Tuesday, July 31, 2012

Sponsoring Golf Tournaments

Another sign that credit unions are becoming mainstream financial institutions is their sponsorship of the LPGA's Symetra Tour events.

The Symetra Tour is the developmental tour for the LPGA.

This last weekend, The Credit Union Classic Presented by Wegmans was staged in Syracuse, New York. The title sponsors were three credit unions -- Empower FCU, SEFCU, and Summit FCU.

This upcoming weekend, SEFCU and Sunmark FCU are sponsors of The Credit Union Challenge, which will be played in Albany.

It is probably only a matter of time before we see credit unions sponsoring events on the LPGA tour or even the Web.Com tour (use to be the Nationwide Tour).

While becoming title sponsors of professional golf tournaments may improve brand recognition for credit unions, it has nothing to do with their tax-exempt purpose.

It does raise the question why large credit unions remain tax exempt.

Monday, July 30, 2012


The Dodd-Frank Act provided unlimited deposit insurance for non-interest bearing transaction accounts until the end of 2012.

According to NCUA, there were 822 federally-insured credit unions that held approximately $2.5 billion in non-interest bearing transaction accounts in excess of $250,000 at the end of the first quarter of 2012.

As expected, the bulk of the transaction account guarantee (TAG) accounts resided with the largest credit unions:

  • $1.45 billion was held by credit unions with more than $1 billion in assets.

  • Credit unions with between $500 million and $1 billion in assets held $263.5 billion.

  • Credit unions with between $100 million and $500 million in assets held almost $504 million.

The following table identifies the 25 credit unions with the most TAG deposits as of March 2012. First Tech CU in Palo Alto (CA) accounted for about 20 percent of all TAG deposits at credit unions.

Friday, July 27, 2012

Trinity CU Placed into Conservatorship

The National Credit Union Administration (NCUA) assumed control of Trinity Credit Union, a state-chartered, federally insured credit union headquartered in Trinidad, Colo.

The Colorado Division of Financial Services placed Trinity Credit Union into conservatorship due to its declining financial condition.

As of March 2012, the credit union reported a delinquency ratio of 6.79 percent. In addition, the credit union reported a loss of $23,141 in the first quarter for 2012, after posting a loss of $134,278 for all of 2011.

The credit union had a net worth ratio of 10.87 percent as of March 2012 -- down from 15.36 percent a year earlier.

Trinity Credit Union serves the residents of Colorado’s Las Animas County. The credit union reported approximately $4 million in assets in its last Call Report.

Read the press release.

Thursday, July 26, 2012

Matz Unveils New Initiatives

Speaking before the National Association Federal Credit Unions Annual Convention, NCUA Chairman Debbie Matz identified some initiatives that the agency is going to rollout this fall.

Matz said: "For example,
  • We’re planning to expand the districts that comprise rural fields of membership.
  • We will soon be approving video teller machines as service facilities for federal credit unions to reach new employee groups and underserved areas.
  • We’ll consider allowing credit unions to buy Treasury Inflation Protected Securities (TIPS).
  • We’re looking at removing the requirement for personal guarantees on certain member business loans.
  • We’re evaluating whether to allow federal credit unions to increase the maximum application fee for short-term small loans so it would be more cost-effective to offer alternatives to payday loans.
  • And we’re studying the impact of increasing the definition of a “small” credit union... so that more credit unions could receive regulatory relief and technical assistance from NCUA."

She also announced the creation of the new Office of National Examinations and Supervision. This office will oversee the nation’s largest consumer credit unions – those over $10 billion in assets – and also assume supervision of corporate credit unions.

Read the speech.

All Credit Unions Should Pay UBIT

Income derived from nonmembers and activities unrelated to a credit union’s tax-exempt purpose should be subject to the unrelated business income tax (UBIT), ABA said yesterday in a statement for the record submitted to the House Ways and Means’ Oversight Subcommittee hearing on tax-exempt organizations’ compliance with UBIT.

Currently, only state-chartered credit unions are subject to UBIT. "Federal credit unions should also be required to comply,” ABA said.

In addition, ABA stated that federal credit unions should be required to file a Form 990, just like state-chartered credit unions.

ABA argued that tax policy shouldn’t differ between federal and state credit unions that offer virtually the same business services and compete for the same customers. “The same competitive pressures between taxable businesses and tax-exempt organizations that motivated Congress to enact the unrelated business income tax also exists between federal credit unions and the nation’s community banks,” the association said.

ABA explained that the disparity between state and federal credit unions in applying UBIT also creates the potential for tax arbitrage and creates an incentive for credit unions to obtain federal charters. “ABA encourages the committee to examine repealing the federal credit union UBIT exemption. There is no public policy reason to exempt federal credit unions from UBIT, especially when the activities have no connection with their tax-exempt purpose,” the association said.

Read the statement.

Wednesday, July 25, 2012

Problem CU Update, Q2 2012

The number of problem credit unions, as well as assets and shares (deposits) in problem credit unions, increased during the second quarter of 2012.

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

NCUA reported that the number of problem credit unions grew by 3 to 399 credit unions during the second quarter. However, this is ten credit unions fewer than at the end of 2011.

Total shares in problem credit unions increased by $3.1 billion during the second quarter to $26.8 billion in shares. As of June 30, 2012, problem credit unions held 3.20 percent of all credit union insured shares.

In addition, assets in problem credit unions increased by more than 12 percent during the quarter to $30 billion.

One large credit union with approximately $4 billion in shares was the primary contributor to the increase in shares and assets held by problem credit unions during the second quarter of 2012.

Tuesday, July 24, 2012

More on TCCUSF Assessment

As reported earlier today, the 2012 Temporary Corporate Credit Union Stabilization Fund Assessment will be 9.5 basis points. The assessment will be based upon insured shares as of June 30, 2012 and will be payable on October 9, 2012.

According to NCUA staff analysis, the 9.5 basis point assessment will lower the annualized return on average assets by 8 basis points to 0.81 percent, based upon March financial data.

NCUA is estimating that 335 federally-insured credit unions will become unprofitable due to the assessment. It is expected that 123 credit unions with less than $10 million in assets will become unprofitable; 179 credit unions with assets between $10 million and $100 million will slip from being profitable to unprofitable; and 33 credit unions with more than $100 million in assets will become unprofitable.

Additionally, NCUA expects the net worth ratio for the industry to slip from 10.01 percent to 9.96 percent.

NCUA expects that 46 federally-insured credit unions will see their net worth ratio fall from above 7 percent to below 7 percent subjecting them to an earnings retention requirement. Fifteen credit unions will see their net worth ratio fall below 6 percent, requiring them to prepare a net worth restoration plan and one credit union is expected to become critically undercapitalized with a net worth ratio falling below 2 percent.

NCUA did announce that there would not be an NCUSIF premium for 2012 -- the second year in a row without a NCUSIF premium assessment.

In addition, the NCUA Board authorized the Executive Director to borrow up to $2.5 billion from Treasury for the TCCUSF. However, staff expects borrowing needs to equal $1.87 billion.

Breaking News: 9.5 Basis Point Assessment for 2012

The NCUA Board voted today to impose a 9.5 basis point Temporary Corporate Credit Union Stabilization Fund (TCCUSF) assessment for 2012. NCUA estimates that this would raise approximately $790.53 million in premiums.

Monday, July 23, 2012

Not a Credible Threat

Vermont State Employees Credit Union (VSECU) is considering whether to switch from a state to federal charter, if the state regulator denies its appeal of a cease and desist order over the use of the term "bank" in its advertisements.

But I think VSECU is bluffing.

VSECU, as best as I can tell, has a hybrid charter. Its field of membership includes individuals who live and work in the state of Vermont, but also includes other select groups.

However, the Federal Credit Union Act does not permit such hybrid charters. A federal credit unions must have one of the following common bonds -- single common bond, multiple common bond, or community common bond.

In addition, the Federal Credit Union Act requires a community charter to be local and well-defined. NCUA's chartering manual explicitly states that although state boundaries are well-defined, a state does not meet the local requirement.

In other words, VSECU could not keep the state of Vermont as a community charter, if it switched charters.

Therefore, switching to a federal charter would require VSECU to make substantive changes to its field of membership.

It is doubtful that the benefits associated with using the term "bank" in its advertisement would outweigh the cost associated with changing to a federal charter.

VSECU is hoping that the state regulator will believe its threat; but I believe the state regulator should call VSECU's bluff, as it is not credible.

Friday, July 20, 2012

Compliance with SCRA

The Government Accountability Office (GAO) released a report examining Servicemembers Civil Relief Act (SCRA) compliance at the four federal banking regulators.

The study found significant differences across the four federal banking agencies with regard to reviewing for SCRA compliance.

According to the report, "both FDIC and Federal Reserve reviewed a significantly higher percentage of institutions for SCRA compliance compared with NCUA and OCC. It also shows that OCC reviewed a greater percentage of institutions than NCUA."

The report estimates that FDIC examined 99.9 percent of depository institutions that serviced mortgages for SCRA compliance between 2007 and 2011. The Federal Reserve examined an estimated 92.7 percent of depository institutions for SCRA compliance. The OCC came in at 20.3 percent. And the NCUA examined 0.02 percent of federal credit unions for SCRA compliance.

In explaining the agency's abysmally low compliance review rate, NCUA officials told GAO "that the agency does not have a separate consumer compliance examination function and that consumer compliance is part of its overall evaluation of the safety and soundness of institutions. The officials said that given the recent economic crisis, the agency has placed more focus on the safety and soundness of credit unions than on compliance with consumer regulations."

However, GAO wrote that its prior work found that mortgage servicing problems have led to safety and soundness issues at depository institutions.

NCUA’s Executive Director agreed with GAO that additional testing of loan files would provide greater assurance of SCRA compliance. According to David Marquis, NCUA has made recent changes to its examination process to raise the importance of consumer protection issues. Starting in 2011, staff separate from safety and soundness examiners would review the lending practices of federal credit unions to ensure compliance with SCRA. Further, NCUA is incorporated reviews for SCRA compliance into its analysis and investigations of complaints.

Read the report.

Thursday, July 19, 2012

Use of the Word Bank

I'm regularly contacted by bankers about credit unions using the terms bank or banking in their marketing and advertising materials.

Credit Union Journal (paid subscription) is reporting on an interesting legal development in Vermont that could have broad implications for state chartered credit unions across the country.

The Vermont Department of Financial Regulation has filed a notice of intent to issue a Cease and Desist Order to Vermont State Employees CU to stop using words such as “bank” and “banking” in its marketing material and advertisements. The state regulator told the credit union that those words are reserved for banks only.

The notice of intent stated that Vermont State Employees CU was in violation of 8 V.S.A. § 14103. The statute states:

No person shall advertise or put forth any sign as a bank, banking association, or trust company, or in any way solicit or receive deposits or transact business as a bank, banking association, financial institution or trust company, or use the words "bank," "banking association," or "trust company" or other similar sounding word or name unless it is a financial institution reporting to and under the supervision of the commissioner or is authorized to conduct such business in this state under federal law, or unless the commissioner approves the activity or word or name used in writing after giving due consideration for whether the activity, word or name will confuse or mislead the public as to the nature of the business of the entity. However, this section shall not prevent an individual, as such, from acting in a trust capacity. (Added 1999, No. 153 (Adj. Sess.), § 2, eff. Jan. 1, 2001.)

At this time, Vermont State Employees Credit Union is the only target of the proposed cease and desist order. The credit union is appealing the proposed enforcement order.

If the Department's findings are upheld, Vermont State Employees CU must immediately cease using the terms "bank", "banking association" and "trust company" and similar sounding words. In addition, if the credit union continues to use such words after the cease and desist order becomes effective, it could be subject to $15,000 fine for each occurrence and other penalties.

Moreover, if this enforcement order becomes effective, it would impact how other Vermont state chartered credit unions communicate with their members. This could also impact state chartered credit unions in other states with similar statutes.

However, the state law will not apply to federal credit unions operating in Vermont. In a March 12, 2004 legal opinion letter, NCUA preempted federal credit unions from a Minnesota law restricting the use of the terms “bank,” “banker,” or “banking” in advertising.

The Department of Financial Regulation wrote that it is aware on NCUA's legal opinion, but points out that state law does not permit state chartered credit unions to use these terms or expressions. "Such a result is not unexpected given the dual chartering system."

Wednesday, July 18, 2012

Opposition to Technology Credit Union's Conversion

Credit Union Times is reporting that Carlos Rodriguez has launched a Facebook page in opposition to Technology CU’s conversion to a mutual bank charter.

In addition, Rodriguez has notified the credit union that he is asserting his right under the NCUA's charter conversion procedures to have the credit union email his objections to the proposed conversion to other members.

The article states that Rodriguez joined Technology CU in April and identifies Rodriguez, as an entrepreneur and former credit union employee. The article notes that Rodriguez joined Technology CU because he wanted to do business with a credit union in San Jose, where he was starting a new firm. But he did not open a business account at the credit union, when informed that Technology CU was switching to a mutual savings bank charter.

So, who is Carlos Rodriguez?

Although the Facebook page that he created did not provide any info about him and he hid his image with a broken heart, when I googled "Carlos Rodriguez and San Jose and Credit Union," I came across a Linked In page for a Carlos Rodriguez, who describes himself as a credit union advocate.

His Linked In page says that he worked for four credit unions -- Santa Cruz Community Credit Union, Camino Federal Credit Union, Eagle Community Credit Union, and Water and Power Community Credit Union -- in various marketing positions.

Rodriguez's Linked In page also says he is the publisher of CU Planet.

Interestingly, the CU Planet website says that he lives in Southern California, not the Bay Area. However, he previously lived in Santa Cruz County, which allowed him to join Technology CU.

So, we have a credit union advocate joining a credit union in April that was in the middle of process of converting to a mutual savings bank.

Something does not smell right about the timing of his joining of Technology Credit Union.

Tuesday, July 17, 2012

Extend TAG Program for Two Years for All Insured Depository Institutions

The ABA Board of Directors yesterday -- at the recommendation of the ABA Government Relations Council’s Administrative Committee -- voted to support a two-year extension of the Transaction Account Guarantee program that is slated to expire at the end of the year.

The ABA Board believes that the extension should be provided for all depositors in insured depository institutions -- whether they have accounts with banks or credit unions -- and coverage should include noninterest-bearing transaction accounts and Interest on Lawyers Trust Accounts, or IOLTAs.

While banks have unlimited deposit insurance coverage for IOLTAs, the same does not apply for credit unions. By extending unlimited deposit insurance coverage to IOLTAs for credit unions, this would ensure parity with regard to deposit insurance coverage.

The ABA Board emphasized, however, that there will be no “quid pro quo” for extending TAG -- particularly no language raising the credit union member business-lending cap -- and ABA will adamantly oppose any amendment or other additions to the TAG’s enabling legislation that would be detrimental to the business of banking.

In making the decision to support a two-year TAG extension, the ABA Board noted that while the economy has generally improved, that improvement has not been robust, and many areas of the country still suffer from the economic downturn. Recent evidence also suggests that the economy has again slowed considerably and uncertainty about the future pace of the economic growth has risen.

Such uncertainty acts to freeze business decisions, and many bank customers in a position to expand operations and hire new workers remain hesitant to do so. Extending the TAG program for an additional two years would eliminate one element of uncertainty -- particularly for businesses that want assurance that their payroll accounts are safeguarded.

ABA will marshal its resources to obtain the introduction and passage of the TAG extension’s enabling legislation.

NCUSIF Reports $33.5 Million in Loss Expenses for May

The NCUA is reporting that the National Credit Union Share Insurance Fund (NCUSIF) recognized insurance loss expenses of $33.5 million for May, with calendar year insurance loss expenses reaching almost $37.5 million.

The report also shows that reserves for losses rose from $609.3 million for April to $642.8 million for May -- $162.3 million in reserves had been set aside for specific natural person credit unions (up from $19 million for April) and the remainder had been reserved for non-specified credit unions.

The NCUSIF equity ratio was an estimated 1.32 percent as of May.

Read the NCUSIF report.

Monday, July 16, 2012

Resource One's FOM Changes Denied

The Texas Credit Union Department denied Resource One Credit Union's applications to serve individuals who work and reside in Harris County and individuals who live, worship, attend school or work in Denton, and Collin Counties.

According to documents obtained from the Texas Credit Union Department through a Public Information Request, Resource One did not show that the proposed members were within reasonable proximity of their existing offices. The Department concluded that the credit union could not realistically serve the proposed members from its existing offices.

Specifically, in the application for Denton and Collin Counties, the state regulator noted that Resource One had one office in Denton County and no office in Collin County. The regulator stated that the credit union did not establish that the proposed community was within the credit union's local service area. The regulator found that the credit union could not extend services to all persons within the proposed community though its existing office and thus the existing office could not meet the convenience and need of all people in the proposed geographic community.

In the application for Harris County, the credit union had two offices in the county; but once again failed to establish that the proposed community was within its local service area. The regulator concluded that the credit union could not meet the financial needs of all people within the proposed geographic area.

Friday, July 13, 2012

Bill Would Allow Privately Insured CUs Access to Home Loan Banks

Representatives Stivers (R - OH) and Carson (D - IN) introduced legislation (H.R. 6105) that would allow non-federally insured credit unions to become members of a Federal Home Loan Bank.

The bill has been referred to the House Financial Services Committee.

Thursday, July 12, 2012

Canadian Proposal on Charter Choice

The Canadian Parliament passed legislation in 2010 creating an optional federal charter for credit unions. Currently, credit unions are regulated exclusively by the provinces.

The Canadian Department of Finance on July 6 released proposed regulations that would implement the federal credit union legislative framework.

The proposed federal charter will make it easier for Canadian credit unions to expand nationwide. But Canadian credit unions that opt for a federal charter would be supervised by the Office of the Superintendent of Financial Institutions -- the regulator of the Canadian banks. They would also be under the same insurance fund as Canadian banks.

Furthermore, the legislation provided a pathway for a federal credit union to convert to a bank with common shares.

The proposed regulation dealing with charter choice specifies the process and disclosure required for a federal credit union to change its legal form from a company owned by members to one owned by shareholders. The proposal contains a series of requirements that must be followed to ensure the process is fair and restricts management from benefiting unduly from the conversion transaction.

It is unclear how many credit unions will opt for the federal charter or will seek to change their legal form to one owned by shareholders.

Read the conversion proposal.

Tuesday, July 10, 2012

Stabilization Fund's Borrowings from Treasury to Address Corporate CU Fiasco

The Temporary Corporate Credit Union Stabilization Fund has borrowed $9.31 billion during its history to handle the resolution of the five failed corporate credit unions. The NCUA is reporting that $5.81 billion of the borrowings has been repaid and $14.69 million in interest has been paid to the Treasury. The interest rate on borrowings is 0.165 percent as of December 31, 2011.

Sunday, July 8, 2012

Western Bridge Corporate Closed

The National Credit Union Administration (NCUA) announced that Western Bridge Corporate Federal Credit Union (Western Bridge) of San Dimas, Calif. was closed on July 6.

Catalyst Corporate Federal Credit Union of Plano, Texas completed the migration of Western Bridge’s 326 capitalizing members ($50.3 million capital contributed) and services last week.

NCUA conserved the former Western Corporate Federal Credit Union in 2009 and created Western Bridge in 2010 to ensure continuity of service and operations for member consumer credit unions. In 2011, the members of Western Bridge initially sought but failed to capitalize a new corporate credit union, United Resources Corporate Federal Credit Union.

Read the press release.

Friday, July 6, 2012

NCUA's Policy and Procedures on Protecting FSOC Information

The NCUA's Inspector General (IG) determined NCUA’s existing policies and procedures are not sufficiently comprehensive to help the agency protect confidential non-public Financial Stability Oversight Council (FSOC) information from unauthorized disclosure, according to a recently released audit report.

The audit was part of a larger audit that the Council of Inspectors General on Financial Oversight (CIGFO) initiated. (Read CIGFO report)

NCUA's IG decided to issue this separate report to help the agency in determining how to handle and control confidential non-public FSOC information and protect it from unauthorized disclosure.

The IG report identified specific areas where NCUA needs to improve or supplement its policies and procedures. The specific areas that need to be addressed are:

• Protecting oral communication of confidential non-public FSOC information;

• Inventorying or tracking FSOC information requests/responses;

• Controlling access to and authorizing release of confidential non-public information to FSOC, FSOC member agencies or other external parties (e.g., Congress);

• Placing appropriate markings on FSOC information to identify it as containing confidential information;

• A central person/group to coordinate all FSOC communications;

• Membership on FSOC committees, including authorized alternate representatives and corresponding duties and responsibilities of the NCUA representatives;

• Identifying, controlling and monitoring who within NCUA will have access to and who has accessed specific FSOC information and systems;

• Handling, controlling, and protecting FSOC information during teleconferences and telework sessions; and

• Consequences for the breach/unauthorized disclosure of FSOC information.

The IG recommended that NCUA should coordinate with FSOC and its member agencies to supplement or improve its policies, procedures, and practices regarding non-public FSOC information.

However, NCUA management believes its existing policies, procedures, and training are effective; but acknowledges that its policy and procedures could be more comprehensive.

Read the report.

Thursday, July 5, 2012

2011 Annual Report Has No Info on Enforcement Actions

Unlike its 2010 Annual Report, NCUA's 2011 Annual Report, which was released on July 3rd, has no information on the number of enforcement actions taken by the agency against credit unions in 2011.

Not only does NCUA not publish enforcement actions against individual credit unions (except for the rare case), the agency is not providing summary statistics on such enforcement actions.

This is a regrettable step backwards with respect to transparency by NCUA.

In comparison, the other banking regulators disclose such enforcement actions against individual banks and provide summary statistics on enforcement actions in their annual reports to Congress.

Read the 2011 Annual Report.

Wednesday, July 4, 2012

Navy Enters Commercial Loan Participation Market

Navy Federal Credit Union announced the introduction of a commercial loan participation program which will buy member business loans from other credit unions.

In announcing the commercial loan participation program, Navy FCU stated that it had ample capacity to partner with other credit unions on commercial loans. As of March 2012, Navy FCU reported holding approximately $179 million in member business loans and has unused member business loan capacity of almost $5.7 billion.

According to Navy FCU, the benefit for the partnering credit union is this will reduce the hit toward its aggregate member business loan cap of 12.25 percent of assets, while retaining the servicing commitment and the member relationship.

Read the press release.

Monday, July 2, 2012

$2.5 Trillion Goal

Addressing the America's Credit Union Conference, Bill Cheney, the President and CEO of the Credit Union National Association (CUNA), stated that he thought credit union assets could more than double in the next 10 years from $1 trillion to $2.5 trillion.

To achieve $2.5 trillion in assets, the credit union industry would have to grow at an annual compound rate of 9.6 percent. By comparison, during the last decade, credit unions grew at an annualized pace of 6.67 percent.

I remember another lofty goal articulated by CUNA. In 1991, CUNA unveiled Credit Union Moonshot. The objective was to expand credit union membership by over 60 percent to 100 million members by the year 2000.

We are twelve years past the year 2000 and the credit union industry still has not reached the 100 million member threshold.

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