Today, I will examine the financial performance of Progressive Credit Union, the second largest New York-based taxi medallion credit union with almost $692 million in assets.
During the second quarter of 2015, Progressive Credit Union saw a 74 percent increase in loans 60-days or more past due to $6.5 million. As of the end of the second quarter, the credit union reported that 1.04 percent of all loans were delinquent.
Early delinquencies (loans 30 to 59 days past due) rose by almost 37 percent during the quarter to almost $4 million Compared to a year earlier, early delinquencies were slightly less than $1 million.
Progressive reported that outstanding trouble debt restructurings (TDRs) continued to grow during the quarter to nearly $18.8 million (all of these loan are in nonaccrual status). Compared to last quarter and a year ago, outstanding TDRs stood at almost $16.9 million and $0, respectively.
Progressive has reported its provisioning for loan and lease losses increased during the second quarter. Provisions increased from $1.7 million as of March 2015 to $4.2 million at the end of the second quarter. As a result, Progressive reported a smaller year-to-date profit of almost $4.4 million compared to $9 million for the same period a year ago.
As of June, the credit union has allowances for loan and lease losses (ALLL) of almost $11.7 million up from $9.1 million from the previous quarter. This indicates that the credit union is well reserved with a coverage ratio (ALLL to Delinquent Loans) of 179.53 percent.
Progressive Credit Union currently has equity capital of $273.8 million. Its net worth ratio is 39.94 percent.
This means the credit union has a buffer (capital plus ALLL) of over $285 million to absorb expected and unexpected losses.
Thursday, July 30, 2015
Wednesday, July 29, 2015
Taxi Medallion Lender Montauk CU Financial Update
Yesterday I reported on the financial performance of Melrose Credit Union. Today, I will look at Montauk Credit Union, which is the smallest of the New York taxi medallion credit unions with $178.5 million in assets.
During the second quarter of 2015, Montauk saw a doubling of loans 60-days or more past due. Delinquent loans rose from $3.2 million at the end of the first quarter to $6.4 million as of June 2015. As of the end of the second quarter, the credit union reported that 3.83 percent of all loans were delinquent.
One encouraging development was a decline in early delinquencies (loans 30 to 59 days past due), although early delinquencies remain elevated. Early delinquencies fell from $53.1 million as of March 2015 to almost $28.1 million as of June 2015.
Montauk reported that outstanding trouble debt restructurings (TDRS) of almost $28.5 million. This compares to outstanding trouble debt restructurings of zero dollars as of last quarter. As of June, troubled debt restructurings were equal to 154.4 percent of the credit union's net worth. Slightly less than $9.8 million of these TDRs are in nonaccrual status.
Due to the rise in problem loans, Montauk has increased its provisioning for loan and lease losses. During the second quarter, provisions increased by almost $3.56 million to $3.66 million. As a result, the credit union reported a loss of approximately $2.9 million for the second quarter and had a year-to-date loss of $2 million.
As of June, the credit union has built its allowances for loan and lease losses (ALLL) to almost $5.6 million up from $2 million from the previous quarter. This caused the credit union's coverage ratio (ALLL to Delinquent Loans) to climb from 63.48 percent to 87 percent over the quarter.
Due to its second quarter loss, Montauk's equity capital fell from $21.4 million to $18.5 million. Its net worth ratio fell from 12.32 percent as of March to 10.34 percent as of June.
The credit union has a buffer (capital plus ALLL) to absorb expected and unexpected losses of slightly more than $24.1 million.
Tomorrow I will report on Progressive Credit Union.
During the second quarter of 2015, Montauk saw a doubling of loans 60-days or more past due. Delinquent loans rose from $3.2 million at the end of the first quarter to $6.4 million as of June 2015. As of the end of the second quarter, the credit union reported that 3.83 percent of all loans were delinquent.
One encouraging development was a decline in early delinquencies (loans 30 to 59 days past due), although early delinquencies remain elevated. Early delinquencies fell from $53.1 million as of March 2015 to almost $28.1 million as of June 2015.
Montauk reported that outstanding trouble debt restructurings (TDRS) of almost $28.5 million. This compares to outstanding trouble debt restructurings of zero dollars as of last quarter. As of June, troubled debt restructurings were equal to 154.4 percent of the credit union's net worth. Slightly less than $9.8 million of these TDRs are in nonaccrual status.
Due to the rise in problem loans, Montauk has increased its provisioning for loan and lease losses. During the second quarter, provisions increased by almost $3.56 million to $3.66 million. As a result, the credit union reported a loss of approximately $2.9 million for the second quarter and had a year-to-date loss of $2 million.
As of June, the credit union has built its allowances for loan and lease losses (ALLL) to almost $5.6 million up from $2 million from the previous quarter. This caused the credit union's coverage ratio (ALLL to Delinquent Loans) to climb from 63.48 percent to 87 percent over the quarter.
Due to its second quarter loss, Montauk's equity capital fell from $21.4 million to $18.5 million. Its net worth ratio fell from 12.32 percent as of March to 10.34 percent as of June.
The credit union has a buffer (capital plus ALLL) to absorb expected and unexpected losses of slightly more than $24.1 million.
Tomorrow I will report on Progressive Credit Union.
Tuesday, July 28, 2015
Q2 Update on Taxi Medallion Lender Melrose CU's Performance
As I reported earlier, four credit unions that specialize in financing taxi medallions are suing New York City Mayor Bill de Blasio, the city's Taxi and Limousine Commission and Attorney General Eric Schneiderman for allowing Uber to illegally pick up street-hail passengers. These for credit unions expressed concerns that the disruption from Uber could adversely impact their financial performance.
These four credit unions are in the process of releasing their financial data and over the next several days, I will provide a snapshot into each of the individual credit union's performance.
I will begin by looking at Melrose Credit Union, which is the largest of the New York taxi medallion credit unions with $2.1 billion in assets.
During the second quarter of 2015, Melrose saw a sharp increase in problem loans. Loans 60-days or more past due rose from $5.7 million at the end of the first quarter to $55.2 million as of June 2015 -- a percentage change of 863 percent. As of the end of the second quarter, the credit union reported that 2.76 percent of all loans were delinquent.
In addition, Melrose reported an increase in early delinquencies (loans 30 to 59 days past due). Early delinquencies rose from $92.3 million as of March 2015 to almost $149.1 million as of June 2015 suggesting that the credit union has a large pipeline of loans that should become delinquent in subsequent quarters. Compared to a year earlier, early delinquencies were $10.5 million.
Melrose reported that outstanding trouble debt restructurings continued to grow during the quarter to nearly $158.2 million (all of these loan are in nonaccrual status). Compared to last quarter and a year ago, outstanding trouble debt restructurings stood at almost $87.5 million and $0, respectively.
Due to the rise in problem loans, Melrose has increased its provisioning for loan and lease losses. During the second quarter, provisions increased by $11.6 million to $14.95 million. As a result, Melrose reported a second quarter loss of almost $4.6 million; but the credit union is reporting a slim year-to-date profit of $371 thousand.
As of June, the credit union has allowances for loan and lease losses (ALLL) of almost $39.9 million up from $28.3 million from the previous quarter. This indicates that the credit union has a coverage ratio (ALLL to Delinquent Loans) of 72.17 percent.
Also, Melrose Credit Union currently has $371.7 million in equity capital and its net worth ratio is 18.04 percent.
So, the combined cushion (capital plus ALLL) for the credit union to absorb expected and unexpected losses is slightly more than $411 million.
These four credit unions are in the process of releasing their financial data and over the next several days, I will provide a snapshot into each of the individual credit union's performance.
I will begin by looking at Melrose Credit Union, which is the largest of the New York taxi medallion credit unions with $2.1 billion in assets.
During the second quarter of 2015, Melrose saw a sharp increase in problem loans. Loans 60-days or more past due rose from $5.7 million at the end of the first quarter to $55.2 million as of June 2015 -- a percentage change of 863 percent. As of the end of the second quarter, the credit union reported that 2.76 percent of all loans were delinquent.
In addition, Melrose reported an increase in early delinquencies (loans 30 to 59 days past due). Early delinquencies rose from $92.3 million as of March 2015 to almost $149.1 million as of June 2015 suggesting that the credit union has a large pipeline of loans that should become delinquent in subsequent quarters. Compared to a year earlier, early delinquencies were $10.5 million.
Melrose reported that outstanding trouble debt restructurings continued to grow during the quarter to nearly $158.2 million (all of these loan are in nonaccrual status). Compared to last quarter and a year ago, outstanding trouble debt restructurings stood at almost $87.5 million and $0, respectively.
Due to the rise in problem loans, Melrose has increased its provisioning for loan and lease losses. During the second quarter, provisions increased by $11.6 million to $14.95 million. As a result, Melrose reported a second quarter loss of almost $4.6 million; but the credit union is reporting a slim year-to-date profit of $371 thousand.
As of June, the credit union has allowances for loan and lease losses (ALLL) of almost $39.9 million up from $28.3 million from the previous quarter. This indicates that the credit union has a coverage ratio (ALLL to Delinquent Loans) of 72.17 percent.
Also, Melrose Credit Union currently has $371.7 million in equity capital and its net worth ratio is 18.04 percent.
So, the combined cushion (capital plus ALLL) for the credit union to absorb expected and unexpected losses is slightly more than $411 million.
Monday, July 27, 2015
Washington Times Editorial: NCUA Captured by CUs
A recent Washington Times editorial highlights how the National Credit Union Administration (NCUA) is captured by the industry it regulates and puts that industry's interests ahead of the public interests.
According to the Washington Times,
Read the editorial.
According to the Washington Times,
"Regulators are always eager to hop in bed with the regulated. Both the regulators and the regulated make themselves mutually comfortable in the mutual assessment that they’re smarter than everybody else, and feel safer working in the dark.
One late example of how this happy scheme works is the attempt by the National Credit Union Administration to help the credit unions it regulates compete with banks in ways that Congress has consistently prohibited. Some of the things they do can make them look like banks, but credit unions are not banks. Credit unions are exempt, for one important example, from some of the taxes banks must pay."
The National Credit Union Administration now proposes to expand the ability of credit unions to make risky large loans by raising limits imposed by Congress to prevent abuse of their special status. The most aggressive credit unions want to compete with community banks, whose practices are not now within the purview of the regulators.
If this attempt succeeds, the credit unions will, like other captured regulatory agencies, be enabled to work not in the interests of the public, but to advance the interests of the credit unions with whom they share that comfortable bed."
Read the editorial.
Friday, July 24, 2015
CUNA Rebukes NCUA Chairman's Heresy
The Credit Union National Association (CUNA) yesterday denounced heretical statements by National Credit Union Administration (NCUA) Chairman Debbie Matz, as she strayed from the dogma of credit unions being member-owned.
In response to questions regarding NCUA's budget from Representatives David Scott (D-GA) and John M. "Mick" Mulvaney (R-SC) during a congressional oversight hearing on July 23, Debbie Matz stated that she did not believe that credit unions were necessarily representing their members, when credit unions asked NCUA to cut its budget.
CUNA decided that this blasphemy could not go unchallenged.
In a statement from Jim Nussle, CUNA's CEO and president, said: "I certainly hope that NCUA Chair Debbie Matz misspoke at the hearing today. If she didn’t, it’s outrageous that Chair Matz would tell Congress she does not believe credit unions represent their members under the respectful questioning of Representatives Scott and Mulvaney. I can’t believe I need to remind her that the nation’s credit unions are member-owned."
It is obvious that CUNA is hoping that Matz will recant from her heresy that credit unions do not necessarily represent the interests of their members.
But I need to remind CUNA, just because a credit union is member-owned; it does not mean that management's interest is aligned with the interest of the owners. In economics, this is called the principal-agent problem.
In response to questions regarding NCUA's budget from Representatives David Scott (D-GA) and John M. "Mick" Mulvaney (R-SC) during a congressional oversight hearing on July 23, Debbie Matz stated that she did not believe that credit unions were necessarily representing their members, when credit unions asked NCUA to cut its budget.
CUNA decided that this blasphemy could not go unchallenged.
In a statement from Jim Nussle, CUNA's CEO and president, said: "I certainly hope that NCUA Chair Debbie Matz misspoke at the hearing today. If she didn’t, it’s outrageous that Chair Matz would tell Congress she does not believe credit unions represent their members under the respectful questioning of Representatives Scott and Mulvaney. I can’t believe I need to remind her that the nation’s credit unions are member-owned."
It is obvious that CUNA is hoping that Matz will recant from her heresy that credit unions do not necessarily represent the interests of their members.
But I need to remind CUNA, just because a credit union is member-owned; it does not mean that management's interest is aligned with the interest of the owners. In economics, this is called the principal-agent problem.
Thursday, July 23, 2015
Problem CU Update, Q2 2015
The National Credit Union Administration (NCUA) reported that the number of problem credit unions fell by 7 to 251 credit unions during the second quarter of 2015. Year-over-year, the number of problem credit unions are down by 44 credit unions.
A problem credit union has a CAMEL Code of 4 or 5.
During the second quarter, both total shares (deposits) and assets in problem credit unions fell. Shares in problem credit unions declined by approximately $100 million to $10.2 billion. Assets in problem credit unions are down by roughly $200 million to $11.4 billion.
According to NCUA, 1.09 percent of total insured shares and 1 percent of industry assets are in problem credit unions.
NCUA reported that problem credit unions with at least $1 billion in assets fell from 2 at the end of the first quarter to 1 at the end of the second quarter. However, the number of problem credit unions with between $500 million and $1 billion in assets rose by 1 to 4.
A problem credit union has a CAMEL Code of 4 or 5.
During the second quarter, both total shares (deposits) and assets in problem credit unions fell. Shares in problem credit unions declined by approximately $100 million to $10.2 billion. Assets in problem credit unions are down by roughly $200 million to $11.4 billion.
According to NCUA, 1.09 percent of total insured shares and 1 percent of industry assets are in problem credit unions.
NCUA reported that problem credit unions with at least $1 billion in assets fell from 2 at the end of the first quarter to 1 at the end of the second quarter. However, the number of problem credit unions with between $500 million and $1 billion in assets rose by 1 to 4.
ABA's Keating: Congress Needs to Tackle CUs' Out of Control Regulator
ABA President and CEO Frank Keating in an op-ed this morning in The Hill noted that -- in addition to being exempt from taxes -- credit unions enjoy a “compliant federal regulator that often acts like a cheerleader for the industry it is supposed to be supervising.”
Keating challenged NCUA’s proposed member business lending rule, which he called an “unjustified giveaway to the largest credit unions -- those with more than $500 million in assets, which account for 76 percent of all CU business loans.”
He also pointed out that NCUA’s longstanding effort to dilute credit union membership requirements makes a mockery of the statutory cap on member business loans. “When credit unions have so-called common bonds like ‘lives in Washington State,’ or when they advertise that ‘anyone can join,’ or when they use Potemkin ‘associations’ to sign up virtually anyone as a customer, membership ceases to be a meaningful requirement,” he wrote.
“If NCUA gets away with further eroding the already tenuous limits on member business lending, it will eliminate another distinction between credit unions and banks—and further undermine credit union lobbyists’ argument that they should pay no federal taxes,” Keating concluded. “The credit union industry should perhaps be careful what it wishes for.”
Keating urges lawmakers to insist that NCUA follow the law.
Read the op ed.
Keating challenged NCUA’s proposed member business lending rule, which he called an “unjustified giveaway to the largest credit unions -- those with more than $500 million in assets, which account for 76 percent of all CU business loans.”
He also pointed out that NCUA’s longstanding effort to dilute credit union membership requirements makes a mockery of the statutory cap on member business loans. “When credit unions have so-called common bonds like ‘lives in Washington State,’ or when they advertise that ‘anyone can join,’ or when they use Potemkin ‘associations’ to sign up virtually anyone as a customer, membership ceases to be a meaningful requirement,” he wrote.
“If NCUA gets away with further eroding the already tenuous limits on member business lending, it will eliminate another distinction between credit unions and banks—and further undermine credit union lobbyists’ argument that they should pay no federal taxes,” Keating concluded. “The credit union industry should perhaps be careful what it wishes for.”
Keating urges lawmakers to insist that NCUA follow the law.
Read the op ed.
Wednesday, July 22, 2015
15 CUs Fined for Filing Call Reports Late in Q1 2015
The National Credit Union Administration announced that 15 credit unions were fined for filing their call reports late for the first quarter of 2015.
In comparison, 62 credit unions consented to civil money penalties a year earlier.
The late filers will pay penalties ranging from $45 to $943. The median penalty was $195.
Only one of the late-filing credit unions had been late in a previous quarter.
Read more.
In comparison, 62 credit unions consented to civil money penalties a year earlier.
The late filers will pay penalties ranging from $45 to $943. The median penalty was $195.
Only one of the late-filing credit unions had been late in a previous quarter.
Read more.
Complaints Allege Individuals Gained Control of Small CU to Run Underground Bitcoin Exchange
Unsealed criminal complaints charged Anthony Murgio and Yuri Lebedev with running an unlicensed Internet Bitcoin exchange, which they operated through a phony front-company and, at times, a federal credit union that Murgio acquired for purposes of the scheme.
Since at least late 2013, Murgio, Lebedev, and their co-conspirators have knowingly operated Coin.mx, a Bitcoin exchange service, in violation of federal anti-money laundering (“AML”) laws and regulations, including those requiring money services businesses like Coin.mx to meet registration and reporting requirements set forth by the United States Treasury Department.
In an effort to evade potential scrutiny, Murgio obtained beneficial control of a New Jersey-based federal credit union which served primarily low-income local residents. Murgio then installed Lebedev and others on the credit union’s Board of Directors, and transferred Coin.mx’s banking operations to the credit union, which Murgio, Lebedev and other co-conspirators operated, at least until early 2015, as a captive bank for their unlawful business.
At that time, after discovering that substantial payment processing activity was being conducted through the credit union, the National Credit Union Administration forced the credit union to cease engaging in such activity.
Read the press release.
Read the signed complaint.
Since at least late 2013, Murgio, Lebedev, and their co-conspirators have knowingly operated Coin.mx, a Bitcoin exchange service, in violation of federal anti-money laundering (“AML”) laws and regulations, including those requiring money services businesses like Coin.mx to meet registration and reporting requirements set forth by the United States Treasury Department.
In an effort to evade potential scrutiny, Murgio obtained beneficial control of a New Jersey-based federal credit union which served primarily low-income local residents. Murgio then installed Lebedev and others on the credit union’s Board of Directors, and transferred Coin.mx’s banking operations to the credit union, which Murgio, Lebedev and other co-conspirators operated, at least until early 2015, as a captive bank for their unlawful business.
At that time, after discovering that substantial payment processing activity was being conducted through the credit union, the National Credit Union Administration forced the credit union to cease engaging in such activity.
Read the press release.
Read the signed complaint.
Tuesday, July 21, 2015
Judge Rejects Bid to Dismiss NCUA Lawsuit
Reuters is reporting that a federal judge rejected HSBC Holdings Plc's bid to dismiss a U.S. lawsuit claiming that its failure to perform its duties as trustee for $2.37 billion of residential mortgage-backed securities contributed to the downfall of five federal credit unions.
U.S. District Judge Shira Scheindlin in Manhattan on Monday night rejected HSBC's argument that the March 20 lawsuit concerning its oversight of 37 RMBS trusts dating from 2004 to 2007 came too late, having been filed six years after the first two credit unions failed.
She also said the NCUA could still pursue claims as the credit unions' "conservator" or "liquidating agent," despite having resecuritized their distressed mortgage securities and guaranteed payments on the newly issued notes.
Read the story.
U.S. District Judge Shira Scheindlin in Manhattan on Monday night rejected HSBC's argument that the March 20 lawsuit concerning its oversight of 37 RMBS trusts dating from 2004 to 2007 came too late, having been filed six years after the first two credit unions failed.
She also said the NCUA could still pursue claims as the credit unions' "conservator" or "liquidating agent," despite having resecuritized their distressed mortgage securities and guaranteed payments on the newly issued notes.
Read the story.
CU Discount Window Borrowings, Q2 2013
The Federal Reserve recently released information regarding credit union discount window borrowings from the second quarter of 2013.
During the quarter, 58 credit unions borrowed an aggregate amount of almost $141 million from the discount window.
XCEL FCU (Bloomfield, NJ) was the most frequent borrower -- going to the discount window 14 times during the quarter.
Genisys CU (Auburn Hills, MI) on May 29, 2013 borrowed the most at $43.46 million.
During the quarter, 58 credit unions borrowed an aggregate amount of almost $141 million from the discount window.
XCEL FCU (Bloomfield, NJ) was the most frequent borrower -- going to the discount window 14 times during the quarter.
Genisys CU (Auburn Hills, MI) on May 29, 2013 borrowed the most at $43.46 million.
Friday, July 17, 2015
Lakeside FCU Liquidated (Update)
The National Credit Union Administration (NCUA) on Thursday liquidated Lakeside Federal Credit Union of Hammond, Indiana.
NCUA made the decision to liquidate Lakeside Federal Credit Union and discontinue its operations after determining the credit union was insolvent and had no prospect for restoring viable operations.
However according to the credit union's March 2015 Financial Performance Report, it was profitable and well capitalized with decent loan quality.
Lakeside Federal Credit Union served 2,280 members and had assets of approximately $8.9 million, according to the credit union’s most recent Call Report.
NCUA on Friday announced that Teachers Credit Union of South Bend, Indiana, has completed the purchase and assumption of Lakeside Federal Credit Union of Hammond, Indiana. Teachers Credit Union purchased Lakeside’s loan portfolio and assumed its former members.
Lakeside is the fifth credit union to be liquidated this year.
Read the press release.
NCUA made the decision to liquidate Lakeside Federal Credit Union and discontinue its operations after determining the credit union was insolvent and had no prospect for restoring viable operations.
However according to the credit union's March 2015 Financial Performance Report, it was profitable and well capitalized with decent loan quality.
Lakeside Federal Credit Union served 2,280 members and had assets of approximately $8.9 million, according to the credit union’s most recent Call Report.
NCUA on Friday announced that Teachers Credit Union of South Bend, Indiana, has completed the purchase and assumption of Lakeside Federal Credit Union of Hammond, Indiana. Teachers Credit Union purchased Lakeside’s loan portfolio and assumed its former members.
Lakeside is the fifth credit union to be liquidated this year.
Read the press release.
Thursday, July 16, 2015
Personal Guarantees and MBLs
The National Credit Union Administration (NCUA) Board is proposing to eliminate from its Member Business Loan (MBL)regulations the requirement that a credit union obtain a personal guarantee when originating a business loan.
This comes five years after the NCUA Board rescinded an exemption for RegFlex credit unions from obtaining personal guarantees when making a MBL. In 2010, NCUA wrote that obtaining the principals’ personal guarantee is a prudent underwriting practice that greatly enhances the likelihood of loan repayment and should be required of all credit unions. A credit union that fails to do so subjects itself to increased risk.
According to the proposed rule, the NCUA Board continues to believe having the principals of the borrower commit their personal liability to the repayment of the obligation is very important for commercial lending and is a form of credit enhancement.
NCUA expects loans without personal guarantees may only be done with appropriate underwriting and portfolio safeguard. For example, a credit union should set limits for MBLs without personal guarantees as a percentage of a credit union's net worth.
Also, the NCUA Board expects a credit union to track commercial loans without personal guarantees and report on these loans to senior management and the credit union board.
I suspect that credit unions will wave the use of personal guarantees for the best commercial borrowers.
But I also believe that NCUA will probably revisit the issue of personal guarantees on MBLs the next time there is a downturn in the credit cycle.
This comes five years after the NCUA Board rescinded an exemption for RegFlex credit unions from obtaining personal guarantees when making a MBL. In 2010, NCUA wrote that obtaining the principals’ personal guarantee is a prudent underwriting practice that greatly enhances the likelihood of loan repayment and should be required of all credit unions. A credit union that fails to do so subjects itself to increased risk.
According to the proposed rule, the NCUA Board continues to believe having the principals of the borrower commit their personal liability to the repayment of the obligation is very important for commercial lending and is a form of credit enhancement.
NCUA expects loans without personal guarantees may only be done with appropriate underwriting and portfolio safeguard. For example, a credit union should set limits for MBLs without personal guarantees as a percentage of a credit union's net worth.
Also, the NCUA Board expects a credit union to track commercial loans without personal guarantees and report on these loans to senior management and the credit union board.
I suspect that credit unions will wave the use of personal guarantees for the best commercial borrowers.
But I also believe that NCUA will probably revisit the issue of personal guarantees on MBLs the next time there is a downturn in the credit cycle.
Tuesday, July 14, 2015
FCC Will Allow Mobile Alerts
On July 10, the Federal Communications Commission (FCC) released the Declaratory Ruling and Order that it had adopted at its open meeting of June 18, which will allow banks and credit unions to send urgent fraud, data breach, and money transfer alerts in a convenient, timely way.
The American Bankers Association had petitioned the FCC last October to remove barriers to time-sensitive mobile calls and texts that financial institutions use to reach their customers when their accounts may be compromised.
According to the order, financial institutions may send automated free-to-end-user texts and voice messages, without first obtaining the called party’s prior express consent, concerning: (1) proposed transactions that present a risk of fraud or identity theft; (2) possible breaches of the security of customers’ personal information; (3) steps customers can take to prevent or remedy harm caused by data security breaches; and (4) actions needed to arrange for receipt of pending money transfers.
The relief comes with conditions. Specifically, each automated communication covered by the exemption must include a mechanism by which the recipient may opt out of future communications concerning the same account and category of communication. Also, a financial institution may initiate no more than three messages (whether by voice call or text message) per event over a three-day period for an affected account.
Read paragraphs 127 through 138 of the order.
With regard to reassigned numbers, the order states that the Telephone Consumer Protection Act requires the consent of the current subscriber of the called number, not the intended recipient of the call. The order provides that liability should not attach to the first call to a reassigned number; the caller is liable for any calls thereafter, even when the called party did not advise the caller during the one permitted call that the number had been reassigned.
The American Bankers Association had petitioned the FCC last October to remove barriers to time-sensitive mobile calls and texts that financial institutions use to reach their customers when their accounts may be compromised.
According to the order, financial institutions may send automated free-to-end-user texts and voice messages, without first obtaining the called party’s prior express consent, concerning: (1) proposed transactions that present a risk of fraud or identity theft; (2) possible breaches of the security of customers’ personal information; (3) steps customers can take to prevent or remedy harm caused by data security breaches; and (4) actions needed to arrange for receipt of pending money transfers.
The relief comes with conditions. Specifically, each automated communication covered by the exemption must include a mechanism by which the recipient may opt out of future communications concerning the same account and category of communication. Also, a financial institution may initiate no more than three messages (whether by voice call or text message) per event over a three-day period for an affected account.
Read paragraphs 127 through 138 of the order.
With regard to reassigned numbers, the order states that the Telephone Consumer Protection Act requires the consent of the current subscriber of the called number, not the intended recipient of the call. The order provides that liability should not attach to the first call to a reassigned number; the caller is liable for any calls thereafter, even when the called party did not advise the caller during the one permitted call that the number had been reassigned.
Monday, July 13, 2015
The Number of 2014 NCUA Enforcement Orders
The National Credit Union Administration (NCUA) in 2014 issued 69 preliminary warning letters, 152 letters of understanding and agreement (all were unpublished), and 5 cease and desist orders.
In comparison, NCUA in 2013 issued 76 preliminary warning letters, 224 letters of understanding and agreement (of which one was published), and 1 cease and desist order.
The information was obtained through a Freedom of Information Act request.
As I have previously reported, NCUA does not publish the number of enforcement orders in its Annual Report, unlike the other federal banking regulators.
In comparison, NCUA in 2013 issued 76 preliminary warning letters, 224 letters of understanding and agreement (of which one was published), and 1 cease and desist order.
The information was obtained through a Freedom of Information Act request.
As I have previously reported, NCUA does not publish the number of enforcement orders in its Annual Report, unlike the other federal banking regulators.
Friday, July 10, 2015
Trailblazer FCU Closed; Deposits and Members Assumed by Chrome FCU
The National Credit Union Administration today liquidated Trailblazer Federal Credit Union of Washington, Pennsylvania.
Chrome Federal Credit Union of Washington, Pennsylvania, immediately assumed Trailblazer’s members and deposits.
NCUA made the decision to liquidate Trailblazer 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 March 2015 Financial Performance Report, the credit union was profitable with a return on average assets of 1.09 percent and had a net worth ratio of 9.40 percent. The credit union was reporting that 4.73 percent of its loans were 60 days or more past due. The credit union in the first quarter of 2015 reported negative asset, share (deposit), loan, and membership growth.
At the time of liquidation, Trailblazer Federal Credit Union served 1,535 members and had assets of $4.1 million.
This is the fourth federally insured credit union to be liquidated this year. Trailblazer FCU was the second credit union in Pennsylvania to be liquidated this year. On January 30, 2015, NCUA liquidated American Bakery Workers Federal Credit Union.
Read the press release.
Chrome Federal Credit Union of Washington, Pennsylvania, immediately assumed Trailblazer’s members and deposits.
NCUA made the decision to liquidate Trailblazer 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 March 2015 Financial Performance Report, the credit union was profitable with a return on average assets of 1.09 percent and had a net worth ratio of 9.40 percent. The credit union was reporting that 4.73 percent of its loans were 60 days or more past due. The credit union in the first quarter of 2015 reported negative asset, share (deposit), loan, and membership growth.
At the time of liquidation, Trailblazer Federal Credit Union served 1,535 members and had assets of $4.1 million.
This is the fourth federally insured credit union to be liquidated this year. Trailblazer FCU was the second credit union in Pennsylvania to be liquidated this year. On January 30, 2015, NCUA liquidated American Bakery Workers Federal Credit Union.
Read the press release.
NCUA Provides Update on CLF Membership and Borrowing Arrangements at Fed's Discount Window
The National Credit Union Administration's Emergency Liquidity rule required all larger credit unions establish access to
a federal source of liquidity by the end of March 2014.
These federal sources of liquidity are the Federal Reserve’s Discount Window, NCUA’s Central Liquidity Facility (CLF) or both.
According to the 2014 Annual Report of the NCUA, the number of credit unions that were members of the CLF increased from 158
credit unions at the end of 2013 to 248 credit unions by the end of 2014. With the growth in CLF membership, the CLF's borrowing authority increased by $2.2 billion to $5.1 billion.
On the other hand, the number of federally insured credit unions that had arrangements with the Federal Reserve’s Discount Window increased, from 483 in 2013 to 663 by the end of 2014.
a federal source of liquidity by the end of March 2014.
These federal sources of liquidity are the Federal Reserve’s Discount Window, NCUA’s Central Liquidity Facility (CLF) or both.
According to the 2014 Annual Report of the NCUA, the number of credit unions that were members of the CLF increased from 158
credit unions at the end of 2013 to 248 credit unions by the end of 2014. With the growth in CLF membership, the CLF's borrowing authority increased by $2.2 billion to $5.1 billion.
On the other hand, the number of federally insured credit unions that had arrangements with the Federal Reserve’s Discount Window increased, from 483 in 2013 to 663 by the end of 2014.
Thursday, July 9, 2015
Dort FCU Buys Naming Rights to Ice Arena
Dort Federal Credit Union has bought the naming rights to the ice arena in Flint, Michigan.
Perani Arena has been renamed Dort Federal Credit Union Event Center.
Flint Firebirds President Costa Papista announced that IMS Hockey and Arena Corporations of Flint and Genesee County and Flint-based Dort Federal Credit Union have agreed to rename the building. The deal is for 10 years.
Financial terms of the naming deal were not disclosed.
Read the story.
Perani Arena has been renamed Dort Federal Credit Union Event Center.
Flint Firebirds President Costa Papista announced that IMS Hockey and Arena Corporations of Flint and Genesee County and Flint-based Dort Federal Credit Union have agreed to rename the building. The deal is for 10 years.
Financial terms of the naming deal were not disclosed.
Read the story.
Tuesday, July 7, 2015
NCUA Charters ELCA FCU
The National Credit Union Administration chartered ELCA Federal Credit Union to serve employees, members, synods and member congregations of the Evangelical Lutheran Church in America.
The Evangelical Lutheran Church in America has almost 4 million members.
The credit union’s headquarters will be located in Chicago and it expects to open in the first quarter of 2016.
This is the third federal credit union to be chartered this year and the first new federal credit union in Illinois since 2006.
Read the press release.
The Evangelical Lutheran Church in America has almost 4 million members.
The credit union’s headquarters will be located in Chicago and it expects to open in the first quarter of 2016.
This is the third federal credit union to be chartered this year and the first new federal credit union in Illinois since 2006.
Read the press release.
Raising the MBL Cap to 17.5 Percent?
There is a lot of wishful thinking in the credit union community that the National Credit Union Administration (NCUA) through regulatory fiat can raise the member business loan (MBL) cap to 17.5 percent for credit unions with more than $100 million in assets.
According to the Federal Credit Union Act (FCUA), the MBL cap is equal to the lesser of—
(1) 1.75 times the actual net worth of the credit union; or
(2) 1.75 times the minimum net worth required under section 1790d(c)(1)(A) of this title for a credit union to be well capitalized.
The minimum net worth ratio to be well capitalized is 7 percent of assets. Seven percent of assets multiplied by 1.75 equals 12.25 percent of assets.
So, where does the 17.5 percent number come from?
Here is where the wishful thinking occurs.
According to the FCUA, complex credit unions are also subject to a risk-based net worth requirement.
However, NCUA is proposing to replace its risk-based net worth requirement with a risk-based capital requirement. The agency will require a complex credit union to have at least a risk-based capital ratio of 10 percent to be well capitalized. Also, NCUA is proposing to define a complex credit union as an institution with more than $100 million in assets.
According to industry advocates, 1.75 times 10 percent translates into a MBL cap of 17.5 percent.
But there are flies in the ointment with regard to this wishful thinking.
The FCUA links the MBL cap to net worth, not capital. Section 1790d(c)(1)(A) of the FCUA talks about risk-based net worth requirements, not risk-based capital requirements. Furthermore, the components in the numerator of the risk-based capital ratio proposal do not align with the statutory definition of net worth. So, there does not appear to be a legal foundation to use the proposed risk-based capital requirement to determine the MBL cap.
But even if you assume NCUA goes forward, there is still a fly in this ointment. The 10 percent risk-based capital requirement is based upon risk weighted assets, not total assets. So, to be consistent, the MBL limit would equal 17.5 percent of risk weighted assets. As a general rule, risk weighted assets are less than total assets. So, it is likely the 12.25 percent MBL cap would still be binding for most, if not all, complex credit unions.
As I said, this is just wishful thinking on the part of credit unions.
According to the Federal Credit Union Act (FCUA), the MBL cap is equal to the lesser of—
(1) 1.75 times the actual net worth of the credit union; or
(2) 1.75 times the minimum net worth required under section 1790d(c)(1)(A) of this title for a credit union to be well capitalized.
The minimum net worth ratio to be well capitalized is 7 percent of assets. Seven percent of assets multiplied by 1.75 equals 12.25 percent of assets.
So, where does the 17.5 percent number come from?
Here is where the wishful thinking occurs.
According to the FCUA, complex credit unions are also subject to a risk-based net worth requirement.
However, NCUA is proposing to replace its risk-based net worth requirement with a risk-based capital requirement. The agency will require a complex credit union to have at least a risk-based capital ratio of 10 percent to be well capitalized. Also, NCUA is proposing to define a complex credit union as an institution with more than $100 million in assets.
According to industry advocates, 1.75 times 10 percent translates into a MBL cap of 17.5 percent.
But there are flies in the ointment with regard to this wishful thinking.
The FCUA links the MBL cap to net worth, not capital. Section 1790d(c)(1)(A) of the FCUA talks about risk-based net worth requirements, not risk-based capital requirements. Furthermore, the components in the numerator of the risk-based capital ratio proposal do not align with the statutory definition of net worth. So, there does not appear to be a legal foundation to use the proposed risk-based capital requirement to determine the MBL cap.
But even if you assume NCUA goes forward, there is still a fly in this ointment. The 10 percent risk-based capital requirement is based upon risk weighted assets, not total assets. So, to be consistent, the MBL limit would equal 17.5 percent of risk weighted assets. As a general rule, risk weighted assets are less than total assets. So, it is likely the 12.25 percent MBL cap would still be binding for most, if not all, complex credit unions.
As I said, this is just wishful thinking on the part of credit unions.
Friday, July 3, 2015
Third-Party Technology Service Providers, Credit Unions and NCUA Oversight
The Government Accountability Office (GAO) in a July 2 report recommended that Congress should consider granting the National Credit Union Administration (NCUA) authority to examine third-party technology service providers for credit unions.
According to the report, credit unions and banks are making extensive use of technology service providers that supply them with IT processing, management, and security. The report notes that the "ability to contract for IT services typically enables an institution to offer customers enhanced services and use infrastructure comparable to that of larger institutions without the expenses involved in owning the technology or maintaining staff to deploy and operate it."
However, when credit unions rely on third-party providers, they may subject themselves to operational and reputational risks if they do not manage these providers appropriately. In addition, smaller institutions may have difficulty in managing their relationships with providers because they lack leverage in their contractual relationships to obtain information to help them determine whether providers have been performing adequately.
GAO further points out that "unlike the bank regulators, NCUA lacks authority to examine third-party service providers, such as technology service providers, on which credit unions often rely to perform critical functions."
NCUA told GAO that it has sought the congressional authority to examine third-party technology providers for a decade, but has so far been unsuccessful. The report highlights that credit union trade associations and organizations that provide third-party services to credit unions have opposed granting NCUA examination authority over third-party providers saying that giving NCUA examination authority is an unnecessary intrusion into these entities’ operations.
To address this inability to examine these third-party service providers, the agency stated it uses other means to monitor and reduce risks to credit unions arising from technology service providers, including making requests to the provider that it submit to a voluntary examination. But the report notes that some providers offering services exclusively to credit union clients have rejected NCUA voluntary examinations.
Unfortunately without supervisory authority over these providers, NCUA cannot enforce any corrective actions. NCUA can only make recommendations and present findings to the credit unions that use those providers.
This means that deficiencies in third-party service providers’ operations can quickly become deficiencies that produce financial and other harm at credit unions.
GAO concludes that to enable NCUA to effectively monitor the safety and soundness of credit unions, the agency should be granted the authority to examine third-party service providers.
According to the report, credit unions and banks are making extensive use of technology service providers that supply them with IT processing, management, and security. The report notes that the "ability to contract for IT services typically enables an institution to offer customers enhanced services and use infrastructure comparable to that of larger institutions without the expenses involved in owning the technology or maintaining staff to deploy and operate it."
However, when credit unions rely on third-party providers, they may subject themselves to operational and reputational risks if they do not manage these providers appropriately. In addition, smaller institutions may have difficulty in managing their relationships with providers because they lack leverage in their contractual relationships to obtain information to help them determine whether providers have been performing adequately.
GAO further points out that "unlike the bank regulators, NCUA lacks authority to examine third-party service providers, such as technology service providers, on which credit unions often rely to perform critical functions."
NCUA told GAO that it has sought the congressional authority to examine third-party technology providers for a decade, but has so far been unsuccessful. The report highlights that credit union trade associations and organizations that provide third-party services to credit unions have opposed granting NCUA examination authority over third-party providers saying that giving NCUA examination authority is an unnecessary intrusion into these entities’ operations.
To address this inability to examine these third-party service providers, the agency stated it uses other means to monitor and reduce risks to credit unions arising from technology service providers, including making requests to the provider that it submit to a voluntary examination. But the report notes that some providers offering services exclusively to credit union clients have rejected NCUA voluntary examinations.
Unfortunately without supervisory authority over these providers, NCUA cannot enforce any corrective actions. NCUA can only make recommendations and present findings to the credit unions that use those providers.
This means that deficiencies in third-party service providers’ operations can quickly become deficiencies that produce financial and other harm at credit unions.
GAO concludes that to enable NCUA to effectively monitor the safety and soundness of credit unions, the agency should be granted the authority to examine third-party service providers.
Thursday, July 2, 2015
SECU to Pay $35 Million for Former BCBS HQ Building
State Employees' Credit Union (SECU) signed a $35 million agreement to buy the former headquarters of Blue Cross and Blue Shield of North Carolina located in Chapel Hill.
SECU plans to upgrade and refurbish the five-story, 240,000-square-foot building – a rhomboid, glass structure – as the home for a new disaster recovery center.
The building will also house a SECU branch.
Read more here:
SECU plans to upgrade and refurbish the five-story, 240,000-square-foot building – a rhomboid, glass structure – as the home for a new disaster recovery center.
The building will also house a SECU branch.
Read more here:
Wednesday, July 1, 2015
VAntage Trust FCU Did Not Pay Rent to U.S. Government for Branches
A story appearing in the citizensvoice.com about the Veterans Administration (VA) targeting two branches of VAntage Trust Federal Credit Union for closure noted that the credit union branches have operated rent-free for years.
The article pointed out that the credit union has not paid rent for 62 years at the branch located at the Plains Township VA Medical Center and also has occupied Mundy Street rent-free since opening the branch 17 years ago.
Section 1770 of the Federal Credit Union Act allows for the allotment of space in federal buildings or federal lands rent free to a credit union, if at least 95 percent of the membership of the credit union to be served by the allotment of space or the facility built on the lease land is composed of persons who either are presently Federal employees or were Federal employees at the time of admission into the credit union, and members of their families, and if space is available.
However, there is no policy rationale for providing credit unions with free rent in federal buildings.
Credit unions are private organizations and as private entities, credit unions should be required to pay fair market rents on branches housed in federal buildings and on federal lands.
Taxpayers should no longer be asked to subsidize rent-free credit union branches in federal facilities.
It is time for Congress to repeal Section 1770 of the Federal Credit Union Act.
The article pointed out that the credit union has not paid rent for 62 years at the branch located at the Plains Township VA Medical Center and also has occupied Mundy Street rent-free since opening the branch 17 years ago.
Section 1770 of the Federal Credit Union Act allows for the allotment of space in federal buildings or federal lands rent free to a credit union, if at least 95 percent of the membership of the credit union to be served by the allotment of space or the facility built on the lease land is composed of persons who either are presently Federal employees or were Federal employees at the time of admission into the credit union, and members of their families, and if space is available.
However, there is no policy rationale for providing credit unions with free rent in federal buildings.
Credit unions are private organizations and as private entities, credit unions should be required to pay fair market rents on branches housed in federal buildings and on federal lands.
Taxpayers should no longer be asked to subsidize rent-free credit union branches in federal facilities.
It is time for Congress to repeal Section 1770 of the Federal Credit Union Act.
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