

Wednesday, April 24, 2019

Mid East Tennessee Community CU Conserved

The National Credit Union Administration on April 23 placed Mid East Tennessee Community Credit Union in Decatur, Tennessee, into conservatorship.

Mid East Tennessee Community Credit Union is a federally insured, state-chartered credit union with 1,855 members and assets of $12,093,966, according to the credit union’s most recent Call Report.

The credit union at the end of 2018 reported that 4.45 percent of its loans were 60 days or more past due and a net charge-off rate of 2.66 percent.

Read the press release.

Audit: NCUA Did Not Adequately Monitor, Account, and Dispose of IT Equipment

An audit by the National Credit Union Administration (NCUA) Office of Inspector General (OIG) found that NCUA did not adequately monitor, account, and dispose of all of its information technology (IT) equipment.

The audit had two objectives -- to determine: 1) whether the NCUA has IT equipment inventory policies and procedures; and 2) whether the NCUA adequately monitors and accounts for its IT equipment from acquisition through final disposition.

The audit covered the period from January 1, 2014, through June 30, 2017.

The OIG found that the NCUA did not follow its instruction to dispose of IT equipment “as promptly as possible”. For example, in 2009, management did not dispose of approximately 300 laptops that it had identified as “exhausted or excess” until 2018.

Also, the report concluded that the NCUA did not use existing procedures to remove disposed equipment from its financial systems and that its current financial system did not provide reliable information for inventory verifications and was not a comprehensive asset management system.

The OIG found the 25 percent of the NCUA’s inventory records did not match to items on hand.

In addition, the NCUA does not immediately reconcile what it ordered with what it received. The OIG stated that NCUA ran the risk of paying for IT equipment that it had not received.

The OIG found that NCUA spent $440,000 on IT equipment it did not need. The report noted that NCUA staffing projections failed to materialize due to government-wide hiring freeze and agency reorganization, which reduced staffing levels.

The OIG made seven recommendations to NCUA management that will help with IT equipment inventory management.

Read the report.

Monday, April 22, 2019

Navy FCU Pays $24.5 Million to Settle Improper OD Fee Lawsuit

Navy Federal Credit Union (Vienna, VA) paid $24.5 million to settle overdraft (OD) fee class action lawsuit.

Navy FCU agreed to pay up to $500,000 towards Settlement Administration Cost.

According to the complaint, Navy FCU members were charged overdraft fees under the credit union’s Optional Overdraft Protection Service between July 22, 2012 and Nov. 20, 2017.

The plaintiffs alleged Navy FCU improperly assessed and collected OD fees. Navy FCU also breached its contractual agreement.

It was estimated that if the class action lawsuit went to trial, recoverable damages would have been almost $60 million. The Settlement would provide plaintiffs with a recovery of between 30 and 40 percent of potential damages.

The final approval hearing is set for May 20, 2019.

Click here for documents.

Sunday, April 21, 2019

STCU to Acquire Branch Customers of Banner Bank

Spokane Teachers Credit Union (STCU), headquartered in Liberty Lake, Washington, is acquiring the Bonner County (ID) customers of Banner Bank (Walla Walla, WA).

According to the most recent summary of deposit data, Banner Bank had one branch in Bonner County at Sandpoint with $20.14 million in deposits.

The deal is pending regulatory approval and is expected to close in August.

All employees of the Banner Bank branch in Sandpoint will be offered employment with STCU.

Price of the deal was not disclosed.

This is not the first deal by STCU. In 2003, the credit union acquired a branch and customers of Wheatland Bank.

Read the press release.

Read intergency bank merger act application.

Saturday, April 20, 2019

Canvas CU Faces Class Action Lawsuit over OD Fee Practices

Canvas Credit Union (Lone Tree, CO), the former Public Service Credit Union, is being sued over its overdraft (OD) fee practices.

The class action lawsuit, Ronald Brooks v. Canvas Credit Union, alleges that Canvas CU had a routine business practice of (a) assessing overdraft fees on transactions that did not actually overdraw the account; and (b) charging two or three non-sufficient funds fees on a single transaction.

The lawsuit claims that the the credit union violated Colorado consumer protection laws and its disclosures in its account documents.

The lawsuit was filed by Franklin D. Azar & Associates.

Read the press release.

Friday, April 19, 2019

L&N FCU Buys Naming Rights to University Arena

L&N Federal Credit Union (Louisville, KY) recently bought the naming rights to the University of Louisville (UofL) Cardinal Arena.

The $1.2 billion credit union gave a $2 million donation to University of Louisville Athletics to help fund upcoming projects.

In return for the donation, a 1,100-seat venue has been renamed L&N Federal Credit Union Arena.

The facility houses the offices, training and competition facilities for the Cardinals' women's volleyball team.

Read more.

Navy Surpasses $100 Billion in Assets Milestone, as of Q1 2019

Navy Federal Credit Union (Vienna, VA) surpassed the $100 billion threshold.

As of March 31, 2019, the credit union reported $103.2 billion in assets. This is up from almost $97 billion at the end of 2018.

Navy is the first credit union to top $100 billion in assets.

Moreover, Navy reported net income for the first quarter of 2019 of approximately $423.6 million.

Interest income was almost $1.5 billion for the first quarter. Non-interest income was $413.1 million. Operating expenses and dividends were $765.9 million and $207.5 million, respectively.

Review the Statement of Financial Condition.

Review the Statement of Income.

Thursday, April 18, 2019

Survey: No Change In the Percent of Small Businesses Seeking Credit from CUs

The percentage of small businesses with employees applying for financing from credit unions was flat, according to the latest Small Business Credit Survey — a joint effort by the 12 regional Federal Reserve Banks.

The survey had responses from 6,614 small employer firms.

The 2018 survey found that 43 percent of employer firms applied for financing in the previous 12 months.

Traditional bank lending remains the primary source of financing for the nation’s small businesses, although the share of applicants seeking financing from online borrowers has grown markedly.

The survey found that 9 percent of these small businesses applied for loans, lines of credit, or cash advances from credit unions. The same percentage of small businesses sought credit from credit unions in 2016 and 2017.

There was a slightly higher percentage of medium/high credit risk borrowers that sought financing from from credit unions compared to low credit risk borrowers. The survey found 12 percent of medium/high credit risk borrowers sought credit from credit unions versus 9 percent of borrowers with low credit risk.

Among firms that did not apply for credit, 7 percent identified using credit unions regularly for loans, lines of credit, or cash advances. This is up from 5 percent in 2016, but down slightly from 8 percent in 2017.

Review the results of the survey.

Wednesday, April 17, 2019

CUNA Claims MBL Victory, Then Seeks More Holes in MBL Cap

After declaring victory with respect to the member business loan (MBL) fight, the Credit Union National Association (CUNA) appears to have reversed course.

CUNA is claiming that the enactment of S. 2155, Economic Growth, Regulatory Relief, and Consumer Protection Act, and the National Credit Union Administration's amended member business loan rule have given credit unions ample opportunity to make business loans. In fact, CUNA stated that these two events gave credit unions greater business lending authority than they would have received by just raising the MBL cap from 12.25 percent of assets to 27.5 percent of assets.

Here is what CUNA wrote on January 6, 2019:

"Importantly, this legislation ... carried a major charter enhancement provision, exempting one- to four-family non-owner occupied loans from the member business lending cap. Taken together with our success on the NCUA’s MBL rule, which exempts from the cap loan participations purchased from other credit unions, we can officially declare final victory on the system’s 20-year battle to restore credit union business authority. Indeed, these two changes will provide more cap space than we had been seeking in the old Royce-Udall legislation that aimed to raise the cap to 27.5%."

Now, CUNA is supporting a bill that would exclude business loans to veterans from the aggregate MBL cap.

If that was victory, what's next on CUNA's wish list?

Tuesday, April 16, 2019

Oral Arguments Set Today for NCUA FOM Appeal

A three-judge panel of the D.C. Circuit Court of Appeals is set to hear oral arguments this morning in American Bankers Association’s ongoing legal challenge to the National Credit Union Administration’s field of membership (FOM) rule.

During the hearing, the judges will hear NCUA’s appeal of District Judge Dabney Friedrich’s ruling overturning the provisions of the agency’s rule related to combined statistical areas and rural districts. Meanwhile, ABA is cross-appealing Friedrich’s opinion upholding the provision of the rule permitting credit unions to serve core-based statistical areas without serving the urban core that defines the area—provisions the judge upheld despite calling them “troubling,” “jarring” and “a barely reasonably interpretation of the statute.”

Kansas and Washington Update CU Acts

Two states, Kansas and Washington, have passed legislation updating their credit union statutes.

In Washington-state, Governor Jay Inslee signed into law House Bill 1247.

The bill permits Washington-state credit unions to hold virtual special membership meetings, amends the duties of a credit union's supervisory committee, modifies field of membership to include groups that are either partially or wholly outside the state, grants Washington-state credit unions parity with out-of-state credit unions, and expands the type of securities that credit unions can invest,

The law becomes effective on July 28, 2019.

The Kansas House and Senate approved a bill (HB 2101) that would update state credit union statutes.

The bill updates several definitions and eliminates outdated or duplicate language.

The Bill also establishes a maximum loan amount as 10 percent of assets, clarifies the duties of a credit union's board, and removes the requirement that investments in corporate credit unions must not exceed 25 percent of a credit union's shares, undivided earnings, and reserves.

In addition, the bill no longer requires the written approval of the Administrator to purchase, lease, hold, or rent real estate in excess of 5 percent of a credit union's shares, undivided earnings, and reserves.

Governor Laura Kelly signed the bill into law.

Monday, April 15, 2019

KBW Report Looks at Competitive Impact of CUs on Banks

A report, The Non-Bank Chronicles: The Rise of Credit Unions, by Keefe, Bruyette & Woods (KBW) examines the competitive impact of the credit union industry on banks.

KBW launched The Non-Bank Chronicles with the objective of examining various non-bank competitors, analyzing the scope and methods to which each competes, and how banks can effectively fight back to protect and profitably grow their market share.

The report notes that the credit union tax exemption affords credit unions considerable room to competitively price loan and deposit products, which has helped drive significant growth over the last several decades.

In fact, credit unions are the only non-bank competitor that can offer customers a federally insured deposit product.

Since 2005, credit unions have seen their market share of United States consumers steadily grow, with deposits expanding 108 percent from $578 billion to $1.2 trillion or approximately 9.2 percent of all federally insured deposits in the country.

According to a survey of 114 bank executives covered by KBW, 52 percent identified credit unions as the “greatest threat” to their ability to profitably grow in the future.

Moreover, 68 percent of the respondents indicated that they expect credit union market share to increase in future years.

Bankers noted that the most challenging areas from credit union competition are retail deposits, followed by retail lending. Unsurprisingly, 82 percent of respondents selected “rate offered on loans / deposits” as a credit unions’ top method of competing, followed by 54 percent indicating that loan structure is the second most likely form of competition.

The report also notes that credit unions are expanding into the commercial lending space, which poses a significant competitive threat to for banks with under $10 billion in assets. Eighty-nine percent of the bankers reported noticing an increase focus on small business customers over the last five years.

While KBW analysis found that credit unions offer better rates on loans and deposits, KBW noted that the recent improved profitability of credit unions could suggest the full tax advantage benefit is not being passed through to consumers.

KBW believes competitive challenges posed by credit unions can be added to the list of reasons supporting further bank consolidation.

Despite the challenges posed by credit unions to community banks, KBW does not expect any changes in the political status quo in the near term.

Read the report.

Friday, April 12, 2019

Bill Would Exclude Business Loans to Veterans from MBL Cap

A bill introduced in the United States House of Representatives on April 10 would exclude credit union business loans to veterans from the aggregate member business loan (MBL) cap.

The bill, Veterans Member Business Loan Act, would amend the Federal Credit Union Act to exclude extensions of credit made to veterans for business purposes from the definition of a member business loan.

The bill would cover loans to any veteran who served on active duty and was discharged or released under conditions other than dishonorable.

The statutory aggregate MBL cap is 12.25 percent of assets.

The sponsors of the bill are Representatives Vicente Gonzalez (D-TX), Don Young (R-AK), Paul Cook (R-CA), and Tulsi Gabbard (D-HI).

This bill was introduced in the last Congress.

Read the press release.

Read the bill.

Thursday, April 11, 2019

Commercial Share Accounts Growing by Almost 16.4 Percent Per Year

Another sign of credit unions pursuing small- and mid-sized businesses is the growth of commercial share accounts.

Between 2013 and 2018, commercial share accounts at credit unions have grown at a compound annualized growth rate of approximately 16.4 percent.

The following graph shows the expansion in commercial share accounts at credit unions over the period of 2013 and 2018.

Wednesday, April 10, 2019

138 CU Borrowed from Discount Window in Q1 2017

Credit unions borrowed an aggregate amount of approximately $162.1 million from the Federal Reserve's Discount Window during the first quarter of 2017.

According to the Federal Reserve, 138 credit unions visited the Discount Window 157 times during the quarter.

During the the fourth quarter of 2016, 237 credit unions visited the Federal Reserve's Discount Window 272 times and borrowed an aggregate amount of almost $116.4 million.

The average amount borrowed from the Discount Window was $1,032,787. The median amount borrowed was $10,000.

The was majority of the credit unions borrowing from the Discount Window used the primary credit program, which is reserved for healthy credit unions. Four credit unions borrowed from the secondary credit program. One credit union, United Business and Industry Federal Credit Union (Plainville, CT), used the seasonal credit program, which assists small depository institutions in managing significant seasonal swings in their loans and deposits.

United Business and Industry FCU was the most frequent borrower, visiting the Discount Window a total of 12 times during the quarter.

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

Tuesday, April 9, 2019

Excite CU Buys Naming Rights to Minor League Ballpark for San Jose Giants

Excite Credit Union (San Jose, CA) on April 3 secured the naming rights to San Jose's Municipal Stadium.

The new name for the stadium is Excite Ballpark, Home of the San Jose Giants.

Alliance Credit Union is re-branding itself as Excite Credit Union.

The naming rights deal is for three years.

Price of the deal was not disclosed.

Read the press release.

Monday, April 8, 2019

Impact of Risk-Based Loan Pricing on CU Credit Availability and Risk

Credit unions are increasingly employing risk-based loan pricing models.

A 2018 paper in the Journal of Empirical Finance, Risk-based Loan Pricing Consequences for Credit Unions, examines whether risk-based pricing increases the availability of loans, particularly for high-risk borrowers.

The study uses credit union data obtained from fourth quarter call reports published by the National Credit Union Administration over the period from 2006 through 2015.

The paper found that credit unions that adopt risk-based loan pricing strategies:
  • are larger,
  • have lower net worth ratios,
  • are more dependent on fee income, and
  • have higher loan interest rates.
Also, credit unions with a more traditional deposit mix, which is dominated by regular shares, are less likely to adopt risk-based loan pricing strategies.

Data on the number of loans per credit union member and loan delinquency rates are used to analyze loan access and average risk-levels, respectively.

The authors, Walke, Fullerton, and Tokle, contend that the number of loans issued is a better measure of loan availability than the dollar value of loans.

The study found that risk-based pricing adopters increase the availability of loans relative to otherwise similar non-adopters.

However, delinquency rates were somewhat lower for adopters of risk-based pricing compared to matched non-adopters. This finding appears to be at odds with a priori expectations.

The authors conclude that the lower delinquency rate at risk-based pricing adopters suggests that the increased availability of loans went to lower risk borrowers.

The authors posit that risk-based pricing results in charging higher interest rates to riskier borrowers, which might suppress loan demand by this group of borrowers, and charging lower interest rates to less risky borrowers, which would increase the demand for loans by this group.

Sunday, April 7, 2019

Blackhawk Community CU Proposes New Deal to City for HQ Building

Blackhawk Community Credit Union is asking the city of Janesville to cover site preparation costs for its proposed downtown headquarters instead of a more traditional tax increment financing deal.

Under the proposed arrangement, the city would pay an estimated $7.1 million upfront to acquire and demolish properties, relocate utilities, and perform an environmental cleanup, according to a city memorandum.

That contrasts with the city’s original offer—a 15-year, $6.1 million, pay-as-you-go TIF deal plus $1.9 million in upfront costs for an $8 million city investment.

Read the memorandum.

Read the story.

Class Action Lawsuit Alleges First Community CU Levies Multiple NSF Charges on Same Transactin

A class-action lawsuit accuses First Community Credit Union (St. Louis, MO) of charging members with multiple "insufficient funds" (NSF) fees on a single transaction.

The lawsuit alleges this practice is contrary to the credit union's account agreements.

The plaintiff is Leassa Kellerman.

The lawsuit was filed on March 25, 2019 in St. Louis District Court.

Read the press release.

Saturday, April 6, 2019

Texas Farm Bureau FCU Sells Loans and Branch to Alliance Bank Central Texas

The American Banker is reporting that Alliance Bank Central Texas (Waco, TX) is buying all the loans and the only branch of Texas Farm Bureau Federal Credit Union (Waco, TX).

Texas Farm Bureau FCU had $6.7 million in assets and $3.4 million in loans, as of December 31, 2018.

The credit union's membership approved the sale on March 25.

The credit union had approached several credit unions about a merger, but was rebuffed when maintaining the headquarter's branch was proposed as a condition of the merger.

The price of the transaction was not disclosed.

Read the American Banker.

Friday, April 5, 2019

CUs Report a Slight Decline in Consumer Credit in February

Outstanding consumer credit at credit unions experienced a slight contraction during February 2019, according to the Federal Reserve.

Outstanding consumer credit fell by almost $200 million at credit unions during February to $471.3 billion.

The decline in outstanding consumer credit was due to revolving credit falling by approximately $600 million during February to $61.5 billion.

Nonrevolving credit was $409.8 billion in February, up from $409.5 billion in January.

Read more.

No Evidence that NCUA Asked for Authority to Curb Concentration in Taxi Medallion Loans

The National Credit Union Administration (NCUA) did not ask Congress for the authority to curb excessive speculative lending in taxi medallions, according to the agency's Office of Inspector General.

Speaking before an Oregon Credit Union CEOs in December 2017, NCUA Board Member Metsger stated that NCUA’s ability to curtail speculative taxi medallion lending was limited by a provision in the Credit Union Membership Access Act. Metsger noted that the Senate Report specifically mentioned taxi medallion lending as an example of loan activity that was exempt from the Member Business Loan (MBL) cap of 12.25 percent of assets.

The Office of the Inspector General wrote:
"We found no evidence of NCUA directly communicating a recommendation to congress to rescind or modify the exception to NCUA's Rules and Regulations Part 723 for aggregate MBL limits."

The Office of Inspector General concluded that such recommendations could have mitigated the loss to the National Credit Union Share Insurance Fund by slowing the growth in taxi medallion portfolios or diversifying lending practices at the three failed taxi medallion lending credit unions.

So why didn't NCUA make a recommendation to Congress?

Thursday, April 4, 2019

Marketplace Radio: Relaxed Rules Spur CU Membership Growth

A story on NPR’s “Marketplace” program last night illustrated how credit unions have used ever-looser field of membership regulations to expand beyond their intended communities.

These lax membership rules have helped credit union membership to grow by almost 60 percent over the past 20 years.

The centerpiece of the story is what reporter Nancy Marshall-Genzer calls a “daisy chain” of members—a group of several young people in the D.C. suburbs with no military connection who became members of Navy Federal, the nation’s largest credit union with nearly $100 billion in assets and one with a stated mission of serving “the military community.” In this case, a four-person chain of successive roommates used Navy Federal’s household member loophole to become members.

Read the transcript.

Wednesday, April 3, 2019

IBM Southeast Employees CU Completes Acquisition of Oculina Bank

IBM Southeast Employees Credit Union (Delray, FL) completed its acquisition of Oculina Bank (Vero Beach, FL) on April 3, 2019.

The combined institution, will have almost $1.5 billion in assets.

According to documents obtained from the Florida office of Financial Regulation, the credit union will not engage in any nonconforming or impermissible activities. IBM Southeast Employees CU will not conduct commercial banking powers under Oculina Bank's charter. Within six months of the merger being consummated, the Florida Office of Financial Regulation will be submitted documentation verifying that depositors and borrowers of Oculina Bank have opted-in to become a member of the credit union, have moved their account relationship to another financial institution, closed their account or paid off their loan.

Read the press release.

Loss to NCUSIF Was $765.5 Million from the Failures of Bay Ridge FCU, LOMTO FCU, and Melrose CU

The National Credit Union Administration (NCUA) Office of the Inspector General (OIG) released its Material Loss Review on the failure of taxi medallion lenders Melrose Credit Union (Briarwood, NY), LOMTO Federal Credit Union (Woodside, NY), and Bay Ridge Federal Credit Union (Brooklyn, NY).

The report found that the aggregate loss to the National Credit Union Share Insurance Fund (NCUSIF) from the failure of these 3 credit unions was $765.5 million. The OIG estimates that the losses to the NCUSIF from the failure of Melrose CU and LOMTO FCU was approximately $726 million; but NCUA will not know the final cost until all assets are sold. The failure of Bay Ridge FCU resulted in a preliminary loss of $39.5 million to the NCUSIF.

The OIG determined the failures were due to: (1) significant concentration of loans collateralized by taxi medallions, (2) unsafe and unsound lending practices, and (3) weak Board and management oversight and inadequate risk management practices.

The report noted that all three credit unions qualified for an exception from the aggregate member business loan cap, because the credit unions were either chartered for the purpose of making member business loans or have a history of primarily making member business loans prior to September 1998.

As of June 30, 2018, all three credit unions had significant concentration in tax medallion loans.
  • Bay Ridge FCU had approximately 40 percent of its loan portfolio in taxi medallion loans;
  • LOMTO FCU had approximately 93 percent of its loan portfolio in taxi medallion loans, and
  • Melrose CU reported almost 71 percent of its loan portfolio was made up of taxi medallion loans.
The report stated that the 3 credit unions failed to monitor and appropriately monitor loans to associated members, thereby increasing concentration risk. NCUA's Member Business Loan Regulation limits lending to associated members to 15 percent of net worth. Examiners noted several instances when the credit unions violated the associated borrower limit. Because the credit unions did not identify and document loans made to associated borrowers, the OIG wrote it is not clear how often the associated borrower regulatory limit was breached.

In fact, Melrose requested forbearance in regard to the associated borrower limitation in July of 2014, requesting the 15 percent limitation be increased to 25 percent. The forbearance request was formally denied in October of 2015. However, prior to the denial, Melrose had restructured and extended approximately $113 million in loans to two different associated borrower relationships exceeding the 15 percent concentration during 2015. A September 30, 2015 examination, these two associated borrower relationships accounted for approximately $177 million in loans.

The OIG found that the credit unions engaged in inadequate loan underwriting and monitoring of taxi medallion loans. Examples of inadequate loan underwriting included frequent failure to fully analyze financial information of borrowers, did not look at the borrowers' ability to repay the loan, risky loan terms, unsupported cash out refinancings, and failure to identify and account for modified loans as Troubled Debt Restructures.

All 3 credit unions had significantly underfunded their allowance for loan and lease losses accounts.

The OIG also reported that lending decisions were based on inflated market values for taxi medallions rather than on industry accepted best practices for loan underwriting.

The report found that the credit unions did not adequately respond to issues raised by examiners, including lending practices, concentration, liquidity, and overall risk management. Poor Board oversight allowed for weak risk management practices at the 3 credit unions to go unchecked. The report highlighted the credit unions' Board of Directors, specifically Melrose and LOMTO, exhibited a lack of urgency in addressing their rapidly decreasing financial position.

The OIG concluded that if examiners had acted more aggressively through formal enforcement actions for repeat document of resolutions, NCUA may have reduced the size of the loss to the NCUSIF.

The OIG made 3 recommendations to NCUA management to more effectively capture the concentration and other risks on a credit union’s balance sheet.

NCUA management should:
  • institute a formal process to regularly identify, analyze, and document concentration risk issues in credit unions or groups of credit unions and develop appropriate thresholds for different concentrations that would require increased levels of risk mitigation.
  • revise examination procedures to prioritize assessing and developing risk responses for credit unions with high levels of concentration risk. For repeated unresolved recommendations, informal enforcement actions should be escalated to formal enforcement actions.
  • require examiners review credit unions’ lending procedures with respect to analyzing the ability of the borrower to meet debt service requirements.
NCUA agreed to the recommendations.

Read the Material Loss Review.

Tuesday, April 2, 2019

Op-Ed Calls for the End of CU Tax Exemption

Congress cannot proclaim its support for community banks while allowing tax-subsidized credit unions to continue growing and competing against banks on a tilted playing field, Florida Bankers Association President and CEO Alex Sanchez wrote in a Fox Business op-ed.

“Congress cannot have it both ways, publicly proclaiming support for community banks while allowing corporate welfare for credit unions to continue,” he wrote. “Credit unions, awash in cash because of their tax-exempt status, are buying banks in cash deals. Since 2012, credit unions have purchased 29 banks.”

In Florida, Sanchez noted that since the beginning of 2018, credit unions have either bought or announced deals to buy seven banks, with four deals announced in 2019 alone.

Read the op-ed.

Overdraft Revenues Soar at Credit Unions in 2018

A study found that overdraft (OD) revenues soared at credit unions in 2018.

According to Moebs Services, credit union OD revenues soared +5.72 percent to $6.9 billion. However, OD revenues fell at banks and thrifts by 0.73 percent and 1.83 percent, respectively.

The study, The Moebs OD Revenue Study, found that OD transactions at credit unions rose by 2.19 percent, while OD transaction fell for banks by 6.93 percent and at thrifts for 0.53 percent.

Monday, April 1, 2019

Summit CU's New HQ Open for Business

Summit Credit Union (Madison, WI) officially opens its new 152,000-square-foot, six-story headquarters facility and campus.

The new headquarters building is in Cottage Grove.

The new building features improved workspaces for employees, highlighted by eco-friendly flooring and lighting. There is also a 17,500-gallon rainwater harvest cistern to capture and reuse rainwater, as well as electric car chargers for Summit employees and members.

The campus has outdoor recreational spaces, including sand volleyball courts and a bike path.

Friday, March 29, 2019

NCUA Closes C B S Employees Federal Credit Union over Alleged Embezzlement

The National Credit Union Administration (NCUA) liquidated C B S Employees Federal Credit Union (Studio City, CA).

University Credit Union (Los Angeles, CA) immediately assumed C B S Employees’ assets, loans, and all member shares.

NCUA made the decision to liquidate C B S Employees because the credit union was insolvent and had no prospect of becoming viable.

According to a press release from U.S. Attorney's Office of Central District of California, a long-time manager of the credit union, who is in federal custody, is alleged to have embezzled $40 million over two decades and spent the money on gambling, expensive cars and watches, and travel by private jets.

At the time of liquidation and subsequent purchase and assumption by University Credit Union, C B S Employees served 2,798 members and had assets of $21,037,558, according to the credit union’s most recent Call Report.

This is the first credit union failure of 2019.

Read the press release.

House Committee Advances SAFE Banking Act

By a vote of 45 to 15, the House Financial Services Committee yesterday advanced the Secure and Fair Enforcement (SAFE) Banking Act, which would address the issue of providing financial services to cannabis-related businesses.

The SAFE Banking Act specifies that proceeds from “cannabis-related legitimate businesses” would not be considered unlawful under federal money laundering rules or other laws. It would also direct the Financial Crimes Enforcement Network and federal banking regulators to issue guidance and exam procedures for banks and credit unions that serve cannabis-related legitimate businesses.

Earlier this week, the American Bankers Association and the Credit Union National Association wrote a joint letter to members of the House Financial Services Committee in support of the SAFE Banking Act

Thursday, March 28, 2019

Power Financial CU to Buy TransCapital Bank

Power Financial Credit Union (Pembroke Pines, FL) has signed a definitive agreement to purchase TransCapital Bank (Sunrise, FL).

Power Financial CU has almost $655 million in assets, according to its most recent call report. TransCapital Bank has $204 million in assets at the end of 2018.

The transaction is expected to close during the third quarter of 2019, subject to customary closing conditions and shareholder and regulatory approvals.

The price of the deal was not disclosed.

This is the fourth announced purchase of a Florida bank by a Florida credit union this year.

Read the press release.

NCUSIF Assisted Mergers Lack Transparency

The National Credit Union Administration's response to questions about charges to the National Credit Union Share Insurance Fund (NCUSIF) associated with assisted mergers in the fourth quarter lacked illumination.

One slide in the NCUSIF presentation at the March National Credit Union Administration (NCUA) Board meeting showed charges for assisted mergers of $39.5 million during the fourth quarter.

The following are questions to a NCUA spokesperson and the spokesperson's response.

Q: What type of assistance did NCUA offer during the fourth quarter?

Q: Was the charge associated with the merger of Bay Ridge FCU into Island FCU?

A: Slide five of the Q4 2018 Share Insurance Fund report shows the aggregate charges for assisted mergers was $39.6 million for the year and $39.5 million for the fourth quarter. The NCUA posts assisted mergers on its Conservatorships and Liquidations page, but the agency does not make public details of the type or level of assistance in an individual merger.

Q: Will the Office of the Inspector General do an audit on this assisted merger?

A: “The Dodd-Frank Wall Street Reform and Consumer Protection Act obligates the NCUA OIG to conduct material loss reviews (MLRs) of credit unions that incurred a loss of $25 million or more to the National Credit Union Share Insurance Fund. In addition, Dodd-Frank requires the OIG to review all losses under the $25 million threshold to assess whether an in-depth review is warranted due to unusual circumstances.”
We will have to wait for the semi-annual report to Congress from the agency's Inspector General to see whether a material loss review is being conducted with respect to the NCUSIF assisted merger of Bay Ridge Federal Credit Union. The Brooklyn, New York-based credit union had significant exposure to taxi medallion loans.

Wednesday, March 27, 2019

Minneapolis City Council to Provide Up to $500,000 to New Minority CU

The Ways and Means Committee of the Minneapolis City Council will provide up to $500,000 in funding for a new credit union serving minority residents in north Minneapolis.

The contract is with the Association for Black Economic Power, which is a community-led nonprofit organization. The organization is seeking to establish Minnesota's only black-led financial institution, the Village Financial Cooperative (VFC).

VFC has obtained approval to form a credit union from the state in late 2018 and is in the late stages of its application for insurance/authorization from the National Credit Union Administration.

The city will provide up to $400,000 in a 10-year, interest-free forgivable loan. The loan can be used for occupancy, leasehold improvements and equipment expenses for retail space located in North Minneapolis.

The loan will be forgiven if the following conditions are met:
  • VFC will open a brick and mortar store in North Minneapolis in 2019.
  • VFC will provide a financial literacy program for the residents of the City of Minneapolis, with at least 30 classes (300 attendees) in 2019.
  • VFC will enroll at least 500 members in checking or savings accounts in 2019.VFC will hold at least six major community outreach events to promote VFC and recruit members.
An additional grant up to $90,000 will be used to cover operating expenses associated with the provision of banking services to, and financial literacy education for, Minneapolis residents.

The credit union expects to open in June 2019.

Read more.


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