Time Magazine: Should CUs Pay Taxes?

In case you missed it, check out a Times Magazine article on Should Credit Unions Have to Pay Income Tax?

The article notes that credit unions were given their tax exempt status because "they were often the sole source of financing for disadvantaged communities whose members had few assets and no way to prove their creditworthiness."

However, the author states "not all credit unions focus intently on bringing banking services to low-income communities" and points out that expanding the credit union business loan cap does nothing to further their public policy purpose.

The author concludes "with so many millions of Americans relying on check-cashing services and payday lenders, shouldn’t Congress be focusing on policies that aid credit unions in helping those folks?"

Hearing Video on Paying Directors

Legislation has been introduced in Tennessee and Washington that would permit state chartered credit unions to pay their directors.

Paying directors is a controversial issue within the credit union industry. Some within the credit union industry argue that credit unions are becoming increasingly complex and need to be able to compensate directors to attract qualified people to serve on the board. However, others argue that a volunteer board sets credit unions apart from banks.

Below is the February 19th video of a hearing in the Tennessee Senate Commerce and Labor Committee (about 31 minutes in length).

The hearing had several witnesses including the former president of Southeast Financial Credit Union, who spoke in favor of the bill. When asked why not become a bank if he wanted to pay his directors, he spoke about the onerous burden that NCUA imposes on credit unions seeking to convert to a bank charter.

CU Tax Exemption -- Indefensible and Outdated

Check out the latest ads calling out credit unions on their outdated and indefensible tax exemption.

View the print ad. Listen to the radio ad.

State Regulator Suppresses Member Insurrection

Iowa's superintendent of credit unions, JoAnn Johnson (the former Chairman of NCUA), has invalidated a board and management shake-up at Family Community Credit Union in Charles City.

At an annual meeting of the Family Community Credit Union, members voted to dismiss the board of directors, to suspend CEO Dawn Swaningson, to reinstate staff members who had quit in protest of their treatment by Swaningson, and to appoint a new board and CEO.

But JoAnn Johnson wrote the members that their actions "were not in compliance with the bylaws of the credit union, or with the Iowa Credit Union Act."

I suspect that this is not the end of the story.

Read the story.

Problem Credit Union Update, Q4 2012

NCUA reported that the number of problem credit unions fell during the fourth quarter and for all of 2012.

A problem credit union is defined as a credit union with a CAMEL 4 or 5 rating.

The number of problem credit unions fell by 40 during 2012 to 369 credit unions and by 13 during the fourth quarter.

There were:

• 4 credit unions with $1 billion or more in assets on the problem CU list, down from 7 a year earlier;
• 3 credit unions with between $500 million and $1 billion in assets, down from 4;
• 25 credit unions with between $100 million and $500 millionin assets, down from 26;
• 131 credit unions with between $10 million and $100 million in assets, down from 156; and
• 206 credit unions with under $10 million in assets, up from 196.

In addition, the assets and shares (deposits) in problem credit unions declined during 2012.

Assets fell from $29.4 billion at the end of 2011 to $19 billion at the end of 2012. In other words, 1.8 percent of the industry's assets were in CAMEL 4 or 5 institutions.

Shares dropped from $26.3 billion to $16.9 billion over the same time period. At the end of 2012, 2.02 percent of all insured shares were in problem credit unions. This was down 80 basis points from the third quarter and 129 basis points from a year ago.

Newspaper Endorses HarborOne's Conversion to Mutual Bank Charter

The Enterprise News has endorsed Brockton-based HarborOne Credit Union's conversion to a mutual cooperative bank.

In its endorsement, the paper writes:

"It will be good for the economy. It would allow for more commercial lending, more branches and more jobs. It would let HarborOne expand its lending far beyond what is now possible. It also will raise millions of dollars in taxes because banks pay taxes, while credit unions don’t." (emphasis added)

Read the paper's editorial endorsing the conversion.

NCUSIF Collateralized Senior Note of $179 Million

The National Credit Union Share Insurance Fund (NCUSIF) at the end of 2012 was holding a collateralized senior note from one federally-insured credit union.

According to footnote 5 of the NCUSIF's audited financial statements,

"[a]s of December 31, 2012, the NCUSIF had an outstanding collateralized senior note due from an insured credit union for $179.3 million. Accrued interest on the notes is due on a monthly basis. Interest on this note has variable terms."

This note first appeared in the financial statements of the NCUSIF in August of 2012.

The most likely candidate is Evangelical Christian Credit Union of Brea, California.

As of December 2012, Evangelical Christian reported $179,254,167 of outstanding term borrowings from corporate credit unions. This is exactly equal to the amount of the note receivable minus the $70 million in capital notes provided to Texans Credit Union and AEA Federal Credit Union by the NCUSIF.

I suspect that this collateralized senior note had to deal with the 2012 liquidation of a corporate credit union.