Wednesday, December 30, 2015

First Hawaiian Homes FCU Liquidated

The National Credit Union Administration today liquidated First Hawaiian Homes Federal Credit Union of Hoolehua, Hawaii.

Molokai Community Federal Credit Union of Kaunakakai, Hawaii, immediately assumed First Hawaiian Homes’ assets, member shares and most loans.

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

According to the credit union's third quarter call report (most recent available), the credit union was well-capitalized, reported no problem loans, and was making a small profit.

At the time of liquidation and subsequent assumption by Molokai Community, First Hawaiian Homes served 1,379 members and had assets of nearly $3.2 million, according to the credit union’s most recent Call Report.

First Hawaiian Homes Federal Credit Union is the eleventh federally insured credit union liquidation in 2015.

Read the press release.

Large Georgia CU to Defect from Federal Charter

Warner Robins-based Robins Federal Credit Union will change to a state charter on New Year's Day, becoming Robins Financial Credit Union.

The credit union cited that the state charter would give it greater flexibility to expand.

Robins has almost $2.1 billion in assets.

Read the story.

Tuesday, December 29, 2015

$2 Million Gift Gives USU Credit Union Prime Advertising Space at Utah State University's Stadium

The USU Credit Union, a division of Goldenwest Credit Union, received prime advertising space at Utah State University's stadium for donation.

The credit union has committed $2 million to the football stadium renovation.

As part of the agreement, the south and west concourses of the stadium will carry the USU Credit Union name.

Read more.

Wednesday, December 23, 2015

Paying CU Directors -- More Acceptable; But Controversial

While credit unions paying their directors is becoming more acceptable, the controversy of paying credit union directors persists, according to a December 23 story in The American Banker.

While federal credit unions cannot pay their directors, state chartered credit unions in a dozen states have the authority to pay their directors and that number should grow over time.

Ben Rogers, research director at Filene Research Institute in Madison, Wisconsin and author of the study on compensating credit union directors, told the American Banker: "I think if we had done the study 10 years ago people would have said compensating directors was absolutely against the ethos of credit unions, but today it is much more acceptable."

According to research by the Filene Research Institute (Filene), 145 credit unions in 12 states pay their board members with directors earning between $60 and $37,597 per year. The study said that in 2012 large credit unions paid four times more than smaller credit unions.

Click on this link to view average director pay by state.

The Filene study pointed out that there is a growing evidence of credit unions using compensation to attract and retain qualified board members given the heighten demands on credit union directors.

However, the article noted that paying directors may have policy implications with regard to the credit union industry's preferential tax treatment, as paying directors further erode the distinction between banks and credit unions.

Read the story (subscription required).

Tuesday, December 22, 2015

Large CUs' Real Estate Secured Business Loan Exposures

On December 18, the federal banking agencies -- the Federal Deposit Insurance Corporation, the Federal Reserve, and the Office of the Comptroller of the Currency -- issued a statement warning about eased commercial real estate (CRE) loan underwriting and CRE risk management practices that cause “concern.” The federal banking regulators added that supervisors will “continue to pay special attention” to CRE lending in exams in 2016 and reiterated existing interagency guidance on CRE concentration risk.

The National Credit Union Administration did not sign on to this statement; but NCUA may want to sign on to the interagency guidance on CRE concentration risk as real estate secured business loans continue to expand.

There are 105 credit unions with assets of at least $100 million that have an aggregate exposure to real estate secured business loans that exceeds their net worth at the end of the third quarter.

[Editorial note: I know the 105 credit unions include credit unions that have exposure to farmland loans; but the recent weakness in farm commodity prices will likely have a negative impact on farmland values. So, those credit unions making farmland loans also warrant careful monitoring.]

Thirteen credit unions have a real estate secured business loan to net worth ratio above 200 percent and 5 credit unions -- all state charters -- have a real estate secured business loan to net worth ratio in excess of 300 percent.

The two credit unions with the greatest net worth exposure to real estate secured business loans are involved in church financing. Evangelical Christian Credit Union (Brea, CA) has the greatest percentage of its net worth exposed to real estate secured business loans at 907.24 percent. America's Christian Credit Union (Glendora, CA) has the next largest exposure at 532.4 percent.

The following tables provides info on credit unions with real estate secured business loan exposures of at least 100 percent of net worth.

Read the statement.

Friday, December 18, 2015

Bethex FCU Liquidated

The National Credit Union Administration today liquidated Bethex Federal Credit Union of Bronx, New York.

USAlliance Federal Credit Union of Rye, New York, immediately assumed Bethex Federal Credit Union’s assets, member shares and most loans. USAlliance is a federally chartered credit union with a low-income credit union designation that has 83,102 members and assets of $1.07 billion, according to the credit union’s most recent Call Report.

NCUA placed Bethex Federal Credit Union into conservatorship on September 18, 2015. NCUA made the decision to liquidate Bethex and discontinue its 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 $851,367 for the first three quarters of 2015. As of September 30, 13.53 percent of the credit union's loans were 60 days or more past due. On November 18, 2015, the credit union repurchased $502,000 it owed in subordinated debt from the TARP Community Development Capital Initiative.

At the time of liquidation and subsequent purchase by USAlliance, Bethex served 5,824 members and had assets of $12.2 million, according to the credit union’s most recent Call Report.

Bethex Federal Credit Union is the tenth federally insured credit union liquidation in 2015.

Read the press release.

A.E.A. FCU Returned to Its Members

Five years after placing A.E.A. Federal Credit Union of Yuma, Arizona into conservatorship, the National Credit Union Administration returned control of A.E.A. Federal Credit Union to its members.

According to its September 2015 call report, credit union was counting $12.8 million in subordinated debt as net worth, which is highly likely Section 208 assistance from the National Credit Union Share Insurance Fund. Without this section 208 assistance the credit union would be critically undercapitalized.

A.E.A. FCU is the second credit union to emerge from conservatorship this year. The other credit union was Keys FCU (Key West, FL).

Read the story.

Monterey CU Withdraws Application to Become a Mutual Savings Bank

Silicon Valley Business Journal is reporting that Monterey Credit Union has withdrawn its application to switch to a mutual savings bank charter.

According to Silicon Valley Business Journal, the credit union pulled its application on November 19. This action came 16 months after the credit union's members voted to switch to a bank charter.

The story did not elaborate on why the credit union pulled its application.

Read the story.

Wednesday, December 16, 2015

Proposal Would Allow 19.3 Million Vets to Join CUs Serving the Armed Forces

The National Credit Union Administration (NCUA) Board is proposing to include within a credit union’s common bond the honorably discharged veterans of any branch of the United States Armed Forces that is listed in a credit union's charter.

This provision would allow veterans to be eligible for credit union membership beyond their active duty status.

So, this means 19.3 million veterans will have continued access to credit unions that serve various branches of the military.

In justifying its position, the NCUA Board wrote that "[a]ctive duty and discharged military personnel and their families share a similar affinity, typically maintaining a close relationship with their active duty branch of service, largely through Armed Forces associations, publications and continued access to military bases, such as Veterans Administration facilities, base commissaries, post exchanges, and morale, welfare and recreation sponsored programs."

It appears that Navy Federal Credit Union and Pentagon Federal Credit Union wrote this provision, as they will be the beneficiaries of this proposed change to NCUA's field of membership rule.

Tuesday, December 15, 2015

Credit Union Journal: NCUA Had One 'Whopper Year' On Regulatory Front in 2015

Credit Union Journal wrote that 2015 was a noteworthy year on the regulatory front for the National Credit Union Administration (NCUA).

With the exception of NCUA' controversial risk-based capital rule, which the credit union industry opposed, the agency was active in easing the regulatory burden on credit unions.

NCUA provided regulatory relief to a number of credit unions by doubling the asset threshold size for a small credit union designation to $100 million.

Also, NCUA eliminated its fixed asset rule.

Furthermore, NCUA proposed sweeping changes to its member business lending rule and field of membership regulation, which the agency will likely finalize in 2016.

As I told Credit Union Journal, "Debbie Matz said she was going to [provide relief], and she delivered."

Read the story (subscription required).

Monday, December 14, 2015

A Majority of CUs Have Fewer Members Compared to a Year Ago

While overall credit union membership continued to grow, more than half of all credit unions have fewer members as of September 30, 2015 compared to a year ago, according to the National Credit Union Administration (NCUA).

Fifty-two percent of federally insured credit unions experienced a year-over-year decline in membership as of the end of the third quarter 2015.

The median rate of growth for credit unions was negative 0.2 percent.

Twenty-three states reported negative median membership growth rate for federally insured credit unions. Federally insured credit unions in Pennsylvania had the lowest median membership growth rate at -2.2 percent.

NCUA noted that membership growth is concentrated in the larger credit unions.

On the other hand, credit unions with falling membership tend to be small. Approximately 75 percent of the credit unions with negative membership growth had less than $50 million in assets.

Read the press release.

Friday, December 11, 2015

Self-Help CU Funds $18 Million Construction Loan for Miami Charter School

The Sports Leadership and Management Academy charter school obtained a $17.97 million construction loan from a North Carolina-based credit union to build its complex in Miami’s Little Havana.

Self-Help Credit Union granted the mortgage to Miami School Group for an 80,552-square-foot school.

The school was co-founded by Christian Perez, also known as recording artist Pitbull.

However, how can a credit union based in Durham, N.C. provide a $18 million construction loan for school in Miami, Florida co-founded by Pitbull?

What is the common bond?

The best guess is a $5 one-time donation to the Center for Community Self Help.

Read the story.

Thursday, December 10, 2015

Morgan Stanley Settles Lawsuit with NCUA over Failed Corporate CUs

The National Credit Union Administration (NCUA) announced a settlement with Morgan Stanley for $225 million to resolve claims arising from losses related to corporate credit unions’ purchases of faulty residential mortgage-backed securities.

The settlement covers claims asserted in 2013 by the NCUA Board on behalf of U.S. Central Federal Credit Union, Western Corporate Federal Credit Union, Members United Corporate Federal Credit Union and Southwest Corporate Federal Credit Union.

NCUA will dismiss pending lawsuits against Morgan Stanley in federal district courts in New York and Kansas. Morgan Stanley does not admit fault in the settlement.

Read the press release.

NCUA: Community Charter Can Be a Combined Statistical Area

The National Credit Union Administration (NCUA) Board is proposing to allow a Combined Statistical Area with a population limit of 2.5 million to be treated as a de facto well-defined local community.

According to the Office of Management and Budget (OMB), there are currently 169 Combined Statistical Areas. These Combined Statistical Areas are comprised of 524 Core-based Statistical Areas. A Core-based Statistical Area is either a Metropolitan or Micropolitan Statistical Area.

According to 2013 Census Bureau estimates, only 20 Combined Statistical Areas exceeded the population threshold of 2.5 million.

OMB introduced the concept of Combined Statistical Area in 2000. OMB stated that Combined Statistical Areas can be characterized as representing larger regions that reflect broader social and economic interactions, such as wholesaling, commodity distribution, and weekend recreation activities.

However, two Federal Courts ruled against NCUA in Utah and Pennsylvania, when the agency approved community charters comprised of multiple core-based statistical areas. The Federal Courts wrote that the areas did not meet the requirement of being well-defined local community.

So, how can a larger region represented by a Combined Statistical Area meet the requirement of being a local community?

NCUA is clearly trying to accomplish through the regulatory process what it has not been able to do legislatively.

Wednesday, December 9, 2015

San Francisco FCU Unveils 100 Percent LTV Jumbo Mortgages

Citing skyrocketing housing costs, San Francisco Federal Credit Union announced a new loan program that will allow San Francisco-area borrowers to finance up to 100 percent of their mortgage – with no requirement for private mortgage insurance – on loans up to $2 million.

The new loan program is called POPPYLOAN, which stands for Proud Ownership Purchase Program for You.

According to the credit union, POPPYLOAN is available to anyone who works in San Francisco or San Mateo Counties and can be used to purchase a home in the nine Bay Area Counties: San Francisco, San Mateo, Marin, Napa, Sonoma, Santa Clara, Alameda, Contra Costa, or Solano.

To qualify for POPPYLOAN, borrowers must be 18 years or older and purchasing a single family home, townhouse, condominium, or 2-to-4 unit multi-family dwelling as their primary residence. Eligibility for the loan also depends on a number of additional factors, such as credit scores, income, employment status, and property value.

POPPYLOAN is structured as a 5/5 adjustable rate, 30-year mortgage. The interest rate on the mortgage cannot increase by more than 2 percent every five years and no more than 6 percent over the life of the loan.

However, the loan is not available to refinance an existing mortgage.

Read the article.

Tuesday, December 8, 2015

CUs Received More Than $120 Billion in Emergency Liquidity and Guarantees During Financial Crisis

Testifying before the House Financial Services Committee on December 8, National Credit Union Administration (NCUA) Chairman Debbie Matz provided information about the extraordinary measures that were taken by NCUA to support the credit union system during the financial crisis and Great Recession.

Chairman Matz noted consumer-oriented, member-owned credit union system suffered sizable losses, as a result of the financial crisis. Ninety retail credit unions failed because they were not holding sufficient capital to cover their risks.

Chairman Matz went on to state that the failure of five corporate credit unions had near-catastrophic consequences for all surviving credit unions, causing Congress to create the Temporary Corporate Credit Union Stabilization Fund.

Furthermore, she stated NCUA injected more than $120 billion of emergency liquidity and guarantees to stabilize the credit union system - more than $20 billion in liquidity assistance through the Central Liquidity Facility and over $100 billion in guarantees.

She also pointed out that NCUA borrowed $5 billion from the U.S. Treasury to support the credit union system.

Read the testimony.

Monday, December 7, 2015

U.S. Eagle FCU Secures Signage Rights to New Mexico's Tallest Building

The Albuquerque Journal is reporting that U.S. Eagle Federal Credit Union has secured signage rights to New Mexico’s tallest building, the 22-story Albuquerque Plaza in Downtown Albuquerque.

The credit union will also open a branch on the first floor of the building.

The credit union has $855 million in assets as of the end of the third quarter.

The price and terms for the signage rights were not disclosed.

Read the story.

Redlining Minority and Low-Income Communities?

One provision in the National Credit Union Administration (NCUA) Board proposal to amend its field of membership rules could result in the redlining of low-income, minority, and underserved communities.

The NCUA Board is proposing to repeal the "core area" requirement when a federal credit union (FCU) applies for a community charter consisting of a portion of a Core Based Statistical Area.

A Core Based Statistical Area is either a metropolitan statistical area or a micropolitan statistical area.

As background, NCUA's FOM regulation since 20101 requires that when a FCU applies to serve a community consisting of a portion of a Core Based Statistical Area, that portion must include the Core Based Statistical Area’s “core area.” NCUA defines a "core area" as the most populated county or named municipality in the Core Based Statistical Area.

NCUA noted that the primary purpose of this requirement was to acknowledge the core area of a Core Based Statistical Area as the typical focal point for common interests and interaction among residents. An additional purpose was to extend FCU services to low-income persons and underserved areas, both typically located in the "core area" of a Core Based Statistical Area.

NCUA is proposing to repeal this "core area" requirement; because the agency's review of FCU’s business and marketing plans over the last five years show FCUs are adequately serving low-income persons and underserved areas. In place of the "core area" requirement, NCUA proposes to annually review for three years a FCU's progress in implementing its marketing and business plan.

Unfortunately, the repeal of the "core area" requirement could allow FCUs to design community charters that resemble donuts by serving wealthier suburban counties and excluding markets containing low-income and minority communities that reside in the core area.

NCUA should ensure that community charters do not redline low-income, minority, and underserved communities.

Sunday, December 6, 2015

Privately Insured CUs Can Become Members of FHLBs

Privately insured credit unions can now become members of the Federal Home Loan Banks (FHLBs).

President Obama on December 4 signed into law the Highway Bill (H.R. 22).

Section 82001 of the bill allows privately insured credit unions to join the Federal Home Loan Banks "only if the appropriate supervisor of the State in which the credit union is chartered has determined that the credit union meets all the eligibility requirements for Federal deposit insurance as of the date of the application for membership."

Also, the bill protects FHLB advances from loss by giving FHLBs priority to collateral backing FHLB advances.

This section of the bill also authorizes the GAO to conduct an audit on the adequacy of insurance reserves held by a private
deposit insurer and on the level of compliance with Federal regulations relating to the disclosure of a lack of Federal deposit insurance.

American Share Insurance is the only private insurer of credit unions.

Read the bill.

Bank and CU Trade Groups File Brief regarding Recent FCC Order

The American Bankers Association, the Credit Union National Association, and the Independent Community Bankers Association filed a friend of the court brief on Wednesday in an appeal of a recent order by the Federal Communications Commission (FCC) regarding the Telephone Consumer Protection Act (FCC).

In that order, the FCC granted four exemptions from the TCPA for data breach and fraud-related calls. However, the FCC also interpreted certain provisions in the TCPA in ways that will make it more difficult for banks and credit unions to send other valuable communications to their customers.

The brief argues that the order “severely restricts the ability of financial institutions and other callers to engage in useful, and often urgent, communications with their customers and members.”

The brief supported the petitions filed by nine industry members seeking a review of the FCC’s order by the D.C. Circuit Court of Appeals.

The brief described the types of messages financial institutions send to their customers and how the FCC’s order will prevent many of these communications from occurring.

Read the brief.

Saturday, December 5, 2015

Hiway Federal Credit Union Renews Sponsorship of NHL Team

Hiway Federal Credit Union (St. Paul, MN) has renewed its sponsorship of National Hockey League's Minnesota Wild for two more years.

Hiway Federal Credit Union will be the hockey team's official credit union through the Wild's 2016-2017 season, the St. Paul-based lender said.

The deal, which started last season, includes advertising at St. Paul's Xcel Energy Center, ATMs in the arena, team-branded accounts and cards, and prize drawings and discounts at Hockey Lodge retail locations.

The price of the deal was not disclosed.

Read the story.

Friday, December 4, 2015

Credit Unions Post Strong Loan Growthn Q3, Delinquencies Up for Second Consecutive Quarter

The National Credit Union Administration (NCUA) is reporting that federally insured credit unions posted strong loan growth during the third quarter.

Total loans at federally insured credit unions reached $769.5 billion in the third quarter of 2015, an increase of 3.3 percent from the previous quarter and 10.7 percent from a year earlier. All major loan categories posted growth during the third quarter -- non-federally guaranteed student loans grew by 5.1 percent; new auto loans were up 4.4 percent; used auto loans rose by 3.7 percent; first mortgage loans and member business loans increased by 3 percent.

The NCUA reported a surge in indirect lending at federally insured credit unions. Indirect loans were $131.5 billion at the end of the third quarter of 2015 and represented 17.09 percent of total industry loans. This is up from approximately $108 billion a year earlier, which accounted for 15.53 percent of all credit union loans.

Overall, share and deposit accounts at federally insured credit unions increased $5.6 billion from the second quarter 2015 and $53.3 billion from the end of the third quarter of 2014 to $992.5 billion.

Because loans grew at a faster rate than shares and deposits, the loan-to-share ratio rose from 75.52 percent at the end of the second quarter to 77.53 percent as of September 30, 2015.

Credit Unions Earned $2.3 Billion in Q3

Federally insured credit unions continued to report positive net income in the third quarter, $2.3 billion, a decline of $82 million, or 3.5 percent, from the third quarter of 2014. As a whole, federally insured credit unions have recorded positive net income for 23 straight quarters.

Year-to-date federally-insured credit union profits were almost $6.9 billion -- up from slightly below $6.8 billion for the same time period of 2014.

Federally insured credit unions’ year-to-date return on average assets ratio stood at an annualized 80 basis points at the end of the third quarter, slightly below the level in the third quarter of 2014. Overall, 78 percent of federally insured credit unions reported positive returns on average assets for the first three quarters of 2015, compared to 76 percent in the first three quarters of 2014.

98 Percent of Credit Unions Were Well-Capitalized

The credit union industry continued to build its net worth during the quarter. The credit union industry's net worth ratio increased by 7 basis points during the third quarter to 10.99 percent.

The percentage of federally insured credit unions that were well-capitalized rose in the third quarter, with 98.0 percent reporting a net worth ratio at or above the statutorily required 7.0 percent. A year earlier, 97.5 percent of credit unions were well-capitalized. As of September 30, 2015, 34 federally insured credit unions were undercapitalized.

Delinquencies Rose for Second Consecutive Quarter

It appears that the credit cycle is turning. Delinquent loans are up for the second consecutive quarter. Loans 60 days or more past due rose by approximately $450 million during the quarter to almost $6 billion and is up by more than $1 billion since March 31, 2015.

In addition, early delinquencies were $6.1 billion at the end of the third quarter, an increase of $456 million from the end of the second quarter.

According to NCUA, delinquency rates edged higher during the quarter, while net charge-off rates unchanged. The delinquency rate at federally insured credit unions rose in the third quarter to 78 basis points, up from 74 basis points the previous quarter, but still below the 85 basis-point level in the third quarter of 2014. The net charge-off ratio was an annualized 46 basis points year-to-date -- the same as in the second quarter of 2015 and down from 48 basis points through the end of the third quarter of 2014.

Read the press release.

Thursday, December 3, 2015

Alaska USA Adds Underserved Area in Arizona

The National Credit Union Administration (NCUA) in October approved Alaska USA Federal Credit Union's addition of 413 underserved census tracts in Maricopa County, Arizona.

This underserved area expansion will allow Alaska USA to serve almost 1.7 million residents in Maricopa County -- further growing the credit union's presence in Arizona.

Alaska USA currently operates in four Western states -- Alaska, Arizona, California, and Washington.

Wednesday, December 2, 2015

California Coast CU Forging Sponsorship Deal with City of San Diego

The San Diego Union Tribune is reporting that California Coast Credit Union is forging a deal with the City of San Diego to become a city sponsor.

The deal is valued at approximately $3 million over 5 years and awaits final approval by full city council.

The deal with California Coast would provide $650,000 cash over the next five years plus services for employees and the community with an estimated valued of nearly $2.5 million.

In exchange, California Coast would become the official financial partner of the city, get exclusive rights to market its services to city employees and retirees, and be included in publicity for city-sponsored community programs.

The five-year deal would allow the city or the $1.9 billion credit union to opt out after three years.

Read the story.

MidFlorida CU Is Sued over Misleading Overdraft Practices

Reuters is reporting that MidFlorida Credit Union (Lakeland, FL) was hit with a proposed class action lawsuit accusing the credit union of violating federal law by charging customers overdraft fees when members had enough money in their checking accounts to cover any debits.

Filed last week, the lawsuit said MidFlorida Credit Union used an artificial "available balance" to decide whether to charge an overdraft, instead of the actual balance in a customer's account.

Read the story.

Tuesday, December 1, 2015

Greater Abyssinia Federal Credit Union Closed

The National Credit Union Administration (NCUA) closed Greater Abyssinia Federal Credit Union of Cleveland, Ohio.

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

The credit union reported that 28.46 percent of its loans and 10.76 percent of its assets were 60 days or more past due. The credit union also reported a 2015 year-to-date loss of almost $20 thousand and a full year loss for 2014 of almost $34 thousand.

Greater Abyssinia Federal Credit Union served 425 members and had assets of $412,775, according to the credit union’s most recent Call Report.

Greater Abyssinia Federal Credit Union is the ninth federally insured credit union liquidation in 2015.

Read the press release.

Small Business Data Collection on Bureau's Rulemaking Agenda

On the Consumer Financial Protection Bureau's regulatory agenda for the next year is the collection of information on financial institutions' lending to women-owned, minority-owned, and small businesses.

This data collection is mandated by the Section 1071 of Dodd-Frank Act.

According to the Dodd-Frank Act, the purpose of this data collection is to facilitate enforcement of fair lending laws and enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority- owned, and small businesses.

According to the Dodd-Frank Act, the following information will be collected by the Consumer Financial Protection Bureau (Bureau):

(A) the number of the application and the date on which the application was received;
(B) the type and purpose of the loan or other credit being applied for;
(C) the amount of the credit or credit limit applied for, and the amount of the credit transaction or the credit limit approved for such applicant;
(D) the type of action taken with respect to such application, and the date of such action;
(E) the census tract in which is located the principal place of business of the women-owned, minority-owned, or small business loan applicant;
(F) the gross annual revenue of the business in the last fiscal year of the women-owned, minority-owned, or small business loan applicant preceding the date of the application; ‘‘(G) the race, sex, and ethnicity of the principal owners of the business; and
(H) any additional data that the Bureau determines would aid in fulfilling the purposes of this section.

The Bureau indicated that its data collection efforts will build off a similar rule it finalized regarding the collection of home mortgage lending data.

This data collection mandate will impose a new regulatory burden on banks and credit unions.

Read the Bureau's Fall Rulemaking Agenda.

Monday, November 30, 2015

CCTV-America on CU Taxi Medallion Lenders

CCTV-America examined the impact of Uber on the taxi medallion industry and its credit union lenders.

CCTV-America interviewed me for its story.

Here is a link to the story.

Friday, November 27, 2015

TDECU Commissioned Mural for TDECU Stadium Suite

TDECU commissioned artist Suzanne Sellers to create a mural for its suite at TDECU Stadium at the University of Houston.

The piece entitled: Victory, Character and Strength captures the driving spirit behind the University of Houston’s storied football program.

TDECU did not disclose the cost for the artwork.

Is commissioning artwork for a suite at a football stadium part of a credit union's tax exempt mission?

I also wonder if the members of the credit union think this is a good use of their money.

Read the press release.

Wednesday, November 25, 2015

NY Times: CU Start-Up Frustrated with Bureaucracy

The New York Times reported on the problem one credit union start-up had with the National Credit Union Administration (NCUA).

The credit union -- Internet Archive Federal Credit Union (New Brunswick, NJ) -- opened its door in 2012.

Credit union officials stated that they were frustrated by "a barrage of regulatory audits and limitations on its operations."

However, the article pointed out that this de novo credit union sought on several occasions to alter its business plans, including serving Bitcoin companies and providing international remittances for immigrant workers.

In my opinion, these changes in business plans at this start-up raised red flags with regulators and warranted increased oversight.

Read the story.

IG Report Recommends NCUA Add S to CAMEL Rating

The National Credit Union Administration (NCUA) Office of Inspector General (IG) recommended that NCUA add sensitivity to market risk (S) to its CAMEL rating.

Almost two decades earlier (January 1, 1997), the federal bank regulators -- The Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency -- added S to their CAMELS rating.

The IG report noted that NCUA may not be effectively capturing interest rate risk (IRR) under "L" in its CAMEL rating.

The IG wrote:
[w]e determined that NCUA may not be effectively capturing IRR when assigning a composite CAMEL rating to a credit union. NCUA currently assesses sensitivity to market risk under the "L" in its CAMEL rating. However, combining sensitivity to market risk with liquidity may understate or obscure instances of high IRR exposure in a credit union. The addition of an “S” rating to its CAMEL Rating System to capture and separately assess a credit union’s sensitivity to market risk should improve NCUA’s ability to accurately measure and monitor interest rate risk. To better reflect the risk that changes in market rates will adversely affect a credit union’s capital and earnings, and in conjunction with a stated goal of NCUA’s IRR working group, we are making two recommendations in this report. We recommend NCUA management modify the current CAMEL Rating System by adding an “S” for market risk [S]ensitivity, and revising the “L” rating to reflect only liquidity factors.

Read the report.

Tuesday, November 24, 2015

NCUA Proposal Could Permit Seven State-wide FOMs

The National Credit Union Administration (NCUA) Board on November 19 issued a proposed rule for comment that would permit state-wide fields of membership (FOM) for seven states.

First, the NCUA Board is proposing that a Congressional District can constitute a well-defined local community. This represents a reversal of NCUA's previous position that a Congressional District did not meet the requirement of being a well-defined local community.

There are seven states represented by a single at large Congressional District. The seven states with a single at large Congressional District are: Alaska, Delaware, Montana, North Dakota, South Dakota, Vermont, and Wyoming. In addition, the District of Columbia and several U.S. territories would qualify as a well-defined local community.

However, I don't see how an at large state-wide Congressional District is local and demonstrates a commonality of interest or interaction among members. In fact, NCUA's FOM and Chartering Manual notes that a state does not meet the requirement of being local.

Second, the NCUA Board is proposing to expand the population size of a rural district. The Board is raising the population threshold from 250,000 to 1 million. The other requirement is that a rural district is sparsely populated -- no more than 100 people per square mile.

Currently, the states of Alaska, North Dakota, South Dakota, Vermont, and Wyoming have low population densities and are under the 1 million population threshold requirement. However, more than half of the residents in the states of Alaska, North Dakota, South Dakota, and Wyoming live in urban areas.

So, how can a whole state be treated as a rural district when more than half of the state's population lives in urban areas?

I will provide additional comments on other areas of this proposed rule over the next month.

Read the proposed rule.

Monday, November 23, 2015

New Lawsuit Highlights Dire Financial Condition of Melrose

Owners of New York City's taxi "medallions" and three credit unions that finance taxi medallions filed on November 17 a lawsuit in U.S. District Court against the City of New York and the Taxi and Limousine Commission.

The complaint alleges disparate regulatory treatment of the taxi medallion industry compared to Uber and other e-hail providers. This disparate treatment according to the complaint violates the equal protection clause under the Fourteenth Amendment of the U.S. Constitution.

Moreover, the complaint outlines the worsening financial condition of one credit union -- Melrose Credit Union (Briarwood, NY).

Starting in paragraph 28 of the complaint, Melrose Credit Union states that it had aggregate taxicab medallion loan delinquencies of approximately $32,000 and no troubled debt restructurings as of January 2014. As of August 31, 2015, Melrose’s medallion loan delinquencies totaled $226,552,719––an increase of approximately 10 percent in a one month period. Likewise, as of August 31, 2015, troubled debt restructurings totaled approximately $195,529,000. Thus, Melrose reached approximately $422,081,719 in delinquencies and troubled debt restructurings––an increase of approximately 7 percent in a single month, and a staggering 34 percent increase since May 31, 2015.

Also in paragraph 31, Melrose Credit Union stated that it has hundreds of medallion loans maturing between now and February 2016, which will worsen the problem. In fact, Melrose has 190 medallion loans maturing in December with almost $83,000,000 in balloon payments becoming due. However, many of these loans are probably underwater due to falling taxi medallion prices.

Furthermore in paragraph 54, Melrose alleges that the Taxi and Limousine Commission overstated the average value of taxi medallions that the credit union used to underwrite the purchase of medallions until October 2013. Elsewhere in the complaint, it states that the Taxi and Limousine Commission, when calculating the average value for taxi medallions, tossed out medallion purchases the Commission believed were below the fair value for medallions. This might suggest that Melrose may have advanced more funds than would have been prudent based upon overinflated valuation of taxi medallions.

In paragraph 187, the complaint states that Melrose financed approximately 128 of the roughly 200 accessible medallions sold at the November 2013 auction. Today, 108 of the approximately 128 (or 84 percent) of the medallions sold in the November 2013 auction and financed by Plaintiff Melrose are now classified as either delinquent or troubled debt. This would suggest recent vintage taxi medallion loans could account for the bulk of the delinquencies and trouble debt restructurings.

For example, Melrose's Call Reports state that the credit union made almost 2,000 member business loans worth almost $878 million in 2013 and approximately 1302 member business loans worth almost $600 million in 2014. Presumably, most of these loans were for taxi medallions.

This information would suggest delinquencies and troubled debt restructurings are only going to go higher.

The following link to an article about the lawsuit has a link to the complaint. Read the article.

Friday, November 20, 2015

Helping Other People Excel FCU Closed

The National Credit Union Administration liquidated Helping Other People Excel Federal Credit Union of Jackson, New Jersey.

NCUA placed Helping Other People Excel Federal Credit Union into conservatorship on Oct. 16. The agency made the decision to liquidate the credit union and discontinue operations after determining it was insolvent and had no prospect for restoring viable operations.

Helping Other People Excel Federal Credit Union served 110 members and had assets of $626,529, according to the credit union’s most recent Call Report.

Helping Other People Excel Federal Credit Union is the 8th federally insured credit union liquidation in 2015.

Read the press release.

Thursday, November 19, 2015

CUs, Albeit Small Players in SBA Lending, Will See More SBA Lending in the Future

An article in The American Banker (subscription required) pointed out that although credit unions are originating a small percentage of Small Business Administration (SBA) 7(a) loans today, credit unions are expected to step up their 7(a) lending efforts in the future.

According to the article, "the volume of SBA loans originated by credit unions reached a record $369 million in the fiscal year that ended Sept. 30, credit unions' share of the overall 7(a) market remained stuck at 1.6%."

However, the article noted that 7(a) lending by credit unions was up 23% in fiscal year 2015 from the previous year and 38% from two years earlier.

Moreover, 7(a) lending by credit unions should grow going forward. Earlier this year, the SBA signed a memorandum of agreement with the National Credit Union Administration promising guidance and support for credit unions interested in the 7(a) program.

In addition, there is a strong incentive for credit unions to make SBA loans, as these loans do not count against the aggregate member business loan cap of 12.25 percent.

NCUA Board Approves Bank Merger into a Credit Unionr

The National Credit Union Administration (NCUA) Board yesterday in a closed door meeting approved a bank merger into a credit union.

According to a reliable source, the NCUA Board approved the merger of Calusa Bank (Punta Gorda, FL) into Achieva Credit Union (Dunedin, FL).

Wednesday, November 18, 2015

Customer Satisfaction with CUs Tumbles, As Membership Grows

The American Customer Satisfaction Index reported that consumer satisfaction with credit unions tumbled in 2015 compared to a year ago as the growth in new members strained credit union resources.

Customer satisfaction with credit unions declined by 4.7 percent to 81, and their edge over smaller banks (80) shrinks to a virtual tie.

Compared to 2014, credit unions scored lower in all customer experience categories except for the number of ATM locations.

Credit unions receive their best marks for staff courtesy (90) and transaction speed (89), although both are down from very high scores of 93 in 2014.

Credit union call centers are showing signs of strain as satisfaction fell from 90 in 2014 to 85 in 2015.

Satisfaction with credit union websites slipped from 89 to 86.

Credit union members assigned a lower scores to the variety of financial services available (down from 87 to 84), ease of adding or making changes to accounts (down from 87 to 83), and ease of understanding information about accounts (down from 86 to 82).

Members continue to believe that their credit union offers competitive interest rates (80), although not quite as competitive as in 2014 (84).

The report found that despite a general deterioration in service over the past year, credit unions go nearly head-to-head with smaller regional and community banks for most customer experience elements. While the two are deadlocked for website satisfaction, credit unions receive a higher mark for call centers. The report found that regional and community banks edge past credit unions in four areas: service variety, account changes, account information, and ATM locations.

Compared with national banks and super regional banks, credit unions earn superior satisfaction scores in all but two areas -- the number and location of branches and ATMs.

The report noted that the influx of new members had put pressure on credit unions with regard to customer service and credit unions are struggling to maintain their historically high satisfaction levels.

Read the press release

Tuesday, November 17, 2015


The National Credit Union Administration (NCUA) has recently chartered credit unions to serve people that belong to certain religious groups and native American tribes.

For example, on August 28, 2015, NCUA's Office of Consumer Protection chartered a federal credit union to serve members and employees of the Redeemed Christian Church of God North America, Inc. NCUA also chartered a federal credit union on July 7 of this year to serve employees, members, synods and member congregations of the Evangelical Lutheran Church in America.

While these two credit unions have a common bond, it is unclear to me how these institutions' common bonds are in compliance with the Equal Credit Opportunity Act (ECOA).

ECOA makes it unlawful for any creditor to discriminate against any applicant with respect to any aspect of a credit transaction on the basis of race, color, religion, national origin, sex or marital status, or age.

Does NCUA give these credit unions a waiver with respect to complying with ECOA? Or does the agency not even consider ECOA when considering a charter application from a group for a credit union?

It is my opinion that NCUA should not charter a credit union that would appear to be out of compliance with ECOA.

Friday, November 13, 2015

NCUSIF Losses for 7 CU Failures Between April 1 and September 30

The National Credit Union Administration's Office of the Inspector General in its Semiannual Report to the Congress published the estimated losses to National Credit Union Share Insurance Fund (NCUSIF) from the failure of seven credit unions during the second and third quarter of 2015.

These seven credit union failures were not subject to Material Loss Reviews.

Below is the names of the credit unions and the estimated NCUSIF losses.
  • TLC Federal Credit Union, $1,210,000;
  • 65 Family Federal Credit Union, $135,713;
  • Kolmar NY Employees Federal Credit Union, $310,137;
  • Trailblazer Federal Credit Union, $1,072,233;
  • Lakeside Federal Credit Union, $1,665,434;
  • SCICAP Credit Union, $2,057,766; and
  • Quemado Federal Credit Union, $245,840.

Thursday, November 12, 2015

Screening Methods for Checking Account Applicants

If your credit union uses consumer-screening methods for opening a checking account, you may want to pay attention to a letter sent by New York Attorney General Eric T. Schneiderman last month to nearly 100 banks operating in New York.

The letter called on the banks revise their consumer-screening protocols to ensure that more consumers receive access to standard checking accounts.

According to the letter, the use of consumer-screening agencies like ChexSystems, Inc. and Early Warning Services, LLC has caused some banks to unnecessarily reject thousands of applicants for minor financial missteps, thereby denying them access to mainstream financial services.

This letter echoes the language from an October report by the National Consumer Law Center, a liberal consumer advocacy group.

While the letter is only for banks operating in New York, it is only a matter of time before credit unions are subject to the same oversight. In fact, the Consumer Financial Protection Bureau has signaled its intention to examine this issue more closely.

Rea the press release.

Tuesday, November 10, 2015

NCUA's Regulations Stymie Credit Union Mergers Into Banks

Over the last couple of years, I have reported on credit unions acquiring banks. While such mergers remain rare, these mergers are more frequent now than just several years ago.

However, these mergers appear to be a one way street -- banks merging into credit unions, not credit unions merging into banks.

What is keeping these mergers from being a two way street is the National Credit Union Administration's rules governing the merger of a credit union into a bank (Section 708a SubPart C).

The National Credit Union Administration (NCUA) requires the credit union board to either "conduct a well-publicized merger auction and obtain purchase quotations from at least three banks, two or more of which must be stock banks; or retain a qualified appraisal entity to analyze and estimate the merger value of the credit union."

If the board decides against an auction, the board needs to publish a notice on why the board is considering the merger and the major positive and negative effects of the proposed merger. The notice should also include information on where members can send comments on the proposed merger.

Furthermore, if a credit union's board votes to move forward with the merger, the majority of board members must vote in the affirmative that the merger is in the best interests of members and the selected merger partner is the best choice for members.

I don't know why this provision is necessary. It assumes that the board is not fulfilling its fiduciary duties.

Moreover, before members vote on the merger, the credit union must send to members prescribed language about the merger under the guise of protecting members interests. Unfortunately, the disclosure has language meant to dissuade members from voting for the merger.

For example, if the merger is with a stock bank, the disclosures must have a clear and conspicuous disclosure that if the merger is approved the members will lose all of their ownership interests in the institution, including the right to vote, the right to share in the value of the institution should it be liquidated, the right to share in any extraordinary dividends, and the right to have the net worth of the institution managed in their best interests.

Telling members that they will lose their ownership interest is meant to scare members into voting against the proposed merger.

Additionally, it seems to me that this disclosure is a red herring. If such a merger moves forward, members will be compensated for their ownership interest.

In addition, the disclosure is required to state that the merger may affect the ability of members to obtain non-housing-related consumer loans. Once again, this language is meant to scare members into thinking that they may not be able to get car loans or personal loans. I find this disclosure ironic, given NCUA's support for policies that would move credit unions away from non-housing-related consumer loans.

A cynical person would view this regulation as erecting a barrier to such mergers.

In my opinion, NCUA needs to modify its regulation governing credit union mergers into banks. The rule should not be any more onerous than the requirements governing credit union mergers.

Ultimately, these mergers are business decisions.

Friday, November 6, 2015

Transcript: NCUA Prepping to Increase the Size of Community Charters

The transcript from the September 2015 National Credit Union Administration (NCUA) Board meeting indicates that NCUA is preparing to allow federal credit unions to add larger geographic areas to their fields of membership (FOM).

The transcript makes it clear that NCUA is preparing to gut the requirement that a community be local, as well as well-defined.

As background, Congress in 1998 added the requirement that a well-defined community be local. The term local was meant to limit the size of a community charter.

However, Metsger believes that county or state boundaries are becoming increasingly irrelevant in defining communities.

In addition, a core-based statistical area may be a too limiting definition of a well-defined local community. A core-based statistical area is defined as a geographic area with an urban center of at least 10,000 people and adjacent areas that are socioeconomically tied to the urban center by commuting. A core-based statistical area can either be a metropolitan statistical area or micropolitan statistical area.

Below is the Q & A between Vice Chairman Metsger and NCUA employee Matt Biliouris from the September NCUA Board meeting.

Vice Chairman Metsger: Over time, as commuting patterns change and as consumers’ ability to obtain financial services online and through their mobile devices grows, their need to actually go to brick and mortar branches diminishes. Credit unions are able to serve larger geographic areas. In essence, their community naturally expands, just as many city borders grow through annexation of contiguous territory. Is that correct?

Matt Biliouris: Yes.

Vice Chairman Metsger: The conclusion I draw is that it's natural for people's sense of community to grow and that there is ample precedent that over time, community credit unions feel that memberships are likely to grow into counties that are adjacent to their existing field of membership and possibly even further than contiguous counties. Do you think that's a logical conclusion?

Matt Biliouris: I think you can make a compelling argument that there is interaction with residents outside of a core-based statistical area that would suffice looking at that and could credit unions make an argument that that is a viable well-defined local community in and of itself.

Vice Chairman Metsger: I also see a trend that county and state lines that were frequently drawn centuries ago are increasingly less relevant as delineators of communities. While 100 years ago, people rarely ventured from one county to another, today they regularly travel not only from one county to county, but also from state to state. I imagine if we did a show of hands in the audience, there are a lot of people that aren't living in this county that are here today. Am I correct that, as we get FOM expansion requests, we increasingly see FOMs that expand into adjacent counties and states such as this one?

Matt Biliouris: Subject to our requirements.

Vice Chairman Metsger: Yes.

Matt Biliouris: Right.

Vice Chairman Metsger: As we consider broader FOM changes, it is reasonable that we should incorporate this expanding definition of community. I know that your internal FOM working group has been reviewing a number of updates to FOM rules and policies, and I appreciate the update here at this Board meeting. I look forward to reviewing the recommendations and hope that one of them will be to recognize the change that has occurred in our country over the last several decades and allow community charters to serve their current communities and not just the ones that were created decades or centuries ago.

As the Chairman said and as Board Member McWatters said, these are really important, not only to credit unions, but what's really important, in my view, is not just what's important to credit unions; What's important is to the members of credit unions and the citizens who then form that credit union for their financial services. Again, I commend you for the work all of you have done, and as Board Member McWatters said, the sooner we get these recommendations, the better that will be for us. I know you're going full speed ahead.

Thursday, November 5, 2015

Ent Members Vote to Become a State Charter

Members of Ent Federal Credit Union (Colorado Springs, CO) have voted to switch to a state charter.

According to the announcement, 76.9 percent of the 35,729 voting members voted in favor of the proposal.

The switch to a Colorado state charter will take effect on January 1, 2016.

Read the announcement.

Wednesday, November 4, 2015

Bayport CU Purchases 98,506-Square-Foot Office Building

BayPort Credit Union has purchased a 98,506-square-foot, Class A office building in Newport News, Virginia.

The credit union will relocate its corporate office to the building located at the corner of Oyster Point Road and Canon Boulevard.

The credit union plans to occupy about 20 percent of the building.

The purchase price was not disclosed.

Read the story.

Tuesday, November 3, 2015

Five Star CU Completes Purchase of Bank

Five Star Credit Union (Dothan, AL) has completed the purchase and assumption of Farmers State Bank, which is headquarters in Lumpkin, GA.

The $345-million million Five Star is the first credit union to buy two banks. Last year Five Star completed the purchase of the $23-million Flint River National Bank in Camilla, Ga.

The $47-million Farmers State Bank has 3 bank office locations.

According to Five Star Credit Union, approximately 2,900 bank customers will become members of the credit union.

Read the story.

Defections from Federal Charter to Cause NCUA to Push FOM Boundaries

Recent defections by large credit unions from a federal charter to a state charter, as well as announced charter changes, will cause the National Credit Union Administration (NCUA) Board to push the envelop with regard to changes to its field of membership (FOM).

A column by NCUA Board member Metsger in the March 2015 NCUA Report noted that over the past four years federal-to-state conversions are running nearly 3-to-1 and the pace is accelerating.

Recent defections from the federal charter include $6.5 billion Suncoast CU (Tampa, FL), $1.4 billion American Eagle Financial CU (East Hartford, CT), $1 billion Rogue CU (Medford, OR), $947 million Oregon State CU (Corvallis, OR).

In addition, there are other defections in the pipeline. For example, $4.2 billion Ent FCU (Colorado Springs, CO) is in the process of voting to switch to a state charter. United FCU with $1.9 billion in assets (Saint Joseph, MI) is merging with Lake Michigan CU (Grand Rapids, MI) and will opt for a state charter.

In response to these defections by large federal credit unions, NCUA has formed a Field of Membership Working Group to develop recommendations to enhance the federal charter and make it more competitive with state charters.

Any recommendations coming from this working group later this year should dramatically expand the fields of membership for federal credit unions.

After all, NCUA Board member McWatters in the October 2015 NCUA Report wrote that he wants any fields of membership proposal coming before the NCUA Board to be bold.

Monday, November 2, 2015

Defections from Federal Charter to Create Budgetary Headaches for NCUA

Defections from the federal charter are going to have budgetary implications for the National Credit Union Administration (NCUA).

Earlier this year, NCUA Board member Metsger wrote that number federal-to-state charter conversions are running at the pace of three-to-one over the last four years. Asset migration from federal to state charters is running at a faster rate of eight-to-one.

As NCUA loses federal charters and assets in federal credit unions, the agency will see a decline in operating fee revenues (assuming no change in the operating fee rate). For example, the conversion of Suncoast Credit Union (Tampa, FL) to a state charter meant that in 2015 NCUA saw a decline in operating fee revenues by approximately $400,000. The proposed conversion of Ent (Colorado Springs, CO) will cost NCUA almost $363,000 in revenues.

To address the decline in operating fee revenues, NCUA could raise the operating fee rate. But an increase in the operating fee rate could create a vicious cycle with even more conversions to state charters or even bank charters.

Another way to address budget pressures is to increase the overhead transfer rate (OTR) from the National Credit Union Share Insurance Fund. However, such a move will generate cries of outrage from state charters and lead to demands for greater say regarding NCUA's budget.

Another possibility for addressing its budgetary pressures arising from the loss of federal charters is for NCUA to control its expenses. But Credit Union Times is reporting that NCUA Chairman Debbie Matz on October 30 stated she expects the overall operating budget for the agency to increase in 2016.

Sunday, November 1, 2015

CUs Provided Public Funds and Tax Incentives from Local Governments for Facilities

In October, several local governments provided tax incentives or grants to credit unions for the renovation or construction of facilities.

Dupaco Credit Union will receive tax incentives for a project in the Crossroads Center area of Waterloo, Iowa. The Waterloo City Council voted to approve three years of 50 percent tax rebates, despite the city's policy provides one year of 50 percent tax rebates for every $1 million in new tax base generated. Dupaco's project will generate just $1.2 million in tax base, the additional two years of rebates were added due to the credit union's additional costs for redeveloping the site.

The Pendleton Development Commission (OR) approved a $73,049 grant to Old West Credit Union to improve the second floor of the former Bank of America building. The grant will pay 25 percent of the second story renovation and elevator cost.

The Lucas County (OH) Commission approved an economic development allocation of $100,000 to the Toledo Urban Foundation for the construction cost of a new facility for Toledo Urban Federal Credit Union.

Thursday, October 29, 2015

Q3 Financial Info on Taxi Medallion Lenders LOMTO and Progressive

Taxi medallion lenders LOMTO Federal Credit Union (Woodside, NY) and Progressive Credit Union (New York, NY) have filed their Q3 Call Reports.


According to LOMTO's financial performance report, the credit union reported a higher quarter over quarter net worth ratio and a quarterly decline in its delinquency rates. However, the drop in delinquencies was offset by an increase in troubled debt restructurings (TDRs).

LOMTO's net worth ratio increased by 11 basis points during the quarter to 16.84 percent.

Over the same time period, LOMTO reported a decline in its delinquency rate (loans 60 days or more past due) from 3.68 percent on June 30 to 1.53 percent as of September 30. In addition, early delinquencies (loans 30 to 59 days past due) dropped from $5.6 million to $5.3 million over the same time period.

TDRs increased during the quarter from $25 million to approximately $34.4 million. TDRS on September 30 are 14.04 percent of loans and 75.2 percent of net worth.

LOMTO FCU increased its provisions for loan losses during the quarter by almost $700 thousands to $2.8 million as of September 30. As a result, allowances for loan and lease losses rose from $6.56 million to $7.06 million.

As of September 30, the credit union's coverage ratio (allowances for loan and lease losses to delinquent loans) was almost 189 percent, up from 71.28 percent the previous quarter.


During the quarter, Progressive built its net worth and coverage ratios, while keeping its delinquency rate largely unchanged.

Progressive Credit Union reported an increase in its net worth ratio during the quarter by 9 basis points to 41.03 percent as of the end of the 3rd quarter.

The delinquency rate on loans 60 days or more past due was almost flat during the quarter. The delinquency rate was 1.05 percent at the end of September compared to 1.04 percent for the previous quarter.

However early delinquencies jumped by almost 239 percent during the third quarter to slightly less than $13.5 million.

Net charge-offs were $3.1 million as of September 30, up from $1.2 million for the previous quarter.

TDRs increased from $18.8 million to $24.4 million during the quarter. This means TDRs on September 30 represented 3.99 percent of loans and 8.8 percent of net worth.

Provisions for loan losses increased by $3 million during the quarter to almost $7.3 million at the end of the third quarter. As a result, allowance from loan and lease losses rose by $1.14 million to $12.86 million.

Progressive's coverage ratio is 199.19 percent as of September 30, up from 179.53 percent the prior quarter.

Wednesday, October 28, 2015

Charlotte Metro FCU Signs Deal to Sponsor NBA Basketball Team

The National Basketball Association's Charlotte Hornets completed a sponsorship agreement with Charlotte Metro Federal Credit Union that includes Hornets-themed credit and debit cards.

Terms weren’t disclosed, but similar partnerships fall in the range of $100,000 to $250,000 per year, based on analyst estimates.

Read more.

Bakery Employees Credit Union under Enforcement Order

California Department of Business Oversight (DBO) disclosed a final order against Bakery Employees Credit Union (Montebello, CA).

According to the order, Bakery Employees CU shall commence a search to identify a merger partner who is acceptable to the Commissioner of DBO. Bakery Employees shall provide a monthly written progress report to the Commissioner and the Regional Director of the National Credit Union Administration (Regional Director) detailing the due diligence of its search for a merger partner.

The final order also requires the $6.9 million credit union to retain management and maintain a Board of Directors (Board) acceptable to the Commissioner. Such person (or persons) shall be qualified to restore the credit union to a sound condition, operate the credit union in a safe and sound manner, comply with the provisions of this Order, and comply with applicable laws and regulations.

The credit union is ordered to complete corrective actions to address all accounting and internal control deficiencies related to the general ledger account balances that were identified in the examination dated March 31, 2015. Also, the credit union shall engage a qualified independent third party to obtain an opinion audit to validate the reconciliation of the general ledger accounts for Catalyst Corporate Credit Union and Money Gram for the periods beginning 12/31/2013 and continuing to the current month at time of reconciling.

The supervisory committee shall ensure the development and maintenance of a monthly progress report on all concerns noted in regulatory examination reports and independent audits.

Furthermore, the Board shall ensure that management maintains a list of all of vendors, including a description of the service provided by each vendor; the level of importance of each vendor’s service to the credit union’s business; and identification of the vendors that provide critical services to the credit union.

The credit union is required to develop a plan that is satisfactory to the Commissioner and Regional Director to achieve profitability with a benchmark of 0.1% of total assets for each quarter in years 2015 and 2016. At a minimum, the plan shall include the following: (a) Loan growth by type and interest rate; (b) Increased quality control to ensure the loan growth is consistent with current policy and the credit union’s loss reserves; (c) Anticipated provisions for loan loss expense; (d) Reduced operating expenses by amount and category; (e) Fee income by type and amount; (f) Specific quarterly performance benchmarks, minimally to include return on assets, operating expenses and net worth; and (g) Contingency plans in the event the above goals are not met, including trigger points for specific actions.

This order supersedes and replaces the Letter of Understanding dated December 9, 2014.

Read the final order.

Tuesday, October 27, 2015

University of Louisville and Commonwealth CU Announce Partnership

The University of Louisville and Commonwealth Credit Union (Frankfort, KY) have announced a new partnership.

The $1 billion credit union will be the preferred credit union for University of Louisville's faculty, staff, students and alumni.

The credit union will also serve as an active sponsor for University of Louisville's academic and athletic programs.

The financial terms of the partnership were not released.

Commonwealth Credit Union is replacing Kentucky Telco Federal Credit Union, which ended its relationship with the university.

Read the news story.

Taxi Medallion Lender Melrose CU Reports Q3 Loss of $21.57 Million

Melrose Credit Union (Briarwood, NY) posted a loss of $21.57 million for the third quarter as provisions for loan losses increased $28.55 million to $43.5 million during the third quarter.

Delinquent loans continued to grow during the third quarter. According to Melrose's financial performance report, loans 60 days or more delinquent jumped by 127.7 percent during the quarter to almost $125.8 million. As of September 30, delinquent loan rate was 6.28 percent, up from 2.76 percent the prior quarter.

Early delinquencies (30 to 59 days delinquent) at Melrose dropped during the quarter from nearly $149.1 million to $96.1 million.

Troubled debt restructurings (TDRs) increased by 38.7 percent during the third quarter to approximately $219.5 million. As of the end of the third quarter, TDRs were 10.95 percent of loans and 60.86 percent of net worth. All TDRs are in nonaccrual status.

Allowance for loan and lease losses rose by 70.8 percent during the third quarter to $68.1 million. Melrose's coverage ratio (allowance for loan and lease losses to delinquent loans) was 54.15 percent on September 30.

The credit union's third quarter loss caused its net worth to fall to $360.6 million. As a result, the credit union's net worth ratio declined from 18.04 percent on June 30 to 17.30 percent on September 30.

Monday, October 26, 2015

Letter to Editor: Buying Naming Rights Not Done for Betterment of Members

A letter to the editor of South Bend Tribune is critical of Teachers Credit Union (TCU) spending $396,000 for the naming rights to a high school football field.

The letter states:

A credit union's actions are supposed to be for the betterment of all its membership base. Therefore, I find it highly questionable that TCU’s spending of $396,000 to have its name on Penn High School’s football field was done for the betterment of TCU membership base.

Read the letter.

Taxi Medallion Lender Montauk Sees Sharp Rise in Delinquent Loans

Montauk Credit Union's financial performance deteriorated during the third quarter of 2015.

Montauk Credit Union (New York, NY) was placed into conservatorship on September 18, 2015.

According to its financial performance report, loans 60 days or more delinquent increased from $4.95 million on June 30 to $16.28 million as of September 30. In other words, the percent of loans 60 days or more past due went from 2.96 percent to 9.79 percent.

In addition, the pipeline of new delinquencies (30 to 59 days delinquent) rose from $14.3 million to slightly more than $19 million over the same time period.

Furthermore, troubled debt restructurings (TDRs) rose from $28.5 million to $30.4 million during the quarter. TDRs on September 30 as a percent of total loans and net worth were 18.28 percent and 160.6 percent, respectively.

Participation loan delinquency rates rose from 1.02 percent to 6.84 percent. This would indicate the pain from participations is spreading to other credit unions that bough participations from Montauk.

Despite rising delinquencies, provisioning for loan losses was unchanged during the quarter. As a result, allowances for loan and lease losses was unchanged at $5.58 million. This means Montauk's coverage ratio (allowances for loan and lease losses to delinquent loans) fell from 112.71 percent on June 30 to 34.29 percent on September 30.

As of September 30, Montauk reported net worth of $18.9 million. The credit union did report a 20 basis point improvement in its net worth ratio to 10.54 percent as the credit union posted a profit of $454 thousand during the third quarter.

Therefore, the credit union has a total cushion (net worth and allowance for loan and lease losses) to absorb expected and unexpected losses of $24.5 million.

Thursday, October 22, 2015

14 CUs to Pay Fines for Late Filing Q2 Call Reports

The National Credit Union Administration (NCUA) announced that 14 federally insured credit unions have agreed to civil monetary penalties for filing late their second quarter Call Reports. However, 28 federally insured credit unions did not file their call reports in a timely fashion.

The late filers will pay a total of $3,491 in penalties. Individual penalties range from $100 to $576. The median penalty was $185.

Of the 14 credit unions agreeing to pay penalties for the second quarter:
  • Eleven had assets of less than $10 million;
  • Two had assets between $10 million and $50 million; and
  • One had assets between $50 million and $250 million.
One of the late-filing credit unions had been late in a previous quarter.

NCUA stated that mitigating circumstances in six cases led to credit unions not being penalized and eight credit unions were granted a waiver that did not consent to the penalty.

Read the press release.

Founders Buys Naming Rights to University of South Carolina's Baseball Stadium

The State is reporting that Founders Federal Credit Union (Lancaster, SC) is buying the naming rights to the baseball stadium at the University of South Carolina.

The University's Board of Trustees unanimously approved a 10-year, $7 million naming rights and advertising deal that will change the name of Carolina Stadium to Founders Park.

This is another case of the credit union tax exemption not being used for its intended public policy purpose.

Read more here.

Wednesday, October 21, 2015

Lawsuit: Large Idaho CU Lost Tax Exemption and Thrived

A lawsuit, Johnson v. Beehive Federal Credit Union Et Al., filed in United States District Court for the District of Idaho states that an Idaho credit union had lost its tax exemption and thrived.

The lawsuit was brought by Chris Johnson, who was president and chief executive officer of the Idaho Credit Union League in 2013.

According to the complaint (Paragraph 2(c)), "one of Idaho’s largest credit unions had recently, for one or more years, lost its federal tax exemption and had paid federal income taxes. This occurrence presented an existential predicament for the credit union movement in Idaho because the cornerstone of credit unions’ federal tax exemption is that without the exemption credit unions cannot be financially viable institutions, and yet the continued financial success of the taxpaying credit union in Idaho had not, in fact, been jeopardized."

Read more here.

Monday, October 19, 2015

Wachovia and Barclay's Capital Settle RMBS Lawsuits

The National Credit Union Administration (NCUA) is reporting that Barclay's Capital and Wachovia have agreed to resolve claims arising from losses related to purchases of faulty residential mortgage-backed securities (RMBS) by corporate credit unions.

Barclays Capital and Wachovia will pay $325 million and pay $53 million respectively to resolve these claims.

Neither institution admitted fault as part of their settlement agreements.

NCUA stated total recoveries will have reached $2.2 billion with the completion of these agreements.

Read Barclay's Capital press release.

Read Wachovia press release.

What's the Hold Up?

This is the question posed by an American Banker article regarding Monterey Credit Union's conversion to a California state chartered bank.

More than 14 months after its members voted to convert to a bank charter, Monterey Credit Union, a privately-insured credit union, appears to be trapped in regulatory limbo as regulators dither over its application to become a bank.

The article quotes Richard Garabedian, a Washington, DC lawyer, as saying he believes that the bank regulators have "raised the price of admission" by requiring credit unions to have healthier metrics than in past years.

Read the article (subscription required).

Sunday, October 18, 2015

Quemado FCU Merged with NCUA Assistance

The National Credit Union Administration (NCUA) disclosed that Quemado Federal Credit Union (Quemado, TX) was merged with NCUA assistance.

But don't look for a press release regarding this failure, there is not one. You will only find information about this failure here.

According to its most recent financial data, the credit union reported a loss of $163,243 through the first six months of 2015 after it increased provisions for loan losses by slightly more than $163,000. As a result, the credit union saw its net worth ratio fall from 13.68 percent at the end of the first quarter of 2015 to 2.91 percent as of June 2015.

The credit union reported that over 27 percent of its loans were 50 days or more past due as of June 30.

Border FCU (Del Rio, TX) acquired Quemado FCU.

This is the fourth NCUA assisted merger this year and 11th credit union to be closed during 2015.

Saturday, October 17, 2015

Golden 1 CU Settles Improper Overdraft Fee Class Action Lawsuit

Golden 1 Credit Union (Sacramento, CA) has agreed to settle a class action lawsuit that it improperly imposed overdraft fees even when members had enough money in their checking account to cover the transaction. The time period covered by the settlement is between April 2, 2009 and April 30, 2015.

Plaintiff Isabel Manwaring filed the overdraft fee class action lawsuit, alleging she was improperly charged the courtesy pay overdraft fees. She alleged it was improper for Golden 1 to charge courtesy pay overdraft fees when there was a positive ledger balance in her checking account that was enough to cover the transaction even though she had a negative available balance on her account.

Further, Manwaring alleges Golden 1 used a process to enroll members on the relevant dates in its overdraft program, which violated federal regulations that require affirmative consent to enrolling in an overdraft program. Her overdraft fee class action lawsuit asserted claims for violations of the California Unfair Competition Law, Breach of Contract, Negligent Misrepresentation, Unjust Enrichment, and Money Had and Received.

Golden 1 denies the allegations but agreed to settle the credit union overdraft fee class action lawsuit to avoid the expense and uncertainty associated with ongoing litigation.

According to the settlement agreement, Golden 1 set aside $5 million to address class members' claims.

Friday, October 16, 2015

Tiny Low Income NJ Credit Union Placed into Conservatorship

The National Credit Union Administration (NCUA) placed Helping Other People Excel Federal Credit Union of Jackson, New Jersey, into conservatorship.

Helping Other People Excel FCU is a federally insured credit union with 96 members and assets of $290,927, according to the credit union’s most recent Call Report.

Various news organizations reported that the credit union was taken over in 2014 by a group running an illegal Bitcoin exchange.

Pinnacle Federal Credit Union of Edison, New Jersey will operate Helping Other People Excel during the conservatorship under a management agreement with NCUA.

Read the press release.

CFPB's Updated HMDA Rule Will Target Banks and CUs for Fair Lending Issues

The Consumer Financial Protection Bureau (CFPB) has finalized its Home Mortgage Disclosure Act (HMDA) rule on October 15, which will place banks and credit unions in the fair lending crosshairs.

According to the agency, mortgage lenders will be required to provide more information about mortgage loan underwriting and pricing, such as an applicant’s debt-to-income ratio, credit score, the interest rate of the loan, points and fees, loan term, prepayment penalty, and discount points.

In addition, lenders will be required to gather more demographic information about the borrower. For examples, lenders must report the age of the borrower and permit borrowers to self-identify their ethnicity and race using disaggregated ethnic and racial subcategories.

This information will enhance the ability for the CFPB and its consumer allies to monitor lenders for possible fair lending problems.

Read the press release.

Thursday, October 15, 2015

Problem Credit Unions Fell During Q3 2015

The National Credit Union Administration (NCUA) reported that the number of problem credit unions fell during the third quarter of 2015.

At the end of the third quarter, there were 233 problem credit unions -- down from 251 credit unions at the end of the second quarter of 2015. A year ago, the number of problem credit unions was 288.

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

During the third quarter, both total shares (deposits) and assets in problem credit unions fell. Shares in problem credit unions fell from $10.2 billion as of June 30, 2015 to $7.6 billion as of September 30, 2015. Over the same time period, assets in problem credit unions declined from $11.4 billion to $8.5 billion.

According to NCUA, 0.81 percent of total insured shares and 0.7 percent of industry assets are in problem credit unions at the end of the third quarter.

According to NCUA, 93 percent of all problem credit unions have less than $100 million in assets, while just over 1 percent have assets of $500 million or more. NCUA reported that no credit union with at least $1 billion in assets were a problem credit union. The number of problem credit unions with between $500 million and $1 billion in assets edged lower during the quarter from 4 credit unions to 3 credit unions.

Wednesday, October 14, 2015

Michigan Combination Will Be Largest Merger in CU History

Lake Michigan Credit Union (LMCU) of Grand Rapids and United Federal Credit Union (UFCU) of St. Joseph announced they will merge, creating the nation's 19th largest credit union.

The combined credit union will serve about 500,000 members with total assets of more than $6 billion with 78 locations in seven states.

United Federal Credit Union will become United Credit Union when the merger is complete and both credit unions are consolidated under Lake Michigan's state charter.

Read more.

Ent FCU Members to Vote to Become State Charter

By October 29, Ent Federal Credit Union members will vote on whether to change from a federal to a state of Colorado credit union charter.

Ent’s Board of Directors and management team are recommending the charter change to the membership as it will provide the credit union with greater opportunity to expand its geographic field of membership and will provide the credit union with greater flexibility.

Read the press release.

Tuesday, October 13, 2015

100 Percent Financing of Taxi Medallions Could Indicate Future NCUSIF Losses

An online survey by Credit Union Times found that a large majority of the respondents believe that taxi medallion loans will result in a loss to the National Credit Union Share Insurance Fund (NCUSIF).

Seventy-three percent of the respondents believe that taxi medallion loans will result in a loss to the NCUSIF, while 27 percent of the respondents don't believe these loans will result in a loss to the NCUSIF.

However, that 27 percent may want to reconsider their position based upon recent research from HVM Capital.

HVM Capital found that some credit unions, as well as other lenders, may have actually financed some medallion sales at above-market prices -- in order to inflate the value of their current holdings at higher prices.

According to HVM Capital, these lenders provided 100 percent financing for taxi medallions and refused to finance taxi medallions that sold for much lower prices. The report specifically identifies Montauk Credit Union and LOMTO Federal Credit Union as providing 100 percent financing.

Providing 100 percent financing for collateral that is falling in value does not appear to be a sound banking practice. Moreover, unless these credit unions received a waiver from the maximum loan-to-value requirement, then these credit unions are in violation of the National Credit Union Administration's Member Business Loan requirement.

This report was written before Montauk Credit Union was seized in September and placed into conservatorship. While I don't know the ultimate fate for Montauk, the odds are much higher today that three months ago that the credit union will end up in receivership.

Also, it is likely that the pain from taxi medallion loans will spread to other credit unions, as many credit unions have bought participations in these loans.

Read the research.

Monday, October 12, 2015

Virginia Credit Union Realty CUSO Launches Division to Serve Nonmembers

A credit union service organization owned by Virginia Credit Union (Richmond, VA), Virginia CU Realty, has launched a new division, Virginia Select Realty, to serve nonmembers.

Read more.

Sunday, October 11, 2015

Musicians' Interguild Credit Union Under Enforcement Order

The California Department of Business Oversight published an enforcement order against Musicians' Interguild Credit Union (Los Angeles, CA).

According the final order, the credit union is expected to retain qualified management and maintain Board of Directors that are acceptable to the Commissioner of Business Oversight. At the minimum, the credit union will retain a chief executive officer, chief operating officer, chief lending officer, and controller that will restore the credit union to sound condition, operate the credit union in a safe manner, and comply with applicable laws and regulations.

The final order instructs the credit union to develop a plan to address loans that are delinquent in property tax payments.

The June 2015 call report for the $72 million credit union shows although meeting the requirements of being well-capitalized, 9.02 percent of its loans were 60 days or more past due.

Read more.

Friday, October 9, 2015

Cordray Remarks on Electronic Payment System Improvements

Consumer Financial Protection Bureau (CFPB) Director Richard Cordray in his prepared remarks to the Credit Union Advisory Committee identified three areas where the electronic payment system can be improved.

These three areas of concern are transparency, security, and access.

Cordray stated that "transparency can be improved within the electronic payments space to help consumers make more informed decisions and take greater control of their economic lives. When consumers make a deposit into their credit union account, it is often difficult for them to know when the funds will be available...Not knowing when a payment will be credited or debited can cause significant confusion and anxiety for those whose credit union accounts can be precariously low on funds...Consumers deserve better. They deserve transparency. They deserve to know exactly where their money is so they can make informed choices about how best to manage the ways and means of their lives."

Cordray then commented that there is room for improvement to protect "consumers from loss, theft, or mistreatment that may arise from payment security problems." The CFPB believes that consumers should be protected from unauthorized payments and fishing expeditions.

Cordray further believed that there was room for improvement with regard to access to the electronic payment system. He noted that a substantial number of consumers do not have access to the electronic payment system.

Read Cordray's remarks.

Thursday, October 8, 2015

Recommendations for Reforming the CLF

While the testimony of National Credit Union Administration (NCUA) Chairman Debbie Matz in July did not mention the Central Liquidity Facility (CLF), the agency has stated previously that reforming the CLF is a legislative priority. However, NCUA has not released any details on how it would reform the CLF.

While I believe the CLF should be dissolved, if Congress decides not to dissolve the CLF but rather to reform the CLF, some of these reforms should closely follow the Federal Reserve's regulation regarding the extension of credit by Federal Reserve Banks.

CLF policies and procedures need to be designed to ensure that any lending program or facility is for the purpose of providing liquidity and not aiding a failing credit union. Legislation should prohibit borrowings from the CLF by credit unions that are insolvent or not viable.

Moreover, the Government Accountability Office (GAO) in 1991 recommended requiring the terms and conditions of CLF loans to be no more liberal than those made by the Federal Reserve.

Also, any reform needs to ensure that the security for CLF loans is sufficient to protect taxpayers from losses. The Federal Credit Union Act (FCUA) states that loans may be advanced to a member of the CLF on terms and conditions prescribed by the Board after giving due consideration to creditworthiness. But FCUA does not require CLF loans to be collateralized.

In addition, a 1997 Treasury Department study noted, "[t]he CLF’s current borrowing authority raises serious policy and budget concerns. It has legal authority to advance several billion dollars to the Share Insurance Fund without regard to its ability to repay. In a systemic crisis, taxpayers could be put at risk if such funds were advanced to shore-up troubled credit unions or a troubled insurance fund."

Furthermore, as I wrote in August 2010, the CLF should be subject to the same disclosure requirements as the Federal Reserve as mandated by Section 1103 of the Dodd Frank Wall Street Reform and Consumer Protection Act (Pub. L. No. 111-203).

Tuesday, October 6, 2015

Fryzel: Don't Eliminate MBL Personal Guarantee Requirement

Former National Credit Union Administration (NCUA) Board member Michael Fryzel is urging the NCUA Board to retain the member business loan (MBL) personal guarantee requirement.

In a Credit Union Times opinion piece, Fryzel wrote: "The one change that is proposed, which I feel would be detrimental to credit union operations and not condone a safe and sound best business practice, is the elimination of the personal guarantee for business loans."

While Fryzel acknowledges that the personal guarantee may inhibit the growth of business loans at credit unions, he also notes that it raises questions about loan quality, member responsibility, and protection from loss.

Read the opinion.

Monday, October 5, 2015

CU Borrowings from Fed's Discount Window, Q3 2013

Seventy-six credit unions borrowed 187 times from the Federal Reserve's Discount Window during the third quarter of 2013. Credit unions borrowed an aggregate amount of $676,178,000.

This is up from 58 credit unions in the second quarter of 2013 and 48 credit unions from a year ago.

The Federal Reserve released this data on September 30.  The data are published with a two year delay.

Among the most active borrowers were Franklin Mint FCU and Educational Employees CU. Both credit unions visited the Discount Window 22 times during the quarter.

The average amount borrowed from the Discount Window was almost $3.6 million. The median amount borrowed was $1 million. The maximum amount borrowed was $31 million by Genisys CU.

The term of most borrowings was 1 day. Almost all Discount Window loans were through the primary credit program.

Information regarding borrowings disclosed below. (click on images to enlarge)


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