Friday, January 30, 2015

American Bakery Workers FCU Closed

The National Credit Union Administration liquidated American Bakery Workers Federal Credit Union of Philadelphia.

TruMark Financial Credit Union of Trevose, Pennsylvania, immediately assumed American Bakery Workers’ members, deposits and a majority of the loan portfolio.

NCUA made the decision to liquidate American Bakery Workers and discontinue operations after determining the credit union was insolvent with no prospect for restoring viable operations.

At the time of liquidation and subsequent purchase and assumption by TruMark Financial Credit Union, American Bakery Workers Federal Credit Union served 1,457 members and had assets of $4.2 million, according to the credit union’s most recent Call Report.

At the end of 2014, the credit union reported a loss of almost $494 thousand. The credit union was critically undercapitalized at the end of 2014 with a net worth ratio of 0.31 percent. For all of 2014, the credit union's net charge off ratio was 19.6 percent.

American Bakery Workers Federal Credit Union is the first federally insured credit union liquidation in 2015.

Read the press release.

Spire Credit Union Buys Naming Rights to Home Run Porch

Spire Credit Union bought the naming rights to the St. Paul Saints' right field home run porch, which will be called the SPIRE Credit Union Home Run Porch.

The sponsorship will last eight years. The price tag of the deal was not disclosed.

Once again, this is an example of a credit union abusing its preferential tax treatment.

Read the article.

Thursday, January 29, 2015

ABA, Trade Groups Call for Patent Reform in New Congress

Legislation to deal with “patent trolls” should more equitably distribute the cost of litigation, enhance transparency and improve patent quality, several financial trade groups told Congress yesterday.

The groups noted that financial firms are frequently harassed by letters demanding licensing fees for using common technology described by low-quality patents that are held by non-practicing entities, also known as patent trolls. Effective legislation would increase the legal costs borne by patent trolls and provide more information about the entities asserting the patents.

“[P]atent trolls continue to assert low-quality patents through vaguely worded demand letters with the full knowledge that their targets, our members, are more likely to pay unnecessary licensing agreements then engage in lengthy, costly litigation,” the groups said. “The deadweight cost of compliance with demand letters and the threat of litigation is ultimately borne by our customers.”

Read the letter.

Tuesday, January 27, 2015

Activist Depositors and Associational Groups

I've written regularly about credit unions abusing associational groups as a vehicle to circumvent field of membership limitations.

However, a credit union that uses associational groups to allow anyone to join also opens itself to a small cadre of like-minded depositors to seize control of the credit union -- although it may take a couple of years to do so, as board of director terms are staggered.

The reason why a small group of like-minded members can take control of a credit union is that few credit union members actually participate in the governance of their institution and vote for board members.

So, why is this important?

Credit unions are sitting on a significant amount of undistributed retained earnings, which members currently cannot tap except in a voluntary liquidation.

While it might be difficult, activist depositors can use the associational membership loophole to potentially gain access to this undistributed retained earnings.

Friday, January 23, 2015

Thirty-one CUs Fined for Late Filing 3rd Quarter Call Report

Thirty-one federally insured credit unions will pay civil money penalties for missing the third-quarter 2014 Call Report filing deadline.

The late filers will pay a total of $12,820 in penalties. Individual penalties will range from $138 to $1,878. The median penalty was $176.

Nineteen credit unions had assets of less than $10 million; 7 credit unions had assets between $10 million and $50 million; and five credit unions had assets between $50 million and $250 million.

Read the press release. Link to list of late filers.

Thursday, January 22, 2015

Washington CU Regulator Adds S to CAMEL

The Washington Division of Credit Unions is the latest state regulator to announce that it was adding sensitivity to market risk (S) to CAMEL.

The Division of Credit Unions made the decision so that it can better evaluate the impact of interest rate changes on a credit union’s earnings and economic capital.

In addition, this change will allow the Division of Credit Unions to provide information to credit unions delineating between liquidity and interest rate risks.

It is anticipated that this will improve its discussion of interest rate risk with state chartered credit unions.

This begs the question -- why is the National Credit Union Administration such a laggard in adding sensitivity to market risk to CAMEL?

Read the Bulletin.

Tuesday, January 20, 2015

Suncoast Credit Union Pledges $5 Million for Naming Rights to Arena

Suncoast Credit Union (Tampa, FL), the largest credit union in the country with a low-income designation, is pledging $5 million to help construct a $22-$24 million, 3,300-seat arena at Florida SouthWestern State College.

In return, the arena will be named Suncoast Credit Union Arena.

The 75,000-square foot arena is planned to open in October of 2016.

But should a low-income designated credit union be buying the naming rights to an arena?

Read the story.

NCUA Chairman to Propose Abolishing All Non-statutory MBL Limits

Bankers will see more intense competition from credit unions over terms and conditions on business loans beginning later thsi year or early next year.

National Credit Union Administration (NCUA) Chairman Debbie Matz stated that this year NCUA will propose eliminating all non-statutory limits associated with the agency's member business loan (MBL) rule.

Chairman Matz intends to end the requirement for personal guarantees, to remove loan-to-value ratio requirements, and to abolish unnecessary restrictions on construction and land development loans.

I wonder if she will also eliminate the requirement that business lenders have at least two years experience with the type of lending the credit union will be engaging in.

Once the rule is proposed, I will provide more information.

Friday, January 16, 2015

Correction: CU President Denies that NCUA Forced It to Close Gun Dealer's Bank Account

On Wednesday, I reported that a gun dealer had its bank account closed by a credit union. The story reported that NCUA examiners forced the credit union to close the account.

However, new details have surfaced showing that NCUA did not force the account to be closed.

The President of Heritage Credit Union is denying that the National Credit Union Administration forced it to shut down a Wisconsin gun dealer’s bank account.

“The NCUA did not force us to shut down the bank account of Hawkins Guns, LLC,” Anita Rauch, CEO and President of the Madison, Wisconsin based Heritage Credit Union told Breitbart News in an email.

“We closed it because we were not capable of monitoring at the level required by regulation. Increased monitoring is required for all cash intensive businesses, regardless of the nature of the business,” Rauch said.

Read more.

Thursday, January 15, 2015

NCUA to Pay Up to $50,000 for Cost Related to Examiner Induced Data Breach

The National Credit Union Administration (NCUA) Board has approved payment of up to $50,000 for costs associated with a data breach arising from an examiner losing a thumb drive during an examination of Palm Springs Federal Credit Union (Palm Springs, California).

NCUA will pay the credit union for activities such as credit report monitoring for members, credit union staff time associated with the breach and legal fees. To date, the related costs associated with the data breach are approximately $36,000. Payments will come from NCUA’s existing operating funds. In the event costs ultimately exceed $50,000, subsequent Board action would be required.

NCUA noted that the examiner failed to follow longstanding agency policies on securing sensitive data.

Read the press release.

Wednesday, January 14, 2015

Story Points to NCUA's Involvement in Operation Choke Point

Recordings of conversations by a Wisconsin gun store owner with the manager of Heritage Credit Union make it clear that the National Credit Union Administration (NCUA) forced the credit union to close the gun store owner’s account.

It seems that the Department of Justice's Operation Choke Point initiative is now spreading to credit unions.

Read the story.

Seeking to Water Down Corporate CU Capital Rules

Credit Union Journal (subscription required) is reporting that the Credit Union National Association (CUNA) and some corporate credit union officials are trying to water down the corporate credit union capital rules that were finalized in 2010 following the corporate credit union debacle.

Specifically, they are objecting to the requirement from the National Credit Union Administration (NCUA) that corporate credit unions when calculating their Tier 1 capital must deduct beginning on October 20, 2016 any amount of perpetual contributed capital (PCC) that causes PCC minus retained earnings, all divided by moving daily net average assets, to exceed two percent. After October 20, 2020, corporate credit unions must deduct any amount of PCC that causes PCC to exceed retained earnings, when calculating Tier 1 capital.

For example, CUNA wrote: "NCUA should eliminate the deduction of PCC from Tier 1 capital allowing PCC to be counted for all regulatory capital requirements as currently allowed by the corporate regulation until next year."

This means that a corporate credit union could fully meet its Tier 1 capital requirement through PCC.

However, this also makes the credit union system potentially less stable as the system becomes more interconnected.

As the corporate credit union meltdown illustrated, losses at corporate credit unions cascaded down to natural person credit unions, which caused natural person credit unions to write down equity investments in corporate credit unions.

NCUA argued in 2010 that without some minimum retained earnings requirement, corporate credit unions "would be a continued source of instability to the credit union system as a whole."

Maintaining the retained earnings requirement is good public policy. It would ensure that there is a sufficient loss absorbing buffer at corporate credit unions. This should improve the resiliency of the credit union system.

However, a better solution would be to require credit unions to deduct from their reserves some portion of any nonperpetual capital accounts at a corporate credit union and all perpetual contributed capital issued by a corporate credit union. But this would require congressional action.

Tuesday, January 13, 2015

Metsger Advocates Greater FOM Flexibility

In a speech to credit union officials of the Northern Virginia Chapter of the Virginia Credit Union League, National Credit Union Administration (NCUA) Vice-Chairman Rick Metsger called for changes in regulations and in law to give federal credit unions greater flexibility in defining their fields of membership (FOM).

Regulatory FOM changes that Metsger would like to see address, include:
  • Allowing credit unions converting from single or multiple common bonds to community charters to continue serving select employer groups even if they are located outside the new community charter boundaries;
  • Permitting the addition of adjacent areas to community charters without requiring them to be Core-Based Statistical Area;
  • Eliminating the requirement that a community charter be based on a core area of a Core-Based Statistical Area;
  • Revising and simplifying the process for determining that an area is “underserved”; and
  • Allowing active-duty military personnel and their families to automatically qualify as low-income households.
Legislative changes advocated by Metsger would allow all credit unions, not just multiple common-bond charters, to add underserved areas; would simplify the “facilities” test for determining if an area is underserved, and would give community-based federal credit unions the option to structure their fields of membership in accordance with law of the state in which they operate.

I will be very interested in seeing what tortured legal analysis that NCUA will come up with to justify that these proposed regulatory changes are consistent with the statute.

Read the press release.

Monday, January 12, 2015

Rapid Growth in New Mexico Educators' Business Loans

New Mexico Educators Federal Credit Union (Albuquerque, NM) has rapidly grown its business loan portfolio after receiving a low-income designation on September 17, 2012.

A credit union that receives a low-income designation is not subject to the member business loan cap of 12.25 percent of assets.

Between September 2012 and September 2014, outstanding business loans (including unused commitments) almost doubled at New Mexico Educators Federal Credit Union from $125.2 million to almost $241.6 million. This represents a compound annualized growth rate of almost 39 percent.

Business loans and commitments as a percent of assets rose from 10 percent to 16 percent over the same two-year interval.

While New Mexico Educators Federal Credit Union is currently reporting a very low delinquency rate on its business loan portfolio, any credit union reporting such a rapid loan growth should draw additional scrutiny from the National Credit Union Administration to ensure that this growth is done in a safe and sound manner.

As Warren Buffett stated, "[o]nly when the tide goes out do you discover who's been swimming naked."

Sunday, January 11, 2015

Examiners Uncover Improprieties at Centra Health CU

During a routine examination, examiners with the National Credit Union Administration (NCUA) and the Bureau of Financial Institutions (BFI), a division of the Virginia State Corporation Commission, discovered apparent non-adherence to policies and procedures at Centra Health Credit Union (Lynchburg, VA).

Based upon the initial findings, the Board of the $12.3 million credit union made the decision to place on administrative leave the credit union manager and two additional employees.

The credit union's Board expects examiners to be onsite for a period of time collecting information.

Read the notice to members.

Friday, January 9, 2015

Credit Union Discount Window Loans, Q4 2012

Thirty-seven credit unions borrowed from the Federal Reserve's Discount Window during the fourth quarter of 2012.

All, but one credit union, were able to access the primary credit program, which is reserved for depository institutions that are in sound financial condition.

The following table provides information regarding the date of the loan, repayment date, the name of the borrower along with city and state, type of credit, and the amount borrowed (click on image to enlarge).

Thursday, January 8, 2015

NCUA Letter on Supervisory Priorities for 2015

The National Credit Union Administration (NCUA) in a letter to credit unions outlined its supervisory priorities for 2015.

The eight supervisory priorites for 2015 are:
  • cybersecurity
  • interest rate risk
  • Bank Secrecy Act compliance
  • liquidity and contingency funding plans
  • TILA-RESPA Integrated Disclosure Rule
  • Ability-to-Repay and Qualified Mortgage Standards Rule
  • small credit union exam program
  • lending programs.

    Read the letter.

Wednesday, January 7, 2015

Interview with CUbroadcast

In December, I was interviewd by Mike Lawson from CUbroadcast on my pending retirement from ABA and my continued writing of my blog, as well as other subjects.

Here is the link to the video.

Tuesday, January 6, 2015

Left-Wing CU Execs Get the Federal Government to Shut Down Competition

The Free Beacon published a story on how left-wing credit union executives have benefited from their lobbying the Federal government to shut down their competitors.

The article focuses on Martin Eakes, the founder of the Center for Community Self-Help (CCSH) in Durham (NC), and his efforts to shut down payday lenders that competes with Self-Help Credit Union, which is a division of CCSH.

The article discusses the role that Eakes and others associated with the Center for Responsible Lending, which is also aligned with CCSH, have played in advising the Federal Deposit Insurance Corporation with regard to Operation Choke Point -- an effort to eliminate the ability of businesses that federal regulators deem distasteful, exploitative, or dangerous to obtain financing from banks.

The article further points out that by restricitng payday lenders through regulation or legislation Self-Help Credit Union has benefited from these actions.

Read the story.

Monday, January 5, 2015

Filene: Troubling Drift in CU Corporate Governance

In 2010, the Filene Institute released an interesting study on corporate governance at U.S. and Canadian credit unions.

The report found that there "is a troubling drift away from truly cooperative and democratic governance."

The report argued that there is a failure by credit union members, who own the assets, to participate in running their credit unions. It is management that drives the change process at credit unions.

This decline in member involvement has arisen at the same time as the common bond has been diluted. The liberalization of the common bond has fueled credit union membership and asset size growth requiring professional managers.

For example, the study found that less than 1 percent of U.S. credit union members attended the annual general meeting.

The study also found unsurprisingly that for the vast majority of credit unions the number of candidates for the board of directors is the same as the number of vacancies. The authors concluded that "competition for board positions ... is not intense... and once one is nominated, achieving a position on the board is a formality."

The report noted that "poor membership involvement has weakened the accountability structure and widened gaps between the owners of the assets (the membership), the monitors of asset utilization (the board of directors), and the controllers of the assets (management)."

This raises the issue as to whether management's interests is aligned with the interests of the members.

Read the report.

Saturday, January 3, 2015

Four Federal Credit Unions Switch to State Charters

Both Oregon and Connecticut saw several large credit unions switch from federal charters to state charters at the end of 2014.

In Oregon, $914 million Rogue Credit Union in Medford and $885 million Oregon State Credit Union in Corvallis converted from federal to state charters on January 1. (See story in CU Times).

As a state chartered credit union, Oregon State Credit Union will serve anyone who lives or works in 24 western and central Oregon counties.

In Connecticut, American Eagle Federal Credit Union in East Hartford converted from a federal credit union to a Connecticut credit union. The $1.3 billion credit union will be known as American Eagle Financial Credit Union, Inc. with a proposed field of membership consisting of: persons who live, work, worship, or attend school in, and businesses and other legal entities located in Harford County, Middlesex County, Tolland County, or New Haven County, Connecticut; and, also included are spouses of persons who died while within the field of membership of this credit union, volunteers in the community, employees of this credit union, organizations of such persons, and members of the immediate family or household of such persons, volunteers or employees.

Also, Nutmeg State Federal Credit Union in Rocky Hill switched from a federal credit union to a Connecticut credit union. The $368 million credit union will be known as Nutmeg State Financial Credit Union, Inc. The proposed field of membership will consist of: persons who live, work, worship, or attend school in, and businesses and other legal entities located in Harford County, Middlesex County, Tolland County, or New Haven County, Connecticut; and, also included are spouses of persons who died while within the field of membership of this credit union, volunteers in the community, employees of this credit union, organizations of such persons, and members of the immediate family or household of such persons, volunteers or employees.

Clearly, the two Connecticut credit unions viewed that being granted an expansive community charter was worth the price of complying with the community reinvestment act.

Moreover, since these credit unions' fields of membership are broader than what is permissible at the federal level, Oregon and Connecticut lawmakers should view this as an opportunity to re-evaluate the state's tax treatment of these institutions.


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