GFA Completes Acquisition of Stock Savings Bank

GFA Credit Union, based in Gardner, Mass., has completed the acquisition of Monadnock Community Bank in Peterborough, New Hampshire.

This is the first credit union acquisition of a stock bank in the United States.

Read the story.

Chetco Closed by NCUA

The National Credit Union Administration (NCUA) announced the liquidation of Chetco Federal Credit Union (Chetco) effective December 31. Business loans played a significant role in the credit union's liquidation.

Rogue Federal Credit Union (Rogue) of Medford, Oregon will purchase and assume Chetco’s five Oregon branches and memberships and Coast Central Credit Union (Coast Central) of Eureka, California will purchase and assume the Crescent City branch and California memberships.

NCUA placed Chetco into conservatorship on September 23, 2011 and made the decision to liquidate Chetco and discontinue its operations after determining the credit union was insolvent with no prospect for restoring viable operations on its own.

Chetco had a net worth ratio of minus 7.31 percent as of September 30, 2012. The credit union reported 23.81 percent of its loans were 60 days or more delinquent. Over half ($33 million) of the $60.2 million in delinquent loans were member business loans.

At the time of liquidation, Chetco served 24,926 members and had approximately $259 million in deposits.

Chetco is the fourteenth federally insured credit union liquidation in 2012. NCUA did not disclose the cost of Chetco's failure to the NCUSIF.

Read the press release.

CU Volunteer Junkets

While credit unions talk about how their board members are volunteers, many of these volunteers are handsomely rewarded with perks, such as trips to conferences in exotic locations.

For example, CUNA is offering its Volunteer Institute in Punta Cana, Dominican Republic at the Paradisus Palma Real Golf and Spa Resort. The Institute will run from May 19 through 22, 2013.

If a credit union volunteer cannot attend CUNA's Volunteer Institute, there are plenty of other junkets available.

Volunteers can get their credit unions to pay for an all inclusive junket on The Panama Canal Credit Union Educational Cruise Conference (February 15 - 25, 2013). The educational cruise will stop in the Bahamas, Aruba, Curacao, Panama, and Costa Rica. The cost of the cruise begins at a price of more than $3,000 and does not include airfare.

Another possibility for credit union volunteers is to explore the Galapagos Islands with CU EduCruises. This educational excursion will take place during June of next year at a tidy price of over $7,000 per one volunteer per cabin. If the volunteer brings a guest, the price per cabin jumps to over $12,000.

CU EduCruises also offers a cruise to the Canary Islands.

Barred from Corporate CUs; But Not Retail CUs

I was reviewing NCUA's administrative orders associated with the personnel at the two costliest credit union failures -- Western Corporate FCU and U.S. Central FCU.

The orders with one exception had the same language barring the individual from:

• becoming an employee, holding any office in, or otherwise participating in any manner in the conduct of the affairs of any federally-insured corporate credit unions;
• consulting or advising any federally-insured corporate credit unions on any matters involving or related to investment securities, investment policy, or invesment strategy; or
• selling any investment securities ... to any federally insured corporate credit unions.

However, these prohibition orders with one execption did not bar these individuals from becoming an employee or participating in the affairs of a natural person or retail credit union.

If these individuals are not qualified to work for or to participate in the affairs of federally-insured corporate credit unions, then how are these individuals qualified to participate in the affairs of or work for a natural person credit union?

And I am not the only person asking this question.

I was carbon copied along with The Wall Street Journal and The Washington Post on a letter to the NCUA Board that raised the same question.

Law Will Protect Banks and Credit Unions from Frivolous Lawsuits

President Obama signed into law on December 20 a bill (HR 4367) that would protect banks and credit unions from frivolous lawsuits by repealing an outdated, duplicative requirement that a placard must be attached to ATMs stating that a fee may be charged.

If the placard was not attached to an ATM, a consumer may recover statutory damages of between $100 and $1,000 for each transaction. Successful class-action plaintiffs could recover up to $500,000. As a result, a cottage industry developed where some people were removing placards, photographing ATMs without them and filing lawsuits.

However, the placard requirement is unnecessary because ATM operators are required to disclose fees on ATM screens and consumers have the right to decline the transaction without being charged.

NCUA Sues Former Texans CU CEO Addison

The National Credit Union Administration (NCUA) today filed suit in Federal District Court in Dallas against David Addison, former CEO of Texans Credit Union (TCU), alleging Addison breached his fiduciary duty to members and was “grossly negligent” in his management of the credit union, which is now in conservatorship.

Read the press release.

Read the complaint.

2000 Credit Unions Reported a Loss During Q3

According to data from NCUA, 2,000 federally insured credit unions (or 29 percent of the industry) reported a loss during the third quarter of 2012.

A vast majority of the credit unions reporting losses during the third quarter were smaller institutions. The following information shows the number of credit unions posting a loss by asset size group.

• 989 credit unions with less than $10 million in assets;
• 703 credit unions with between $10 million and $50 million in assets;
• 162 credit unions with between $50 million and $100 million in assets;
• 134 credit unions with between $100 million and $500 million in assets;
• 8 credit unions with between $500 million and $1 billion in assets; and
• 4 credit unions with more than $1 billion in assets.

Six credit unions reported third quarter losses in excess of $1 million. Carolina Trust FCU (Myrtle Beach, SC) reported the largest third quarter loss at $3.9 million.

The other credit unions with more than $1 million in losses during the third quarter were:

• Empower CU (West Allis, WI), loss of almost $3.2 million;
• Liberty Bay (Baintree, MA), loss of $2.4 million;
• Southeast Financial Credit Union (Franklin, TN), loss of $1.9 million;
• Alabama One (Tuscaloosa, AL), loss of $1.3 million; and
• P E F FCU (Highland Heights, OH), loss of $1.1 million.

A Tale of Two Regulators

If you want to observe a difference between FDIC and NCUA, you only need to look at how the two agencies handled the pending expiration of Transaction Account Guarantee program, which is set to expire on December 31, 2012.

FDIC notified banks on November 5 about the pending expiration of the program. Banks were to give adequate advance warning to noninterest bearing transaction account depositors about the pending change in insurance coverage. FDIC also provided model language which could be shared with these depositors.(read the letter)

On the other hand, NCUA waited until the third week of December to send a letter to federally-insured credit unions about the expiration of the Transaction Account Guarantee program. NCUA wrote that credit unions should communicate to thier membership about the potential changes in insurance coverage occurring on January 1, 2013. This hardly strikes me as providing credit union members with adequate advance warning, especially if credit unions start having this conversation with their members between now and the December 31 (hopefully credit unions had already communicated this change in insurance coverage before receiving NCUA's letter). (read the letter)

CUs Gain Market Share in Seattle Area

A Seattle Times noted that Seattle-area credit unions have made substantial market share gains.

28 percent of Seattle-area households bank primarily with a credit union now, up from 21.5 percent in 2008, according to market data firm Scarborough Research. That is a 30 percent jump in credit union banking, the ninth largest increase out of 96 metro areas around the nation. About half of all households banking with a credit union in the Seattle-Bellevue-Everett area are with BECU.

Read the article.

NCUA Closes Olean Tile Employees FCU

The National Credit Union Administration (NCUA) liquidated Olean Tile Employees Federal Credit Union of Olean, N.Y.

NCUA made the decision to liquidate Olean Tile Employees Federal Credit Union and discontinue operations after determining the credit union was insolvent and had no prospect for restoring viable operations.

Its September 2012 financial information stated that the credit union was well capitalized and did not have asset quality issues.

Olean Tile Employees Federal Credit Union served 550 members and had assets of approximately $778,139.

Olean Tile Employees Federal Credit Union is the thirteenth federally insured credit union liquidation in 2012 and the second credit union headquartered in New York to fail this year. The other credit union was Eastern New York Federal Credit Union.

Read the press release.

Bank and CU Trade Groups Call for Congress to Pass Bill Helping Underwater Homeowners

ABA, CUNA and seven other trade groups urged House and Senate leaders to extend a bill -- the Mortgage Forgiveness Debt Relief Act -- slated to expire at year’s end that would help underwater homeowners. The measure is included in the Family and Business Tax Cut Certainty Act of 2012, a bipartisan tax-cut extension bill that the Senate Finance Committee approved in August.

The Mortgage Forgiveness Debt Relief Act “prevents underwater homeowners from being taxed if their lender reduces principal or they sell their home through a short sale,” the trade groups explained in a letter. “If Congress fails to act, the possibility of receiving a tax bill would make it more difficult and expensive for these struggling homeowners to accept short sales and many loan modification offers.”

“We urge you to ensure renewal of the [the Mortgage Forgiveness Debt Relief Act] before the end of this year in order to help as many underwater homeowners as possible,” they said.

Read the letter.

G.I.C. FCU Liquidated

The National Credit Union Administration (NCUA) liquidated G.I.C. Federal Credit Union of Euclid, Ohio.

NCUA made the decision to liquidate G.I.C. Federal Credit Union and discontinue operations after determining the credit union was insolvent and had no prospect for restoring viable operations.

This credit union failure is very suspicious as NCUA's September 2012 Financial Performance Report indicated that the credit union was very well capitalized with a net worth ratio of 14.40 percent and was profitable with a return on assets of 0.83 percent.

G.I.C. Federal Credit Union served 3,476 members and had assets of approximately $15.5 million.

G.I.C. Federal Credit Union is the twelfth federally insured credit union liquidation in 2012.

Read the press release.

Undercapitalized Credit Unions, September 2012

As of September 30, 2012, there were 104 credit unions that were undercapitalized. This was down from 120 credit unions as of June 2012 and 165 credit unions, as of September 30, 2011.

Six credit unions were critically undercapitalized and another 14 credit unions were significantly undercapitalized, including two credit unions that received Section 208 net worth assistance from NCUA.

NCUA announced in October the merger of two critically undercapitalized credit unions -- El Barrio and NorthCounty Cooperative.

Several credit unions were classified as undercapitalized, although they met the minimum net worth leverage ratio of 6 percent to be adequately capitalized. This is most likely due to them being classified as complex credit unions and they are not meeting their risk-based net worth requirement.

NCUA's Denial of FOIA

On October 1, I filed a Freedom of Information Act (FOIA) request with NCUA regarding all communications the agency had with certain individuals that opposed Technology Credit Union's conversion to a mutual savings bank charter.

Almost two months later, NCUA denied my request. NCUA stated that the disclosure of these communications "would constitute an unwarranted invasion of personal privacy."

Below is NCUA's November 29 letter (click on the letter to enlarge).

Customer Satisfaction at CUs Fell in 2012

Customer satisfaction with credit unions fell in 2012, according to the American Customer Satisfaction Index (ACSI).

Credit union satisfaction fell 5.7 points to an ACSI score of 82.

ACSI commented that "a change toward more fees and higher minimum balance requirements could be worrisome given the industry’s weaker customer service this year. For credit unions, maintaining high customer satisfaction will demand more resources, along with judicious competitive monitoring of fees and costs."

Despite the decline in customer satisfaction, the survey noted that customer service score at credit unions is still the highest for the financial services industry.

Read the report.

Tax Foundation Says Taxing CUs Among the Least Harmful Revenue Raising Options

Taxing credit unions is among the least harmful revenue raising options, according to The Tax Foundation.

According to the December 5 Fiscal Fact, "[i]f lawmakers decide that new revenues must be part of any long-term effort to solve the budget crisis, they must choose the least harmful way of raising new revenues or else they risk compounding the crisis by slowing economic growth."

The Tax Foundation wrote:

"As a second-best option to asset sales, require Government Sponsored Enterprises (GSEs) and federally-owned businesses to pay federal income taxes. TVA, for example, has operating revenues of $11 billion and $47 billion in assets. It should pay federal income taxes. The tax benefit to credit unions has been estimated at $2 billion to $3 billion per year."

Elsewhere in the report the Tax Foundation stated:

"#4 Tax certain non-taxed business activities: There are a number of non-taxed businesses or industries that compete directly with private businesses but have the advantage of not paying federal income taxes. These include: credit unions; rural electric coops; nonprofit hospitals; and certain types of insurance firms. These businesses should be taxed as any for-profit enterprise."

The report also notes that if Congress looks to broaden the tax base, it should look to eliminate industry subsidies, targeted tax preferences, and refundable credits first, including the special exemption for credit unions.

Tax Foundation briefing paper.

Travel Expenses for NCUA Board Members

Bravo to Credit Union Journal for examining the travel-related expenses of the NCUA Board members.

According to data obtained from a Freedom of Information Act request, Credit Union Journal found that in the four years up to August of 2012, Board member Fryzel spent $109,182.99 on travel; Chairman Matz, $81,523.12; and Board member Hyland, $71,551.35.

During 2011 and 2012, Fryzel spent $67,845.58, Matz $50,302.22, and Hyland $27,196.43.

The story points out that Fryzel lives in Chicago and flies to NCUA Board meetings, while Matz lives in the Washington, D.C. area, as did Hyland during her board tenure.

For example, Credit Union Journal compared the lodging expenses for the three NCUA Board members attending CUNA's Government Affairs Conferences in Washington, D.C. for 2011 and 2012. In 2011, Fryzel spent $1,657.95 for three night's lodging. Matz spent $1,116.39 for three nights. Hyland spent $647.13 for two nights. In 2012, Fryzel spent $2,720.54 for four night's lodging, Matz spent $1,022.40 for three nights, and Hyland $373.27 for one night.

What is noticeable is the discrepancy between Fryzel and the other two board members nightly lodging expense.

The article also points out that any expenses within a NCUA staff's official duty station are not permissible unless granted a waiver. Matz justified the waiver by telling Credit Union Journal that "I was speaking at the GAC and attending several meetings early in the morning and in the evening during the week, and due to heavy and often unpredictable D.C. morning traffic, and the fact it was important that I make the meetings on time, I stayed in a hotel."

While I agree that the D.C. morning commute can be very difficult, I still don't think that this explanation is sufficient justification for either Matz or Hyland to incur any lodging expenses for attending CUNA's Government Affairs Conferences.

Read the story (paid subscription).

Impact of 2013 Assessments on CU Net Worth and Profitability

During the November NCUA Board meeting, the agency announced that premium assessments for 2013 could range from 8 basis points to 16 basis points.

An assessment of 8 basis points is expected to lower the net worth ratio for credit unions by 3 basis points and credit union return on assets by 7 basis points. NCUA anticipates that this assessment would cause 300 credit unions to report a loss.

However, an assessment of 16 basis points would reduce the net worth ratio by 9 basis points and lower the return on assets by 13 basis points. NCUA expects 604 credit unions would report a loss based upon this assessment.

Another Credit Union-Bank Transaction

Self-Help FCU has entered into a definitive agreement to buy the deposits and the current banking operations of Second Federal Savings and Loan from Lake Forest-based Wintrust Financial.

Wintrust’s subsidiary, Hinsdale Bank, had acquired the deposits and branches of failed Second Federal from the Federal Deposit Insurance Corporation (FDIC) in July. As of September, Second Federal was estimated to have about $161 million in deposits. In addition, Self-Help will acquire Second Federal’s three branches.

Self-Help FCU along with Chicago-based Resurrection Project had bought Second Federal’s loans, most of which were mortgages with Hispanic borrowers in Chicago, from the FDIC.

Terms of the transaction were not being disclosed. The transaction is subject to approval by banking regulators; but is expected to close in the first quarter of 2013

This is the fourth transaction this year where a credit union has bought a bank.

Don't Be Fooled: Credit Unions Charge Fees

The Street has an interesting article on credit union members being vulnerable to fees -- a fact rarely shared or acknowledged. The story noted that some credit unions may have benefitted more than their new members from Bank Transfer Day movement.

Read the post.