Friday, January 29, 2016

Medallion Loans Affect Performance of First Jersey and Quorum

It appears that taxi medallion loans are beginning to weigh on the performance of First Jersey Credit Union (Wayne, NJ) and Quorum Federal Credit Union (Purchase, NY), according to the credit unions' 4th quarter Call Report.

First Jersey Credit Union

First Jersey Credit Union reported a 2015 loss of almost $2.7 million. The 2015 loss arose from an increase in provision for loan losses. Loan loss provisions for 2015 was approximately $3.1 million -- up from almost $1.4 million for 2014.

As a result of the 2015 loss, the credit union's net worth ratio fell 125 basis points during the year to 8.54 percent at the end of 2015.

The credit union in its most recent Call Report had almost $3.9 million in delinquent loans or 4.5 percent of all loans are 60 days or more past due. However, business loans disproportionately represent delinquent loans.

First Jersey is reporting almost 18.5 million in business loans, of which $16,3 million are commercial loans. Presumably, most of the these commercial loans were for tax medallions.

At the end of 2015, $1.45 million in business loans were 60 days or more past due. This means 7.83 percent of all business loans were past due. In addition, early delinquencies (30 days to 59 days past due) were $3 million. In other words, almost a quarter of all business loans were at least 30 days past due.

First Jersey also wholly owns USA Medallion Funding LLC, a credit union service organization (CUSO) that specializes in medallion lending. At the end of 2015, First Jersey has slightly more than $2 million invested in the CUSO.

At the end of 2015, First Jersey is reporting loan loss reserves of slightly less than $3 million -- up from $1.1 million a year earlier. The credit union's net worth was almost $12.3 million at the end of 2015. This means the credit union has a combined buffer of almost $15.3 million for both expected and unexpected losses.

First Jersey management needs to disclose to its members its total exposure to taxi medallion loans, including the exposure of its wholly owned CUSO.

Quorum Federal Credit Union

Quorum Federal Credit Union reported at the end of 2014 the credit union held $78.4 million in taxi participation loans. Taxi participation loans are collateralized by taxi medallions, primarily in the cities of Philadelphia, New York, Boston, and Chicago. The Credit Union owns a percentage of each loan, primarily between 80 percent and 90 percent.

Quorum reported that delinquent loans increased from $8.3 million at the end of 2014 to $21 million at the end of 2015. At the end of 2015, 2.57 percent of its loans were 60 days or more past due compared to 1.13 percent a year earlier.

However, these delinquencies are disproportionately in participation loans. Total participation loans were $127.8 million and delinquent participation loans were $10.4 million. Presumably, the delinquent loans are connected with taxi participation loans; but we will need to wait for the credit union's 2015 Annual Report for more details as the Call Report lacks sufficient granularity.

According to the credit union's Financial Performance Report, the delinquency rate on participation loans went from 0 percent on December 2014 to 8.17 percent as of the end of 2015. In addition, there were $2 million in participation loans that were between 30 days and 59 days past due.

Quorum reported provisions for loan and lease losses of $7.9 million for 2015 -- this is up from $4.7 million for 2014. This increase in provisioning caused the credit union's loan loss reserves to increase from $6.1 million at the end of 2014 to $7.7 million at the end of 2015.

However, delinquent loans grew at a faster rate than allowances for loan losses. Quorum reported a coverage ratio (allowances for loan losses to delinquent loans) at the end of 2015 of 36.79 percent -- down from 73.57 percent a year earlier.

The credit union has total net worth of $72.2 million.

This indicates that Quorum has a combined buffer of almost $80 million to absorb anticipated and unanticipated losses.

Thursday, January 28, 2016

22 CUs Fined for Late Filing Call Reports in Q3 2015

Twenty-two federally insured credit unions have consented to civil monetary penalties for filing late Call Reports in the third quarter of 2015.

In comparison, 31 credit unions consented to fines a year earlier.

The late filing credit unions will pay a total of $18,682 in penalties. Individual penalties range from $115 to $10,000. The median penalty was $330.

Three factors primarily determine the size of assessment -- the credit union’s asset size, its recent Call Report filing history and the length of the delay.

Of the 22 credit unions agreeing to pay penalties for the third quarter of 2015:
  • Ten had assets of less than $10 million;
  • Eight had assets between $10 million and $50 million;
  • Three had assets between $50 million and $250 million; and
  • One had assets greater than $250 million.
Three of the late-filing credit unions had been late in a previous quarter.

Read the press release.

Wednesday, January 27, 2016

California Regulator Issues Final Order against Eagle CU

The California Department of Business Oversight issued a Final Order on December 9, 2015 to Eagle Credit Union (Lodi, CA). This Order supersedes a previous Final Order dated June 16, 2014.

According to the Order,
Eagle Credit Union "shall retain management and maintain a Board of Directors (Board) acceptable to the Commissioner. Such management shall include, at a minimum, a person (or persons) capable of adequately performing the functions of a chief executive officer, a chief financial officer, and a senior lending officer." Management should have the skills 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.

In addition, the $19.9 million credit union is req1uired to report weekly to the Commissioner and the National Credit Union Administration (NCUA) Regional Director of the status of all ongoing merger discussions and due diligence reviews until the merger is complete.

The credit union will continue to assure adequate oversight and adherence to the general ledger account reconciliation policy and procedures and the cash handling procedures.

The credit union is expected to report monthly to the Board all progress made regarding the corrective action taken by management to resolve the accounting and internal controls deficiencies, until those deficiencies have been corrected and until a merger is completed.

The credit union shall develop, adopt, and submit to the Commissioner a revised strategic plan and budget to include the following:
  • Specific actions to be taken, the assumptions made, and the timeframes necessary to maintain stable financial condition during the merger process;
  • Contingency plans in the event the financial condition deteriorates further, including specific expense reduction and trigger points when these actions will be taken; and
  • Contingency plans in the event operational and/or key accounting staff is no longer employed at the credit union. 
Eagle Credit Union shall not implement or fund any new lending or other new programs without the written approval of the Commissioner.

The credit union shall not enter into a new or amended contract or renewal that will cost Respondent more than five thousand dollars ($5,000) or with a term over one year without the prior written consent of the Commissioner.

Read the Order.

CU Discount Window Borrowings, Q4 2013

During the fourth quarter of 2013, 100 credit union borrowed from the Federal Reserve's Discount Window.

In comparison, 76 credit unions went to the Discount Window to borrow in the third quarter of 2013 and 37 credit unions borrowed from the Discount Window in the fourth quarter of 2012.

The Federal Reserve on December 31, 2015 released raw data on bank and credit union borrowings from the Federal Reserve's Discount Window.

The aggregate amount borrowed during the fourth quarter of 2013 was $117.89 million.

The average credit union borrowing from the Federal Reserve's Discount Window was slightly more than $1 million. The median amount borrowed by credit unions was $100,000.

During the fourth quarter of 2013, the maximum amount borrowed was $15 million by University of Iowa Community Credit Union (Iowa City, IA).

Almost all borrowings from the Discount Window were through the Federal Reserve's primary credit program, which is reserved for healthy institutions. One credit union, First Community CU (ND), borrowed through the Federal Reserve's seasonal credit program and one credit union, First Financial of Maryland FCU (MD), borrowed from the Federal Reserve's secondary credit program.

Below is information on the term of the Discount Window borrowings, name of the credit union borrower, and the amount borrowed.

Monday, January 25, 2016

Plus4 Credit Union Being Sued for Discrimination

Two African-Americans are suing Plus4 Credit Union (Houston, TX) in Federal Court alleging wrongful termination.

The plaintiffs are alleging the credit union violated the Civil Rights Act.

According to the January 15 complaint, a supervisor at the credit union ordered Emma Donald, a human resource manager, to fire Christopher Lee due to the plaintiffs dreadlocks. When she refused, the credit union retaliated against her and terminated her.

The complaint also alleges that the credit union had ordered Ms. Donald to refrain from hiring black or Hispanic employees.

Read the story.

Thursday, January 21, 2016

Bank Trade GroupsWrite Congress about NCUA's Radical FOM Proposal

In a letter to congressional leadership, the American Bankers Association and the Independent Community Bankers of America criticized NCUA’s proposal to loosen its field of membership restrictions. The bank trade groups warned that the proposed expansion would effectively allow credit unions to operate as tax-exempt banks and have significant, wide-reaching policy implications.

“Radical expansion of credit unions poses a major threat to the viability of taxpaying community banks from coast to coast, while adding to the federal deficit in lost tax revenue,” the letter said. “We urge Congress to aggressively exercise its oversight function and reorient this out-of-control agency.”

Under the NCUA proposal, credit unions would be able to serve “local” and “well-defined” areas that stretch the definition of both terms beyond reason -- including labeling whole states as local areas in some cases -- and open the door for credit unions to redline underserved urban cores in favor of wealthy suburbs.

“These quasi-legislative actions are being pursued by unelected bureaucrats because, in the words of NCUA’s vice chairman, ‘Congress is deadlocked’ on these issues,” the bank trade groups said. “NCUA is stealing the province of the legislature, in full view and without apology.”

Read the letter.

Wednesday, January 20, 2016

Internet Archive FCU Voluntarily Liquidating, Insured Shares Paid in Full

The National Credit Union Administration (NCUA) announced that Internet Archive FCU (New Brunswick, NJ) paid all insured shares in full on January 20.

The press release noted that NCUA initiated cease-and-desist order proceedings on Nov. 24, 2015 in order to prevent the credit union from committing unsafe and unsound practices and violations of law, rule, and regulation.

NCUA cited the credit union for ongoing deficiencies, including an unwillingness to open accounts within the field of membership, make loans, and establish operations in the low-income community where the credit union was chartered to serve; violations of the Bank Secrecy Act and USA PATRIOT Act; and weakening financial conditions and mounting losses.

NCUA also outlined numerous remedial actions to be taken by the credit union.

The credit union's board recommended that the credit union liquidate and the members voted affirmatively to liquidate the credit union on December 8, 2015. NCUA approved the voluntary liquidation plan on January 6, 2016.

Read the press release.

New Associational Common-Bond Making It Easier for CUs to Add Associations

The National Credit Union Administration (NCUA) is reporting that its new associational common-bond rule is already benefiting multiple common-bond credit unions by making it easier to add associations.

Under the new associational common bond rule, 12 type of groups are automatically recognized as valid associations. The rule also streamlined the documentation requirements for multiple common-bond credit unions to add associations to their fields of membership.

NCUA compared the number of associational groups being approved and the median number of potential members for approved associations in the five months before and five months after the rule became effective.

The number of association groups approved increased from 228 to 266, an increase of more than 16 percent.

The median potential membership size of an associational groups approved increased from 183 to 231 potential members.

NCUA further noted that in the five months after the rule became effective 227 associational groups automatically qualified for approval.

Read the story on page 9.

Tuesday, January 19, 2016

Community Chartered CU Uses a Foundation as Another Way to Join

The American Bankers Association (ABA) wrote the National Credit Union Administration (NCUA) on January 15th about Seaford, Delaware-based Sussex County Federal Credit Union (SCFCU) improperly using a foundation to add ineligible individuals to its field of membership.

The Federal Credit Union Act (FCUA) limits the common bond of a federal credit union to a single common bond, multiple common bond, or a community common bond.

SCFCU is a community chartered federal credit union serving Somerset County, Worcester County and Wicomico County of Maryland and Sussex County of Delaware.

But the credit union is using a foundation to qualify people for credit union membership who are not eligible for membership otherwise.

SCFCU’s website identifies the Sussex County FCU Foundation as "Another Way to Join." Individuals only need to pay $10 a year in dues to the foundation. The website further states that individuals "need not remain a member of the Foundation to retain credit union membership."

However, the FCUA does not permit a hybrid charter comprised of an association and community charter.

ABA requested that NCUA order SCFCU to cease the practice of allowing individuals, who are otherwise ineligible for membership, to join the credit union through the Sussex County FCU Foundation.

Read the letter.

Sunday, January 17, 2016

Caribbean Junket for CU Volunteers

If you are a credit union board member, there is nothing like a Caribbean junket in January.

The Credit Union National Association is holding its Volunteer Institute at Melia Carib Tropical at Punta Cana in the Dominican Republic. The dates of the Institute is January 17 thru January 20.

The Melia Carib Tropical is an all inclusive golf and beach resort.

This is nice perk for "volunteer" credit union directors.

Next year credit union directors will be "jammin" in Montego Bay, Jamaica.

Check out the description of the resort here.

Thursday, January 14, 2016

Alleged $20 Million Embezzlement Leads to Seizure of Michigan Credit Union

The Michigan Department of Insurance and Financial Services (DIFS) on January 13 took action to conserve Clarkston Brandon Community Credit Union (CBCCU) in Clarkston, Michigan and appointed the National Credit Union Administration (NCUA) as the conservator, effective immediately.

The $68.8 million credit union was placed into conservatorship just one week after the credit union’s former CFO admitted to embezzling $20 million.

The decision to conserve CBCCU was based upon findings of a recent supervisory exam that found CBCCU was insolvent.

Read DIFS press release.

Seven CUs Repurchased Some or All of Their CDCI Investments in 2015

Seven credit unions repurchased all or part of their outstanding Community Development Capital Initiative (CDCI) investments from the U.S. Treasury in 2015.

The evidence suggests that the pace of CDCI repurchases by credit unions accelerated in the second half of 2015.

Faith Based Federal Credit Union (Oceanside, CA) on August 19 fully repurchased its $30,000 of outstanding CDCI investment.

Prince Kuhio Federal Credit Union (Honolulu, HI) on September 9 bought back in full its CDCI investment of $273,000. The repurchase appears to be associated with Prince Kuhio merger into Hawaii FCU.

Fidelis Federal Credit Union (New York, NY) on October 14 fully repurchased $14,000 in CDCI investment from the U.S. Treasury Department.

Independent Employers Group Federal Credit Union (Hilo, HI) on November 18 repurchased in full $698,000 in CDCI investment. The repayment appears to be associated with the merger of Independent Employers Group FCU into HawaiiUSA FCU.

Liquidated Bethex Federal Credit Union (Bronx, NY) on November 18 fully repurchased $502,000 in outstanding CDCI investment.

Two credit union partially repurchased their CDCI investments in 2015. Liberty County Teachers Federal Credit Union (Liberty, TX) on December 16 partially repurchased its CDCI investment. Vigo County Federal Credit Union (Terre Haute, IN) partially repurchased its CDCI investment on February 25 and December 23.

Tuesday, January 12, 2016

NCUA's Supervisory Priorities for 2016

The National Credit Union Administration (NCUA) issued a letter to federally insured credit unions regarding its supervisory priorities for 2016.

The letter is intended to assist credit unions in preparing for their next NCUA examination.

NCUA noted that field staff will focus on the following issues this year: cyber-security, Bank Secrecy Act compliance, interest rate risk, TILA-RESPA integrated disclosure rule, credit union service organization reporting, and incident response procedures regarding unauthorized access to members information.

Read the letter.

CRS Report: Raising MBL Cap Will Benefit Large CUs, Not Small CUs

The Congressional Research Service (CRS) in an October 28, 2015 report, Policy Issues Related to Credit Union Lending, concluded that legislation to raise the member business lending (MBL) cap would benefit large credit unions, not small credit unions.

According to the report,
"These credit unions would be unlikely to increase their presence in the commercial lending market substantially because it would not be cost effective for them to invest in the necessary underwriting systems for the volume of commercial lending that they would feasibly be able to do.27 Hence, credit unions with assets under $10 million would be less likely to become more substantial providers of MBLs.

By contrast, increasing the MBL cap would benefit credit unions that already enjoy a presence in the commercial lending market or a sufficiently large asset base. Lifting the MBL cap would allow credit unions already operating close to the current statutory limit to increase their presence in the commercial lending market."

According to data provided by the National Credit Union Administration to CRS, credit unions with assets of $10 million or less collectively made 458 of the MBLs originated by the credit union system in 2012; the median of the average size for this group was approximately $60,000. Credit unions having more than $10 million in assets made the remaining 175,514 or 99.7% of the MBLs in 2012. Credit unions with over $1 billion in assets made 68,088 or 38.7% of the MBLs in 2012. The median of the average MBL size in 2012 was $99,228 for credit unions with $10 million to $100 million in assets; $159,396 for credit unions with $100 million to $500 million in assets; $242,079 for credit unions with $500 million to $1 billion in assets; and $303,958 for credit unions with over $1 billion in assets.

The report further notes that the MBL lending cap is a blunt instrument as it imposes the same requirement on all credit unions. The MBL cap does not take into consideration in asset size and market purview. In lieu of a lending cap, CRS stated that there are other policy tools that would cause credit unions to take into account the costs of originating MBLs, such as higher asset risk weights for MBLs in a risk-based capital system or subjecting MBLs to unrelated business income taxes.

Monday, January 11, 2016

Is an Industrial or Office Park a SEG or Community?

In its proposed field of membership (FOM) rule, the National Credit Union Administration (NCUA) Board is proposing to permit a multiple common bond credit union to include as a select employee group (SEG) the employees of a park’s tenants (e.g., retail tenants of a shopping mall, business tenants of an office building or complex).

However, NCUA has previously recognized an industrial park, shopping mall, office complex, or similar development as a special type of community charter.

The inclusion of a community in a multiple common bond charter would violate the Federal Credit Union Act (FCUA). The FCUA limits a federal credit union’s FOM to one of the following -- a single common bond credit union, multiple common bond credit union, or community credit union.

The FCUA does not permit a hybrid charter comprised of a community and multiple common bond charter, except when a multiple common bond credit union adds an underserved area to its FOM.

This begs the question -- is an industrial or office park a special type of community or a select employee group?

NCUA cannot have it both ways.

Friday, January 8, 2016

Lake Michigan CU and United FCU Call Off Merger

St. Joseph-based United Federal Credit Union and Grand Rapids-based Lake Michigan Credit Union have called off their proposed merger.

The proposed merger would have been the largest in credit union history creating a $6 billion credit union.

According to a press statement issued by both credit unions, both credit unions decided that they were "better served by remaining independent in order to deliver the utmost value to their members."

Read the statement.

Northwest Baptist CU Merged with NCUA Assistance

The National Credit Union Administration (NCUA) merged Northwest Baptist Federal Credit Union (Seattle, WA) into Seattle Metropolitan Credit Union.

The merger occurred on September 30; but was not reported as a closed credit union until early 2016.

According to its most recent Call Report, this low-income credit union had $3.4 million in assets and 960 members. The credit union was undercapitalized and reported a loss. Its Financial Performance Report showed that the credit union reported negative share, loan, asset, net worth, and membership growth.

Northwest Baptist was the fifth credit union to be merged in 2015 with NCUA assistance.

Thursday, January 7, 2016

Deceptive Practices Lawsuit against Navy FCU Dismissed

Reuters is reporting that a Nevada federal judge has dismissed a lawsuit accusing Navy Federal Credit Union of fraudulent marketing of add-on insurance for holders of its credit cards and consumer loans.

In a decision on Monday, U.S. District Judge Larry Hicks said the Navy Federal Credit Union was not dishonest in the way it sold the plans and clearly disclosed their terms to its members.

Read the story.

Federal Judge Dismisses Marijuana CU Lawsuit

The Denver Post is reporting that U.S. District Judge R. Brooke Jackson on January 5 dismissed a lawsuit seeking federal approval for the first credit union for marijuana in Colorado.

In a nine-page opinion, Judge Jackson wrote that he was compelled to reject The Fourth Corner Credit Union's suit because marijuana remains illegal under federal law.

Fourth Corner Credit Union sued the Federal Reserve Bank of Kansas City for denying its application for a master account.

A separate lawsuit against the National Credit Union Administration for refusing to issue share deposit insurance to the credit union is pending in U.S. District Court.

Read the story.

Wednesday, January 6, 2016

Pentagon Federal Credit Union Pays $164.1 Million for New HQ

Pentagon Federal Credit Union has paid $164.1 million for a new headquarters building in Tysons, Virginia.

The credit union bought Tysons Overlook, an 11-story 307,634-square-foot Class A office tower.

The credit union plans to initially occupy about half of the office building.

Pentagon FCU will lease about 150,000 square feet to LMI, a consulting firm that currently occupies the lower part of the building, under a long-term sale-leaseback arrangement. LMI was one of the owners of the office tower.

Income from this leaseback arrangement will be exempt from taxation because federal credit unions are exempt from all forms of federal taxation including unrelated business income taxes.

Read the story.

Nonmembers Getting Better Rates on Deposits than Members

According to Call Report data, 375 credit unions paid higher interest rates to nonmembers on their deposits than to members at the end of the third quarter of 2015.

The analysis examined reported dividend (interest) rates at credit unions. Deposit accounts examined include nonmember accounts, share drafts, share certificates, money market shares, IRA/Keough accounts, regular shares, and all other shares.

The analysis did not look at the number of nonmember deposit accounts or the dollar volume of these deposits.

The analysis found that the dividend rate on nonmember accounts was higher than the reported dividend rate across all types of member accounts at these 375 credit unions.

Coastline Federal Credit Union (Jacksonville, FL) reported the highest interest rate on a nonmember deposit at 6.8 percent. The best dividend rate on a member deposit was 1.09 percent on share certificates.

Numerica Credit Union (Spokane Valley, WA) had the next highest rate on nonmember deposits. The $1.5 billion credit union reported an interest rate of 3.92 percent on nonmember deposits. The best reported rate to members was 1.42 percent on IRA/Keough accounts.

Twenty-eight credit unions with assets in excess of $1 billion reported paying better rates to nonmembers versus members on deposits.

Large credit unions with more than $5 billion in assets that are reporting paying better rates to nonmembers than members include: Navy Federal Credit Union (Vienna, VA), Security Service Federal Credit Union (San Antonio, TX), First Technology Credit Union (Mountain View, CA), and ESL Federal Credit Union (Rochester, NY).

It is dumbfounding that nonmembers are getting better rates on their deposits than credit union members.

In my opinion, paying nonmembers a better rate on their savings than members is clearly a misuse of the credit union tax exemption.

Tuesday, January 5, 2016

CFE FCU to Donate $1.5 Million for New Downtown Campus

CFE Federal Credit Union (Lake Mary, FL) has pledged $1.5 million for the construction of an academic building that will be the centerpiece of a new downtown campus for the University of Central Florida.

Pending approval, the new downtown campus is scheduled to open in the fall of 2018 and will be shared with Valencia College.

Read the story.

Monday, January 4, 2016

Community Charters that Don't Meet the Definition of Local Should Be Subject to Public Comment

Back in 2007, the National Credit Union Administration (NCUA) Board recommended that a community charter application from an FCU that does not meet the established presumptive definition of local be subject to public notice.

The time is right for the NCUA Board to resurrect this idea.

The NCUA Board should publish a notice in the Federal Register and on its website seeking comment on whether the proposed community charter application is a local well-defined community.

The NCUA Board should give interested parties sufficient time to comment on the proposed charter application.

I know some in the credit union industry would hate this idea.

However, public comment would provide for a more complete record and would assist NCUA with its analysis of whether the area in question is a well-defined local community.

NCUA should not simply rubber stamp information provided by an FCU showing interaction and common interests among residents in the proposed community.


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