Self-Help FCU Can Pay for Branch in Underserved Fresno Community

The Fresno Bee is reporting that the Fresno Economic Opportunities Commission has signed an agreement with the Self-Help Federal Credit Union (Durham, N.C.) to open a branch in south Fresno.

According to the article, the Fresno Economic Opportunities Commission has raised $400,000 of the $600,000 needed to open the branch. The organization is seeking donations for the remaining $200,000.

However Self-Help FCU's financial statements show that the credit union does not need this subsidy from the Fresno Economic Opportunities Commission to open a south Fresno branch.

The credit union has $550 million in assets. For 2013, it reported a profit of $4.4 million and a return on average assets of 0.91 percent. Through the first six months of 2014, Self-Help FCU is reporting a profit of $2.9 million, which translates into a return on average assets of 1.06 percent.

Does it make sense for this poverty-fighting organization to use its scarce resources to provide a branch to a credit union that has the wherewithal to fund its own facility?

OCC: Auto Lending Risk Growing

In a speech to the 22nd Annual Financial Services Collections and Credit Risk Conference, Darrin Benhart, Deputy Comptroller for Supervision Risk Management for the Office of the Comptroller of the Currency (OCC), spoke about the increased risk the OCC is seeing in auto finance.

While the OCC regulates national banks and federal thrifts, Benhart's comments should resonate with credit unions.

He noted that increased comeptition is causing an easing of underwriting standards.

Benhart said:

Competitive pressure is driving some auto lenders to pursue growth by lengthening terms, increasing advance rates, and originating loans to borrowers with lower credit scores. The marketing of these loans is focusing more on monthly payment, with little attention to the overall debt of the borrower. Average loan-to-value, or LTV rates for both new and used vehicles are getting more liberal and exceeded 100 percent for all major lender categories at the end of 2013. These high LTVs reflect both rising car prices and a greater bundling of add-on products such as extended warranties, credit life insurance, and aftermarket accessories into the financing.

While Benhart acknowledges that there has not been a large-scale deterioration in loan performance at the portfolio level, the agency is clearly seeing increased signs of risk.

In addition, Benhart pointed out another troubling trend -- the average loss per vehicle has risen significantly over the past 24 months across all types of lenders. He stated that this is a by-product of higher LTVs and longer terms on auto loans.

Read Benhart's speech.

Island FCU Enters into $7 Million Sponsorship Agreement with Stony Brook University

Stony Brook University and Island Federal Credit Union (Hauppauge, NY) have agreed to a $7 million, 10-year corporate advertising sponsorship agreement.

The deal will give the credit union the exclusive naming rights to the school's new 4,000-seat arena. The new arena will be called Island Federal Credit Union Arena.

The credit union will also be the title sponsor of the film festival at Staller Center and several other campus programs for the next decade. Additionally, the agreement calls for two retail banking branches and ATMs at various locations on campus.

While the sponsorship agreement will probably enhance the credit union's brand, it also represents a misuse of the credit union's tax exemption.

Read the press release.

CUNA Spending Big This Election Cycle

Forget about the image of credit unions being the little guy, credit unions have become a big-time special interest group in Washington, D.C.

According to a story in The Hill, the Credit Union National Association (CUNA) and its political action committee, the Credit Union Legislative Action Council, have spent $5.6 million during the 2014 election cycle.

The article notes that "[s]o far, $3 million has been spent on direct PAC contributions, $1.2 million on independent expenditures and $1.4 million on partisan communications.

More than 80 separate pieces of direct mail, resulting in more than 2.1 million individual mailings, have been sent to more than 417,000 credit union members" in several tight races."

Beyond direct mailings, the article also points out that CUNA is running television, radio and online advertisements for candidates.

Clearly, if tax-exempt credit unions can spend almost $6 million to influence election outcomes, then credit unions can afford to pay corporate income taxes.

Read the article.

SECU Foundation to Pay $1.5 Million for Naming Rights to Asheville Plaza

The Asheville Art Museum is seeking approval from Asheville City Council to sell the naming rights of its outdoor plaza in the heart of downtown to the North Carolina State Employees’ Credit Union Foundation.

The tentative deal calls for renaming the public space at the corner of Biltmore and Patton Avenue “SECU Plaza.” The SECU Foundation would pay $1.5 million to the museum in exchange for the designation and an accompanying sign.

Council will consider the naming rights proposal at its October 28 meeting. A report from city staff recommends that Council approve the request, noting: “This naming rights opportunity will assist the Art Museum in raising the funds it needs.”

If approved, the “SECU Plaza” name would apply for the entirety of the museum’s current 30-year lease with the city.

Earlier this year, SECU Foundation bought the naming rights to a state-of-the-art education center at the NC Museum of Arts and a memorial walkway around the Battleship North Carolina.

Update: Asheville City Council unanimously approved the deal on October 28.

Read the story.

Read the staff report.

Problem Credit Union Update, Q3 2014

The number of problem credit unions declined by 7 during the third quarter of 2014 to 288 credit unions.

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

Assets at problem credit unions declined from $14.9 billion as of June 2014 to $14 billion as of September 2014. Deposits (shares) at problem credit unions fell from $13.2 billion at the start of the third quarter to $12.4 billion at the end of the quarter.

According to NCUA, problem credit unions held 1.38 percent of the industry's insured deposits and 1.3 percent of the industry's assets.

While the vast majority of problem credit unions are smaller institutions, the bulk of the shares are in credit unions with $100 million or more in assets.

The number of problem credit unions with $500 million or more in assets declined from 8 to 6 during the third quarter. At the end of the quarter, these 6 problem credit unions held $4.5 billion in shares.

The number of problem credit unions with between $100 million and $500 million in assets increased by 3 to 22 credit unions with total shares of $4.2 billion.

NCUA Fines 44 Credit Unions for Late Filing Their Call Reports​

The National Credit Union Administration fined 44 credit unions for missing the deadline to file their second-quarter Call Reports.

The late filers will pay a total of $17,111 in penalties. Individual penalties range from $52 to $1,824. The median penalty was $256.

The size of the civil penalty depended on three factors: the credit union’s asset size, its recent Call Report filing history and the length of the delay.

Four of the credit unions assessed penalties had been late in the previous quarter.

Read the press release.

For a list of late filers, click here..

Remove Barriers to Time-Sensitive Mobile Calls and Texts

ABA last week asked the Federal Communications Commission to remove barriers to time-sensitive mobile calls and texts that financial institutions use to reach their customers when their accounts may be compromised.

ABA requested exemptions for communications that would alert customers to potentially fraudulent transactions, actions needed to complete pending money transfers and actions necessary to respond to data breaches.

ABA filed the petition because class action suits filed under the Telephone Consumer Protection Act currently limit financial institutions’ ability to offer these communications, even though most consumers prefer mobile fraud and security alerts.

Read the petition.

Is the Taxi Medallion Asset Bubble Collapsing?

Disruptive technologies, like Uber and Lyft, are undermining the value of taxi medallions.

The New York Post is reporting that taxi fleets have lost between 10 percent to 15 percent of their drivers to app-based livery services.

As a result, the price of taxi medallions have dropped by almost 15 percent in the last four months after surging in the first half of this year.

According to Mitchell Reiver of the Melrose Credit Union -- a credit union that specializes in financing taxi medallion purchases, the price of taxi medallions has fallen from $1.05 million four months ago to about $850,000 on average.

The story further notes that the credit union is currently negotiating a medallion sale for $825,000. So, it appears that taxi medallions prices have not found a floor.

This plunge in taxi medallion prices should make credit union regulators nervous, especially with regard to credit unions that are overly exposed to this market.

I suspect these credit unions will be subject to greater scrutiny going forward to ensure that they do not pose a risk to the National Credit Union Share Insurance Fund.

In fact, NCUA in April 2014 issued guidance to credit unions that were engaged in taxi medallion lending or participated in these loans.

Read the article.

FAQ: When Are CUs Included in Regulatory Analysis of Bank M&A Deals?

Last week, the Federal Reserve published answers to a frequently asked questions (FAQ) document to help bankers understand how the Federal Reserve and the Justice Department evaluate proposed merger and acquisition (M&A) activities.

The FAQ includes a discussion about when the Federal Reserve includes credit unions in the Herfindahl-Hirschman Index (HHI) calculation, which measures market concentration, and under what circumstances would a credit union receive a 100 percent weighting in the HHI calculation.

When are credit unions included in the HHI calculations?

If an application exceeds the delegation criteria in a given market in the initial screen, Board and Reserve Bank staff will consider whether any credit unions should be included in the structural concentration calculations, because they exert competitive pressure on banks in the market. Credit unions are typically included in these calculations if two conditions are met: (1) the field of membership includes all, or almost all, of the market population, and (2) the credit union's branches are easily accessible to the general public. In such instances, a credit union's deposits will be given 50 percent weight.

Under what circumstances would a credit union get 100 percent weight in the HHI calculation?

If a credit union has significant commercial lending and has staff available for small business services (special tellers, lending officers, business-only teller windows, etc.), then its deposits may be eligible for 100 percent weighting. To date, it has been very rare for a credit union's deposits to receive more than 50 percent weight.

Total C&I lending as a percentage of assets is an important factor in this consideration. The C&I lending of a credit union includes C&I loans, unsecured business loans, and unsecured revolving lines of credit for business purposes.

However, business loans secured by real estate and construction loans are not counted as C&I loans.

The FAQ also discusses the circumstances when the Justice Department's Antitrust Division (Division) includes credit unions in its analysis.

The Division may include the deposits of a credit union in the HHI analysis if the credit union meets certain criteria. Similar to the conditions set forth by the Federal Reserve, to be considered an active competitor in retail banking, a credit union must have a community-based field of membership, making it easily accessible to customers looking for banking alternatives in the market. For small business banking, the Division will evaluate factors similar to those considered in the analysis of thrifts to determine whether a credit union is an active competitor. Unlike thrifts, however, credit unions do not provide deposit data to the FDIC. Reliable branch-level data may not be readily available for HHI calculations. Therefore, in such cases, the presence of credit unions that meet these criteria will be considered a mitigating factor in evaluating the competitive effects of a transaction.

Read the FAQ.

Community First CU to be Title Sponsor of Jacksonville's Light Boat Parade

Community First Credit Union has agreed to be a title sponsor of Jacksonville's Light Boat Parade for at least the next three years.

Organizers hope to have at least 100 boats participate in the parade. After the boat parade, there will be a fireworks show.

Community First and Gator Bowl Sports declined to disclose the dollar amount for the credit union’s sponsorship.

But is sponsoring a boat parade consistent with the tax-exempt purpose of a credit union?

Read more.

Who Benefits When CUs Merge?

A paper by Bauer, Miles, and Nishikawa found gains to the owners/members of the target credit union and to the regulators but not to the acquiring credit union.

The paper examines pre-merger versus post-merger performance of credit unions between between 1995 and 2003. The study treats all mergers as the same whether the merger is between willing partners or a purchase and assumption agreement (P&A) between the acquiring credit union and the National Credit Union Share Insurance Fund (NCUSIF). The paper notes that less than 10 percent of the mergers involved P&As with the NCUSIF.

The paper found that members of the target credit union experienced a net gain from the merger.

The study also found that the performance of acquiring credit unions is little affected by the merger. If an acquiring credit union makes some financial adjustments to a merger, these changes tend to favor borrowers at the expense of savers.

Furthermore, the study found evidence to support the hypothesis that most mergers are instigated by regulators to avert using NCUSIF to resolve failing credit unions. The authors posit that the acquiring credit union may do the merger to avoid any disutility to its members that may arise from impact of the failed credit union on the NCUSIF.

Read the paper.

Free Checking Means Free

The Consumer Financial Protection Bureau (CFPB) is once again doing regulation via enforcement action. This time, the CFPB is cracking down on financial institutions that are deceptively advertising free checking accounts.

CFPB Director Richard Cordray commenting on an October 9 enforcement order against M&T Bank stated that banks and credit unions "cannot misstate to consumers whether a financial product or service is free."

The CFPB wrote that consumers were lured by M&T Bank with promises of “no strings attached” free checking, but the bank failed to disclose key eligibility requirements for the account.

The CFPB noted: "None of the advertisements for Free Checking disclosed either the minimum activity requirement or the automatic conversion of a Free Checking account ... after 90 days of inactivity."

The CFPB press release stated that banks and credit unions are prohibited from deceptively advertising deposit accounts. If an account is described as free or no cost, it cannot, for example, have any maintenance or activity fees, or any fees to deposit, withdraw, or transfer money.

According to the CFPB, the failure to disclose these eligibility requirements is a deceptive act or practice.

Read the press release. Read the consent order.

County & Municipal Employees CU Closed

The Texas Credit Union Department liquidated County & Municipal Employees Credit Union of Edinburg, Texas, and named the National Credit Union Administration as liquidating agent.

Navy Army Community Credit Union of Corpus Christi, Texas, immediately assumed County & Municipal Employees Credit Union’s members, assets, shares and selected loans.

The Texas Credit Union Department made the decision to liquidate County & Municipal Employees Credit Union and discontinue operations after determining the credit union was insolvent with no prospect for restoring viable operations on its own.

The credit union reported a loss of almost $3.4 million through the first nine months of 2014. As of the end of the third quarter, the credit union was critically undercapitalized with a net worth ratio of 0.85 percent. Also, 21 percent of the credit union's loans were 60 days or more delinquent.

County & Municipal Employees Credit Union had assets of $40.3 million and served 7,173 members, according to the credit union’s most recent Call Report.

County & Municipal Employees Credit Union is the ninth federally insured credit union liquidation in 2014.

Read the press release.

CU Discount Window Borrowings, Q3 2012

During the third quarter of 2012, 48 credit union borrowed from the Federal Reserve's Discount Window.

The Federal Reserve releases this information with a two year lag.

The total number of transactions with the various Federal Reserve Banks during the quarter was 130.

Three credit unions accounted for almost half of the total number of borrowings. These credit union borrowers were Greater Springfield Credit Union (14), Northwest Community Credit Union (23), and Sun Community Federal Credit Union (27). The number of times they borrowed from the Discount Window appear in parenthesis.

The average amount borrowed was almost $4.3 million, while the median amount borrowed was $1.25 million.

The maximum amount borrowed was $50 million by Northwest FCU (Herndon, VA).

With the exception of two credit unions that access the Federal Reserve's seasonal credit program, all other borrowings were through the Federal Reserve's primary crdit program, which is reserved for healthy institutions.

Below is a list of credit unions that borrowed from the Federal Reserve by the date the loan was originated and the amount borrowed.

No Opposition, Really?

During the September 18 NCUA Board meeting, an NCUA staffer stated there was no opposition to the expansion of First Service FCU's community charter to eight counties in Columbus, Ohio metropolitan statisitcal area.

According to the official transcript of the meeting, new NCUA Board member J. Mark McWatters asked Leilani Stamper, Consumer Access Analyst for the Office of Consumer Protection: "Is there any opposition to this motion?"

Leilani Stamper replied: "No."

J. Mark McWatters asked: "There’s no opposition?"

Leilani Stamper once again replied: "No."

But how did Leilani Stamper know there was no opposition?

NCUA does not request comments from the public regarding a conversion to a community charter or an expansion of a community charter.

The agency failed to adopt its proposal from 2007 that would have required notice and request for comment for those community charter applications that do not meet the established definitions of a well-defined local community.

The simple fact is that Ms. Stamper cannot know if there was any opposition to this community charter application.

Security Service Advertising Large Commercial Loans

Security Service Federal Credit Union (San Antonio, TX) ran an ad in the September 28th Caller Times promoting commercial loans from $5 million to $50 million.

Business loans ranging in size from $5 million to $50 million are not small business loans.

Is the credit union tax exemption meant to subsidize multi-million dollar commercial loans?

Why Hasn't NCUA Toughened Its Regs for Low-Income CUs Exceeding the MBL Cap?

Slightly more than two years ago, the National Credit Union Administration (NCUA) through regulatory fiat streamlined the process for federally insured credit unions to receive a low-income designation. As a result, the number of low-income credit union have approximately doubled to 2100 and are no longer subject to the member business loan (MBL) cap of 12.25 percent of assets.

However, NCUA has not put in place regulations to ensure that these low-income designated credit unions with their authority to do unlimited business lending do so in a safe and sound manner.

But only a year earlier in 2011, NCUA sang a different tune when it testified before the Senate Banking Committee regarding a bill to allow qualified credit unions to exceed the MBL cap up to 27.5 percent of their assets.

In her oral statement, NCUA Chairman Debbie Matz stated that if legislation was enacted that would raise the MBL cap, "NCUA would promptly revise our regulations to ensure that additional capacity in the credit union system would not result in unintended safety and soundness concerns."

In response to a question from Senator Shelby (R - AL) about whether a credit union should have a high CAMEL rating before the credit union can exceed the business loan cap, Chairman Matz stated:

"I think that they should have -- particularly on the management, the "M" in CAMEL, I think that they should have a high CAMEL rating in order to go beyond the bottom tier."

Moreover, responding to a question for Senate Banking Committee Chairman Johnson (D - SD) about tiered approval process for credit unions to exceed the MBL, Chairman Matz stated that the agency would implement "regulations to ensure ... that the credit unions that go above the cap do so in a moderate way, that they crawl before they walk."

Unfortunately, talk is cheap. Actions speak louder than words.

You would think that if NCUA was contemplating these regulatory changes with regard to a bill raising the MBL cap to 27.5 percent of assets, the agency would do the same when it has exempted almost one-third of the credit union industry from the MBL cap through its low-income designation.