Capital Holders of Southwest Corporate FCU Will Receive $171.3 Million Distribution

On June 25 during a briefing on NCUA Guaranteed Notes Program, the President of the National Credit Union Administration’s Asset Management and Assistance Center stated that the capital holders of Southwest Corporate Federal Credit Union will receive a distribution of $171.3 million in July.

This payout equals 42 percent of $403.5 million in claims of capital account holders of the failed corporate credit union.

The Southwest Corporate asset management estate has 1,120 member capital account holders, including 1,092 credit unions. After accounting for mergers, purchases and acquisitions, and liquidations, almost 900 active credit unions will receive a distribution.

Southwest Corporate Federal Credit Union was liquidated on October 31, 2010.

NCUA Liquidates IBEW Local Union 712 FCU

The National Credit Union Administration on May 29 liquidated IBEW Local Union 712 Federal Credit Union in Beaver, Pennsylvania.

West Penn P&P Federal Credit Union of Beaver, Pennsylvania, immediately assumed IBEW Local Union 712 Federal Credit Union’s assets, member shares, and loans. West Penn P&P Federal Credit Union has 2,150 members and assets of nearly $14.8 million, according to the credit union’s most recent Call Report.

At the time of liquidation and subsequent purchase by West Penn P&P Federal Credit Union, IBEW Local Union 712 served 2,935 members and had assets of approximately $7.7 million. The credit union was insolvent with a net worth ratio of negative 18.32 percent. The credit union reported net income of minus $2.34 million for the first quarter of 2020, as provision for loan and lease losses was almost $2.37 million.

This is the first credit union liquidation in 2020. The last credit union to be liquidated in Pennsylvania was First African Baptist Church Federal Credit Union (Sharon Hill, PA) on November 29, 2016.

Read the press release.

IG: Examiners Could Have Done More to Detect Fraud at C B S Employees FCU

The National Credit Union Administration's Inspector General (IG) is critical of examiners for losses to the National Credit Union Share Insurance Fund (NCUSIF) arising from the failure of C B S Employees Federal Credit Union.

According to the Material Loss Review, the failure of the credit resulted in an estimated loss of $39.5 million to the NCUSIF.

The IG determined that the failure was due to the misappropriation of $42.2 million in cash, due to fraud. The credit union's former CEO concealed the losses by understating member share balances, primarily share certificates, on the financial statements. The embezzlement occurred unabated for almost 20 years.

The IG noted that the lack of segregation of duties and dual control allowed the former CEO to perpetrate and conceal the fraud. The former CEO possessed all of the following:

• Access to official credit union checks, which enabled him to alter the physical records of credit union checks;
• "Super-user" access to the credit union's accounting system, which enabled him to alter both the check payee information and file maintenance reports, which concealed this action; and
• Sole responsibility for financial reporting, which gave him the ability to prepare fraudulent financial statements.

While the IG report stated that while examiners recognized the risk posed by the lack of segregation of duties, it did not result in a Document of Resolution or any other formal or informal enforcement action.   The IG believed that if these responsibilities had been separated, it would have been more difficult for the former CEO to perform the fraudulent activities.

In addition, if dual controls had been in place, credit union staff could have discovered the former CEO’s embezzlement long before they eventually discovered it.

Furthermore, the IG report noted that to perpetrate the fraud, the former CEO needed a reliable source of funds. The former CEO had authority to set interest rates on share certificates. For example, the former CEO set the interest rate on one-year share certificate at 3.1 percent as of December 31, 2018, which was significantly above the market rate of approximately 1.3 percent. Despite these above-market rates, the credit union reported approximately $3.5 million in share certificates at the end of 2018. This small dollar amount of share certificates given the above-market rates should have triggered questions among the examiners; but the IG found no evidence of this in their Examination Report.

Moreover, the IG concluded that the supervisory committee audits and member account verification procedures were unacceptable.

The IG made two recommendations, which National Credit Union Administration management agreed with. Management should:

• "revise examination procedures to prioritize assessing and developing a risk response for credit unions that do not segregate certain key duties and that require dual controls. These revisions should include a framework that examiners can complete an assessment of those characteristics that indicate lack of segregation of duties at a credit union and additional procedures that examiners should perform when a lack of segregation of duties is apparent";  and 
• "amend guidance related to member account verifications. Specifically, the amended guidance should require reconciliation from the print processor to the share and loan subsidiaries when a statement verification is performed."

Read the Material Loss Review.

OIG: NCUA Assisted in the Merger of an Alabama CU

In its Semiannual Report to Congress, the Office of the Inspector General (OIG) of the National Credit Union Administration (NCUA) reported that the failure of Monroe Education Employees Federal Credit Union (Monroeville, AL) imposed an estimated loss to the National Credit Union Share Insurance Fund of $335,530.

The credit union failed due to insufficient management, poor internal controls, recordkeeping errors, high loan delinquencies and charge-offs, and undercapitalization.

At the time of the assisted merger, Monroe Education Employees FCU had $4.4 million in assets and 1,578 members.

The failed credit union was merged with Gulf Winds Credit Union (Pensacola, FL) on July 29, 2019.

Read more.

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.

NCUA Liquidates Radio, Television and Communication FCU

The National Credit Union Administration (NCUA) on October 12 liquidated Radio, Television and Communication Federal Credit Union of Staten Island, New York.

Palisades Federal Credit Union of Pearl River, New York, immediately assumed most of Radio, Television and Communication Federal Credit Union’s assets and all members, shares, and loans.

The NCUA made the decision to liquidate Radio, Television and Communication Federal Credit Union and discontinue its operations after determining the credit union was insolvent with no prospect for restoring viable operations on its own.

The credit union posted losses of $263 thousand for 2017 and $75,355 thru mid-year 2018.

At the time of liquidation and subsequent purchase by Palisades Federal Credit Union, Radio, Television and Communication Federal Credit Union served 416 members and had assets of $3 million, according to its most recent Call Report. Chartered in 1964, Radio, Television and Communication Federal Credit Union served various groups in New York.

Radio, Television and Communication Federal Credit Union is the seventh federally insured credit union liquidation in 2018 and the third credit union headquartered in New York closed this year.

Read the press release.

Taxi Medallion Lender LOMTO Closed

The National Credit Union Administration on Sept. 30 liquidated LOMTO Federal Credit Union of Woodside, New York, as troubled taxi medallion loans ultimately caused the failure of the credit union.

Teachers Federal Credit Union, of Hauppauge, New York, assumed LOMTO’s members and most shares as well as some loans and other assets.

This follows Teachers FCU purchase and assumption of Melrose Credit Union on September 1.

At the time of liquidation and subsequent purchase by Teachers Federal Credit Union, LOMTO served 2,283 members and had assets of approximately $156 million, according to the credit union’s most recent Call Report.

The credit union was insolvent as of June 30, 2018. Click here, to review LOMTO's financial performance at the end of the second quarter of 2018.

LOMTO Federal Credit Union is the sixth federally insured credit union liquidation in 2018. LOMTO is the third credit union that specialized in taxi medallion lending to be liquidated this year.

Read the press release.

Taxi Medallion Lender Melrose CU Closed

The National Credit Union Administration on August 31 liquidated taxi medallion lender Melrose Credit Union of Briarwood, New York.

Teachers Federal Credit Union, of Hauppauge, New York, immediately assumed all of Melrose’s members and shares as well as some loans and other assets. Teachers Federal Credit Union is a federal credit union that serves 300,541 members and has assets of nearly $6.1 billion, according to the credit union’s most recent Call Report.

The NCUA made the decision to liquidate Melrose and discontinue its operations after determining the credit union was insolvent and had no prospect for restoring viable operations. Troubled taxi medallion loans due to the disruption from ride sharing companies ultimately led to massive losses at the credit union. Click here to review Melrose's mid-year financial performance.

The New York State Department of Financial Services placed Melrose into conservatorship on Feb. 10, 2017, and named the NCUA as conservator.

At the time of liquidation and subsequent purchase by Teachers Federal Credit Union, Melrose served 19,864 members and had assets of approximately $1.1 billion, according to the credit union’s most recent Call Report.

Melrose is the fifth federally insured credit union liquidation in 2018.

Read the press release.

Greater Christ Baptist Church CU Closed

The Michigan Department of Insurance and Financial Services on July 31 liquidated the Greater Christ Baptist Church Credit Union (Detroit, MI) and appointed the National Credit Union Administration as liquidating agent.

The Michigan Department of Insurance and Financial Services made the decision to liquidate the Greater Christ Baptist Church Credit Union and discontinue its operations after determining the credit union was in an unsafe and unsound condition.

The credit union has 396 members, $608,000 in assets, and $470,500 in deposits as of its last quarterly filing.

Greater Christ Baptist Church is the fourth federally insured credit union liquidation in 2018.

Read NCUA's press release.

Read the Michigan Department of Insurance and Financial Services press release.

Louisville Metro Police Officers Credit Union Liquidated

The Kentucky Department of Financial Institutions on June 29 appointed the National Credit Union Administration (NCUA) as liquidating agent of Louisville Metro Police Officers Credit Union of Louisville.

Commonwealth Credit Union of Frankfort, Kentucky, immediately assumed Louisville Metro Police Officers Credit Union’s membership, shares, loans, and all other assets.

Louisville Metro Police Officers Credit Union was placed into conservatorship by NCUA on December 15, 2017.

The decision to liquidate Louisville Metro Police Officers Credit Union and discontinue its operations was made after determining the credit union was insolvent and had no prospect for restoring viable operations.

As of March 31, 2018, the credit union had a net worth ratio of negative 10.38 percent. The credit union posted a loss of approximately 1.7 million during the first quarter of 2018.

Alleged financial crimes at Louisville Metro Police Officers CU contributed to the credit union's failure.

At the time of liquidation and subsequent purchase by Commonwealth Credit Union, Louisville Metro Police Officers Credit Union served 3,349 members and had assets of approximately $20 million, according to the credit union’s most recent Call Report.

This is the third credit union to be liquidated in 2018 and the first Kentucky credit union to be liquidated, since IBEW Local 818 Federal Credit Union on July 10, 2014.

Read NCUA's Press Release.

Taxi Medallion Lender First Jersey CU Liquidated

First Jersey Credit Union (Wayne, NJ) was liquidated by the New Jersey Department of Banking and Insurance.

The Department appointed the National Credit Union Administration as liquidating agent. USALLIANCE Federal Credit Union of Rye, New York, immediately assumed most of First Jersey’s assets and loans and all member shares.

The New Jersey Department of Banking and Insurance made the decision to liquidate First Jersey Credit Union and discontinue its operations after determining the credit union was insolvent with no prospect for restoring viable operations on its own. At the end of 2017, First Jersey CU was critically undercapitalized with a net worth ratio of zero percent. (Read my February 11, 2018 blog post)

First Jersey Credit Union is the second federally insured credit union liquidation in 2018 and the first New Jersey credit union to be liquidated since 2015.

At the time of liquidation and subsequent purchase and assumption by USALLIANCE Federal Credit Union, First Jersey Credit Union served 9,045 members and had assets of almost $86 million, according to the credit union’s most recent Call Report.

Read the press release.

Tiny St. Elizabeth's CU Closed

The Illinois Department of Financial and Professional Regulation issued an order of liquidation to St. Elizabeth’s Credit Union of Chicago and subsequently appointed the National Credit Union Administration as liquidating agent.

Northstar Credit Union, of Warrenville, Illinois, immediately assumed most of St. Elizabeth’s Credit Union’s members, assets and loans.

Following a 60-day suspension period, the Illinois Department of Financial and Professional Regulation determined that St. Elizabeth’s Credit Union should be liquidated.

At the end of 2017, St. Elizabeth’s Credit Union had $116,449 in assets.

St. Elizabeth’s is the first federally insured credit union liquidation in 2018.

Read the order for liquidation.

Read NCUA's press release.

NCUA Closes Riverdale CU

The National Credit Union Administration on December 4 liquidated Riverdale Credit Union of Selma, Alabama.

Jefferson Financial Federal Credit Union of Metairie, Louisiana, immediately assumed Riverdale Credit Union’s membership, shares, loans, and most other assets.

Riverdale was placed into conservatorship on June 22, 2017, as a result of unsafe and unsound practices at the credit union. NCUA made the decision to liquidate Riverdale and discontinue its operations after determining the credit union was insolvent and had no prospect for restoring viable operations.

Read my November 2 blog post on Riverdale's deteriorating financial condition.

At the time of liquidation, Riverdale served 11,572 members and had assets of $54,924,278, according to the credit union’s most recent Call Report. Chartered in 1967, Riverdale Credit Union served persons who live, work, worship, or attend school in Autauga, Chilton, Dallas, Lowndes, Perry, or Wilcox counties in Alabama as well as various employee groups.

Riverdale is the fifth federally insured credit union liquidation in 2017.

Read the press release.

New York State Employees FCU Closed

The National Credit Union Administration liquidated New York State Employees Federal Credit Union of New York, New York.

Palisades Federal Credit Union of Pearl River, New York, immediately assumed most of New York State Employees Federal Credit Union’s assets and all members, shares and loans.

The NCUA made the decision to liquidate New York State Employees Federal Credit Union and discontinue its operations after determining the credit union was insolvent with no prospect for restoring viable operations on its own.

As of June 2017, the credit union was unprofitable and significantly undercapitalized with a net worth ratio of 3.92 percent. The credit union reported that 8.28 percent of its loans were at least 60 days or more past due.

At the time of liquidation, New York State Employees Federal Credit Union served 1,183 members and had assets of $2 million, according to the credit union’s most recent Call Report.

New York State Employees Federal Credit Union is the fourth federally insured credit union liquidation in 2017. The last New York-based credit union to be liquidated was Bethex FCU (Bronx, NY) on December 18, 2015.

Read the press release.

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

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

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

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

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

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

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

Read the press release.

​

Indirect Used Car Lending Contributed to the Failure of Valley State Credit Union

It appears that a rapid growth in indirect used car lending played a significant role in the failure of Valley State Credit Union (Saginaw, MI).

Valley State Credit Union failed on March 31, 2017.

The following graphs provide a visual depiction of rapid growth in used car and indirect lending, the growth in delinquencies in used car and indirect loans, and the subsequent spike in net charge-offs in used car and indirect loans.

Between September 2014 and December 2015, used car loans rapidly expanded by almost 236 percent from $2.3 million to almost $7.86 million.

Over the same time period, indirect lending expanded from 11.08 percent of total loans to peaking at 33.89 percent of all loans.

Used car loan delinquency rate went from 3.02 percent in September 2014 to 30.68 percent as of September 2016.

Indirect loan delinquency rates went from 4.84 percent to 33.35 percent over the same period.

In the fourth quarter of 2016, net charge-offs for used car loans and indirect loans were $1.4 million and $1 million, respectively.

Florida Conference AME Church FCU Closed

The National Credit Union Administration (NCUA) liquidated Florida Conference AME Church (FCAMEC) Federal Credit Union of Tallahassee, Florida.

Gulf Winds Federal Credit Union, of Pensacola, Florida, has assumed the members and deposits of the former Florida Conference AME Church Federal Credit Union.

NCUA made the decision to liquidate the Florida Conference AME Church Federal Credit Union and discontinue its operations after determining the credit union was insolvent and had no prospect for restoring viable operations.

As of December 31, 2016, the credit union was significantly undercapitalized with a net worth ratio of 2.75 percent. The credit union posted a small loss of $9,601 for 2016 after posting a loss of $104,541 for 2015.

Florida Conference AME Church Federal Credit Union served 560 members and had assets of $1,760,664 at the end of 2016. The credit union had a low-income designation.

This is the first credit union to be liquidated in 2017.

Read the press release.

Read the press release on Gulf Wind's assumption of deposits and members.

Bad Taxi Medallion Loans Pushes Melrose CU into Conservatorship

The New York State Department of Financial Services today took possession of Melrose Credit Union, located in Briarwood, New York, and appointed the National Credit Union Administration as conservator.

Bad taxi medallion loans eroded the financial performance of Melrose Credit Union and pushed the credit union into conservatorship.

The credit union reported a 2016 loss of almost $98.7 million, after posting a loss for 2015 of $176.7 million.

Provisioning for loan and lease losses contributed to the loss, as Melrose recorded provisions for loan and lease losses of $110.3 million for 2016.

As a result of the loss, the credit union's net worth fell sharply to $102.2 million at the end of 2016. In comparison, the credit union's net worth was $205.2 million at the end of 2015 and $145.1 million as of September 2016.

The credit union was undercapitalized at the end of 2016 with a net worth ratio of 5.73 percent.

Delinquent loans grew during the quarter by almost $80 million to $501.4 million as of December 2016.

At the end of 2016, 28.64 percent of all loans were 60 days or more past due. Delinquent loans to net worth ratio was 490.41 percent.

In addition, the credit union is reporting that early delinquencies (30 days to 59 days past due) of $62.6 million.

Net charge-offs were $191.4 million at the end of 2016. The net charge-off rate was 10.23 percent.

Troubled Debt Restructured (TDR) loans were $248.7 million, as of December 2016. TDR loans were 14.21 percent of total loans and 243.25 percent of net worth.

Melrose reported an increase in allowance for loan and lease losses (ALLL) of $47 million during the fourth quarter to $149.2 million. The credit union's coverage ratio (ALLL to Delinquent Loans) was 29.76 percent, as of December 2016. The TDR portion of ALLL was almost $44 million.

Melrose reported shedding $166 million in assets during the fourth quarter. At the end of 2016, the credit union had $1.78 billion in assets.

Read the press release.

First African Baptist FCU Closed, American Heritage FCU Assumes Members and Deposits

The National Credit Union Administration liquidated First African Baptist Church Federal Credit Union of Sharon Hill, Pennsylvania.

American Heritage Federal Credit Union of Philadelphia immediately assumed First African Baptist’s members and deposits.

NCUA made the decision to liquidate First African Baptist Church Federal Credit Union after determining the credit union was insolvent with no prospect of restoring viable operations.

This low-income designated credit union was seriously undercapitalized with a net worth ratio of 2.09 percent as of September 30.

At the time of its liquidation and subsequent purchase and assumption by American Heritage Federal Credit Union, First African Baptist Church Federal Credit Union had assets of $76,188 and served 261 members, according to its most recent Call Report.

First African Baptist Church Federal Credit Union is the eleventh federally insured credit union liquidation of 2016 and the seventh credit union in Pennsylvania to be liquidated this year..

Read the press release.

Valley State CU Placed into Conservatorship

Valley State Credit Union in Saginaw, MI has been placed into conservatorship by the Michigan Department of Insurance and Financial Services to address issues affecting the credit union's financial stability.

According to the order, the state regulator has determined that Valley State was "operating in an unsafe and unsound condition."

As of the second quarter of 2016, the $24.9 million credit union reported a mid-year loss of almost $300 thousand. The credit union reported that 12.9 percent of its loans were 60 days or past due.

Read the press release/a>.

Read the conservatorship order.