Friday, July 31, 2020

That's All Folks!

After writing almost 3,000 blog columns for slightly more than 11 years, this will be my last blog entry. 

I have followed credit unions for approximately 25 years over my career. This blog was just one part of my career. 

I am an outsider. I never belonged to a credit union.  For some true believers in the credit union industry, my views may have been heresy. 

My first entry was on June 16, 2009 and it looked at the NCUA Board allowing corporate credit unions to retroactively backdate their capital levels. 

Over the years, I have written about the corporate credit union crisis, the credit union taxi medallion lending debacle, the merger of banks into credit unions, and other issues. 

I have decided that this is the right time to stop writing this blog. 

However, that does not mean that I will quit following credit unions and the National Credit Union Administration. I may even opine on arbitrary actions by NCUA. 

In conclusion, I wish to express my gratitude to the people who have read this blog.

Wednesday, July 29, 2020

Net Worth at Southern Pine CU Falls by Almost 70 Percent During Q2

Conserved Southern Pine Credit Union (Valdosta, GA) reported an almost 70 percent decline in its net worth during the second quarter of 2020.

Net worth fell from $8.56 million as of March 2020 to almost $2.62 million as of June 2020. The credit union's net worth ratio tumbled from 18.43 percent to 6.23 percent during the same time period.

The $42 million credit union recorded a loss of $5.94 million for the second quarter. Year-to-date, the credit union had a loss of approximately $6.4 million. Most of the second quarter loss can be attributed to $5.82 million in miscellaneous operating expenses.

The credit union's year-to-date return on average assets was negative 27.34 percent as of June 2020.

The credit union was placed into conservatorship on June 11, 2020.

Mortgage Originations at CUs Up 30 Percent in 2019

S&P Global Market Intelligence is reporting that mortgage originations at credit unions was up almost 30 percent in 2019.

According to Home Mortgage Disclosure Data, credit union originated $177.3 billion in home mortgages in 2019. This was up from approximately $137 billion in 2018.

However, credit union market share of mortgages slipped from 6.9 percent in 2018 to 6.7 percent in 2019.

Navy Federal Credit Union (Vienna, VA) was the top credit union mortgage originator in 2019 funding $19.78 billion in mortgages. This was up 20.3 percent from the prior year. Navy FCU is the 19th largest mortgage lender in 2019.

Read more.

Tuesday, July 28, 2020

NCUA Overstates the Interest Rate Differentials Between Credit Unions and Banks

The National Credit Union Administration (NCUA) is overstating the interest rate differential between banks and credit unions for various loan and deposit products.

NCUA uses data from S&P Global Market Intelligence, which compares the national average rates for 23 common loan and deposit products at banks and credit unions, as well as the average rates for these same products at banks that converted from credit unions.

However, a 2020 paper by a Credit Union National Association economist -- Jordan van Rijn -- and others are critical of previous studies that used naive estimates from institution- and branch-level interest rate data.

The authors write that studies relying on this data are subject to selection bias. The authors note that studies using institution- and branch-level data do not reflect the actual rates paid by households, but the best advertised rate.

In other words, advertised or average rates do not control for household and loan characteristics. Therefore, the authors write that this best advertised rate may significantly differ from the actual rates paid by consumers.

The study, which examines new and used car loan rates, found that credit unions offer lower rates than banks on auto loans, but found that the interest rate differential is smaller than the interest differentials implied by institution- and branch-level data.

The paper compared its results with the data reported by NCUA. It concluded that this selection bias can explain about half of interest rate differential on new auto loans and approximately a quarter of the interest rate differential on used car loans.

Given this selection bias associated with institution- and branch-level data, which leads to an overstating of the interest rate differential between banks and credit unions, NCUA should remove this information from its website.

However, if the agency continues to publish this information, it needs to include a disclaimer that its interest rate differential data do not reflect the actual interest rates paid or received by consumers and the differences are overstated. This disclaimer should be in bold, large type at the very top of the website.

The paper, Financial Institution Objectives & Auto Loan Pricing: Evidence from the Survey of Consumer Finances, can be found on the Social Science Research Network (

Monday, July 27, 2020

NCUA Should Publish Stress Test Results

The National Credit Union Administration (NCUA) should publish a summary of the annual supervisory stress test results for covered credit unions.

The stress test estimates losses, pre-provision net revenues, loan and lease loss provisions, and net income; and the potential impact on the credit union's capital ratio under different scenarios.

Credit unions with at least $15 billion in assets are required to perform the stress test.

However, NCUA does not publish the results from the stress test.

But NCUA should follow the Federal Reserve's example.

On June 25, the Federal Reserve disclosed aggregate results for covered banks.

NCUA should publish information on aggregate losses, pre-provision net revenue, loan and lease loss provisions, and net income for covered credit unions under the different scenarios, as well as the impact on the net worth ratio for covered credit unions.

NCUA should also publish losses by loan types.

Credit union members, as well as the industry, have a right to know the ability of these covered credit unions to absorb losses under these different stress scenarios.

Sunday, July 26, 2020

NCUA's Harper Critical of CUs Garnishing Stimulus Payments, Senate Passes Bill Exempting Payments from Garnishment

In a July 13 opinion piece in Credit Union Journal, the National Credit Union Administration Board member Todd Harper criticized those credit unions that had garnished members economic impact payments.

While the CARES Act exempted these stimulus payments from being offset for debts owed to federal and state agencies (except for child support), it did not protect these payments from garnishment or the right of offset.

Harper wrote that these payments were meant to cover daily living expenses of credit union members, who had been impacted by COVID-19.

Credit unions that garnished these payments faced potential damage to their reputation and potentially their business model.

He also pointed out that these credit unions could damage the image of the whole industry.

In related news, the Senate voted unanimously on July 23 to pass a bill (S. 3841) that would exempt the CARES Act economic impact payments from assignment or garnishment.

The legislation must still be passed by the House and signed into law in order to protect these payments from garnishment.

Friday, July 24, 2020

CEOs at Large State Chartered CEOs Earned 12.5 Times Average Employee Compensation

In 2018, Chief Executive Officers at state chartered credit unions with at least $1 billion in assets earned on average 12.5 times the average compensation of their employees.

The median ratio of CEO compensation to average credit union employee compensation was 10.99.

To calculate average credit union employee compensation, the analysis divided the Call Report line item Employee Compensation & Benefits by Full Time Equivalent Employees. Full Time Equivalent Employees = The Number of Full Time Employees + (0.5 times the Number of Part Time Employees).

The following table lists the 10 credit unions with the highest ratio of CEO compensation to average employee compensation. Elizabeth Dooley of Educational Employees Credit Union (Fresno, CA) had the highest ratio of CEO compensation to average employee compensation at 41.28.

However, this data should not be used to compare the compensation of bank CEOs to their employees. The information reported by publicly-traded banks uses median employee pay, while this analysis substitutes average employee compensation for median compensation, because median compensation is not available.

Median employee compensation would be lower than average employee compensation. In other words, if median compensation was used, the ratio of CEO compensation to median employee compensation would be higher.

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