Massachusetts' Regulator: Dishonored Check Fee Set at $7.17 Per Item

The Massachusetts Division of Banking has set the maximum fee for dishonored checks (deposit returned items) at $7.17, which was the median cost for a sample of state chartered financial institutions to process deposit returned items. This maximum fee goes into effect on June 1.

Previously, the maximum fee was $6.84 per item.

Massachusetts State Law authorizes the commissioner of banks to annually establish a reasonable fee that compensates a bank or credit union for the direct cost incurred in processing deposit return items.

The fee was determined from cost data of 75 state chartered banks and credit unions. The sample included 38 banks and 37 credit unions.

The cost of processing a deposit return item ranged from $1.21 to $30.38 per item. The average per item cost for banks and credit unions were $7.41 and $9.32, respectively.

Based upon the survey, half of the banks and credit unions will not be able to recoup their cost for processing a deposit return item.

This fee does not seem reasonable to me if a financial institution cannot recoup its cost for processing a dishonored check.

Read the decision.

A+ FCU Pays $300,000 for Naming Rights of Stadium Scoreboard

A+ Federal Credit Union (Austin, TX) has become the Platinum-level sponsor of the new Pflugerville school district scoreboard at Pfield.

The deal is worth $300,000 over 5 years.

Read the story.

Large State Chartered CU CEOs Earn 13.5 Times More Than Their Average Employee Earns

The total CEO compensation at large federally insured state chartered credit union in 2014 was on average 13.5 times higher than the average compensation of employees at these institutions.

The median ratio of CEO compensation to average employee compensation was 10.6.

Large state chartered credit unions are defined as having at least $1 billion in assets.

Total CEO compensation is pulled from Schedule J of a credit union's Form 990.

To calculate average credit union employee compensation, the analysis divided the Call Report line item Employee Compensation & Benefits by Full Time Equivalent Employees. Full Time Equivalent Employees = The Number of Full Time Employees + (0.5 times the Number of Part Time Employees).

The analysis shows that there is a positive relationship between CEO Compensation and the ratio of CEO compensation and average employee compensation.

Fourteen credit unions reported a ratio of CEO compensation to average employee compensation in excess of 20.

The following table shows the 10 credit unions with the largest multiple between CEO compensation and average employee compensation. Eastman Credit Union reported the largest multiple between CEO compensation and average employee compensation of 127.03.

Net Recoveries from Corporate CU Lawsuits -- Who Knows?

National Credit Union Administration (NCUA) has boasted in press releases that its gross recoveries from settlements associated with its corporate credit union lawsuits are $3.1 billion.

However, the agency has failed to disclose its net recoveries from these lawsuits.

Publishing information about net recoveries would enable the public to estimate how much NCUA has paid in contingency fees to outside law firms with respect to its litigation over the failure of five corporate credit unions.

On April 8, I filed a Freedom of Information Act request regarding the agency's net recoveries associated with its litigation over the failure of five corporate credit unions.

On May 20th, NCUA denied my request.

Average CEO Compensation Tops $1 Million for Large State Chartered CUs in 2014

Average total compensation for CEOs of state chartered credit unions with at least $1 billion in assets in 2014 was $1,017,720.

The median total compensation for 2014 was $796,722.

Compensation data are pulled from Form 990s filed by state chartered credit unions. Unfortunately, I was not able to obtain compensation data for four credit unions -- WEOKIE (OK), Advia (MI), DFCU Financial (MI), and American Eagle Financial (CT). American Eagle Financial Credit Union had not filed a Form 990 for 2014, as it switched from a federal to state charter at the end of 2014. The other three credit unions had not responded to requests for information appearing on the Form 990 Schedule J at the time this blog was published.

Federal credit unions are currently exempt from filing Form 990s and the National Credit Union Administration has not acted upon recommendations to require federal credit unions to disclose senior management compensation.

Total compensation includes base salary, bonus and incentives, other reportable income, retirement and deferred compensation, and nontaxable benefits.

Thirty-seven credit union CEOs earned a total compensation package of at least $1 million in 2014. The highest paid CEO was Olan Jones of Eastman Credit Union (Kingsport, TN) at almost $9.3 million. Glen Yeager at Utilities Employees Credit Union (Wyomissing, PA) was the next highest compensated CEO at slightly more than $5 million.

The mean base salary was $510,890. The average bonus and incentive pay was $152,889. The mean other compensation was $165,496. Retirement and deferred compensation was an average of $174,822.

Over the next couple of weeks, I will publish an analysis of CEO compensation relative to other metrics.

Below is compensation data for each CEO (click on images to enlarge).

Cy-Fair FCU Buys Naming Rights to Stadium

Cy-Fair Federal Credit Union (Houston, TX) has purchased the naming rights to the high school football stadium of Cypress-Fairbanks Independent School District in Houston, Texas.

The $220 million credit union will pay $1.5 million over the next 10 years.

The deal, approved by the CFISD board members, still requires the superintendent to finalize and execute the agreement.

Read more.

Schools FCU Accuses SchoolFirst FCU of Predatory Behavior

The Board of Directors of Schools Federal Credit Union (SFCU), headquartered in Rancho Dominguez, CA, in a letter to its members has accused SchoolsFirst Federal Credit Union (Santa Ana, CA) of trying to poach its members and threatening the viability of the credit union.

The letter states:

As your entrusted Board of Directors, we must alert you to something that jeopardizes the very existence of YOUR credit union. As you know, SFCU serves the employees and family members of the Los Angeles Unified School District (LAUSD) and Community College District, as well as other local educationally-based fields of membership. Now, a predatory credit union from Orange County is attempting to confuse and steal away our members, using its deep pockets to buy access to our field of membership at their work locations.

The tactics of this credit union include misrepresenting itself and confusing our members due to the similarity of its name with ours. This similarity has made it easy for them to gain entry to our campuses. Their representatives regularly attend classified, certificated, and other LAUSD events. They donate generously to these organizations, thus making it very difficult for our credit union to compete and participate.

The letter goes on to point out that SchoolsFirst operates more like a bank than a traditional credit inion.

"Today SchoolsFirst has nearly 700,000 members and $11.7 billion in assets compared to our 15,000 members and our $110 million in assets. Since 2005, using tactics that include mergers and acquisitions, they have become the fifth largest credit union in the United States. Needless to say, these multi-billion dollar credit unions operate more like banks than traditional credit unions."

This letter is a classic tale of a credit union "David" trying to fight off a credit union "Goliath."

Unfortunately, too many of these traditional credit unions have succumbed to these large credit unions.

The time has come to end the favorable tax treatment of these large credit unions.

Michigan First CU Signs Sponsorship Deal

Lathrup Village-based Michigan First Credit Union has signed a corporate sponsorship deal to become the first Cornerstone Partner at the $627.5 million Little Caesars Arena under construction.

The deal includes naming rights to the unique rafters-level gondola seating above the ice that is for fans and media attending Detroit Red Wings games or other events.

Financial terms of the deal between the $780 million credit union and Olympia Entertainment, which handles business operations for the Red Wings, were not disclosed.

Read the article.

Massachussets Study: Tax Subsidy Going to Higher Expenses

Credit unions in Massachusetts provide insufficient member benefits to offset the favorable tax and regulatory treatment they enjoy, according to a study released this week by research firm PolEcon.

"The benefits to Massachusetts consumers do not appear significant enough to warrant laws and regulations that, by design, or as a consequence, result in credit unions capturing a larger share of the banking market in Massachusetts," the study found.

The report noted that Massachusetts credit unions have grown in part by gaming the low-income credit union designation, which provides substantial regulatory relief. The number of low-income designated credit unions in Massachusetts has risen from 11 in 2012 to 57 in 2016, in part by counting students within their low-income footprints. However, the study found little benefit to members from the low-income designations.

The four Massachusetts low-income credit unions with assets of more than $1 billion were more likely than banks to make mortgage loans to high-income borrowers and less likely than banks to serve low-income mortgage customers. In addition, since 2002, Massachusetts’ banks have received higher CRA ratings for meeting the needs of lower- and moderate-income individuals than have Massachusetts’ state-chartered credit unions.

Moreover, the study estimated that the corporate tax subsidy provides Massachusetts credit unions with an approximately 32 to 44 basis point annual subsidy that can be allocated toward higher deposit and lower interest rates on loans, higher expense ratios (more overhead expenses), or in greater retained earnings that provide capital for growth. Evidence indicates that while some of the subsidy benefits depositors and borrowers, a greater share goes to retained earnings and higher expense ratios. In fact, Massachusetts’ mutual banks, which have a similar governance structure as credit unions, have significantly lower expense ratios than Massachusetts credit unions.

The study also found that Massachusetts’ largest credit unions are more profitable than Massachusetts’ banks.

The study was funded by the Massachusetts Bankers Association.

Read the study.

First Service CU Buys Six-Story Office Building

First Service Credit Union (Houston, TX) bought a six-story office building to serve as its new corporate headquarters.

The $597 million credit union will initially occupy 35,000 square feet of the 110,452 square-foot office building. Current tenants will continue to occupy most of the remaining space.

The building is located within the Park Ten Office Park.

The Houston Chronicle is reporting that the credit union said it paid about $105 per square foot for the building. This would indicate the credit union paid about $11.6 million for the building..

22 Credit Unions Fined for Late Filing Call Report in Q4 2015

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

The late filers will pay a total of $13,548 in penalties. Individual penalties range from $157 to $2,580. The median penalty was $356.

Of the 22 credit unions agreeing to pay penalties for the fourth quarter of 2015:

• Fifteen had assets of less than $10 million;
• Five had assets between $10 million and $50 million; and
• Two had assets between $50 million and $250 million.

Seven of the late-filing credit unions had been late in a previous quarter. Read the press release. Here is the list of late filing credit unions that consented to a civil monetary penalty.

Metsger Calls for Review of Examination Process

National Credit Union Administration (NCUA) Chairman Rick Metsger has called for an extended examination cycle for well-managed, financially sound credit unions.

Currently, NCUA requires every federal credit union and all federally insured state-chartered credit unions with more than $250 million in assets to be examined every 12 months.

NCUA should follow the lead of the other federal banking regulators.

Earlier this year, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller Currency issued an interim final rule allowing qualifying well-capitalized and well-managed banks and savings associations with less than $1 billion in total assets may now be eligible for an 18-month examination cycle. The previous asset-size threshold for extended examination cycle was $500 million.

Institutions are considered to be well-capitalized and well-managed if they have a CAMELS composite rating of 1 or 2—the top ratings in the five-point scale indicating the safety and soundness of a bank or savings association.

Read the NCUA press release.

Scott Credit Union Signs Sponsorship Deal with St. Louis Cardinals

Scott Credit Union (Edwardsville, IL) has entered into a three year sponsorship agreement with the St. Louis Cardinals.

The sponsorship agreement includes naming rights to the MVP Deck in left center field at Busch Stadium. It also includes scoreboard advertisements, sponsorship of the Cardinals promotional giveaway night on August 26, player appearances, as well as partnership with Team Fredbird at community events.

The press release did not include the price of the sponsorship deal.

Read the press release.

Stress Testing and NCUA

Any federally-insured credit union with over $10 billion in assets is required by the National Credit Union Administration (NCUA) to undergo stress testing.

However, responding to questions from Representative Randy Neugebauer (R-TX) -- Chairman of the Subcommittee on Financial Institutions and Consumer Credit -- about the agency's stress test, NCUA Chairman Debbie Matz stated that agency does not have the calculation capacity to run stress test and NCUA lacks access to industry performance data that drives projected performance results.

Matz did acknowledge that NCUA staff have experience in conducting stress tests and are capable of supervising the stress testing process.

But Matz wrote that for NCUA to conduct the stress test, the agency would need to hire additional staff and procure industry performance data and analytical software, which would have been prohibitively costly.

Accordingly, the agency contracted with BlackRock Solutions to conduct the stress test. Chairman Matz stated that it cost the National Credit Union Share Insurance Fund $2.3 million in 2014 and $1.7 million in 2015.

The questions and answers are part of the hearing record on National Credit Union Administration Operations and Budget (July 23, 2015).

Latah FCU Seeking to Become Privately Insured.

Latah Federal Credit Union (Moscow, ID) is seeking to switch to a state charter and to become privately insured by American Mutual Share Insurance (ASI).

The Board of Directors of the credit union is soliciting its members to vote on the change in charter and insurance, as federal regulations require that that a minimum of 20 percent of the membership must vote on the change in insurance status.

However, a letter to the Moscow-Pullman Daily News expressed alarm about the conversion from federal share insurance to private share insurance.

If you click on this link, you will find excerpts from a Government Accountability Office report on ASI.

More on Taxi Medallion Lending CUs and Taxi Medallion Prices

Two credit unions that have exposure to taxi medallion loans did not set aside any provisions for loan and lease losses during the first quarter of 2016.

According to the Financial Performance Report of Bay Ridge Federal Credit Union (Brooklyn, NY), the credit union recorded zero provisions for loan and lease losses. While delinquent loans fell during the first quarter, there was a near tripling of troubled debt restructured (TDR) loans. TDR loans went from almost $5.7 million at the end of 2015 to approximately $16.9 million as of March 2016. TDR loans were 9.88 percent of all loans and 87.41 percent of net worth. Also, the $202 million credit union has almost $8.6 million in loans that were 30 days to 59 days past due.

The other credit union is First Jersey Credit Union of Wayne, NJ. The $136 million credit union recorded zero provisions for loan and lease losses during the first quarter of 2016. However, the credit union reported an increase in delinquent loans. Delinquent loans went from almost $3.9 million at the end of 2015 to slightly more than $7.1 million in delinquent loans as of March 2016. The delinquency ratio over the same time period went from 4.5 percent to 8.71 percent. the coverage ratio (allowances for loan and lease losses to delinquent loans) of the credit union was 39.32 percent, which suggests that the credit union is under-reserved.

Chicago Medallion Prices Plummet

According to Seeking Alpha, "Chicago had one of the most active months for medallion transfers with 12 deals in April. Clearing prices ranged from $55,00 to $60,000." In comparison, there were 13 deals in April 2014 with Chicago taxi medallion prices ranging between $290,000 to $375,000. This indicates that medallion values have fallen between 79 percent and 87 percent in the last two years.

Chicago taxi medallion prices are in the process of establishing a floor at a new substantially lower equilibrium price.

This indicates more pain is to come to credit unions that are holding Chicago taxi medallion loans.

Click here for 2016 taxi medallion transfer prices.

Click here for 2014 taxi medallion transfer prices.

Consumer Credit at Credit Unions Rose by $3.1 Billion in March

Outstanding consumer credit at credit unions grew by $3.1 billion in March to $350.6 billion, according to the Federal Reserve.

Revolving credit at credit unions increased by almost $200 million to $48.5 billion in March.

Outstanding non-revolving credit rose by approximately $3 billion during the month on March to $302.2 billion.

Read more.

Whe Doesn't NCUA Publish Bid Summaies for Failed CUs?

The National Credit Union Administration (NCUA) should start publishing the bid summaries for credit unions in receivership just like the Federal Deposit Insurance Corporation (FDIC) does for failed banks.

Since November 12, 2009, the FDIC has disclosed the results of bids for failed banks in FDIC receivership. The FDIC Board decided that disclosing this information was in the public interest and also met the Congressionally mandated objective that resolutions of failed banks are at the lowest cost.

For example, here is the bid summary for North Milwaukee State Bank (Milwaukee, WI). The summary discloses the name of the winning bidder and a summary of the winning bid. It also shows the other bids received and it lists the name of the other bidders. [Note: not all bank failures have multiple bidders].

Federally-insured credit unions should request that the NCUA Board begin disclosing summaries of bids for failed credit unions. Disclosing this information would provide more accountability and transparency with regard to the resolutions of failed credit unions by the NCUA.

Estimated Losses to NCUSIF, October 1, 2015 to March 31, 2016

Between October 1, 2015 and March 31, 2016, the National Credit Union Share Insurance Fund (NCUSIF) incurred almost $6.3 million losses from the failures of seven credit unions, according the NCUA OIG Semiannual Report to the Congress.

Alleged or potential fraud was listed as a factor in six of the seven failures.

The following table states the name of the credit union, the estimated loss to the NCUSIF, and reasons for the failure.

Delinquencies Up Sharply at Taxi Medallion Lender LOMTO FCU

Taxi medallion lender LOMTO Federal Credit Union (Woodside, NY) saw a further weakening in its financial performance during the first quarter of 2016.

The credit union reported that delinquencies rose during the first quarter from $6.4 million to $22.4 million. As of March 2016, 9.59 percent of its loans were 60 days or more past due -- this is up from 2.65 percent at the end of 2015.

In addition, the pipeline of early delinquencies jumped during the quarter. As of December 2015, loans 30 to 59 days delinquent were $9.5 million. At the end of the first quarter of 2016, $15.3 million in loans were 30 to 59 days past due.

While delinquencies are elevated, charge offs remain rare. LOMTO reported net charge offs of almost $1 million for the first quarter.

LOMTO stated that at the end of the first quarter $35.8 million in loans were classified as trouble debt restructured (TDR) -- of which $19 million were in accrual status . This is down from $37.9 million at the end of 2015. As of March 2016, TDR loans were 15.35 percent of loans and 90.89 percent of net worth respectively.

As the credit union expects additional losses from taxi medallion loans, it increased its provisions for loan and lease losses.

At the end of the first quarter of 2016, LOMTO recorded $3 million in provisions for loan and lease losses. In comparison, a year earlier the credit union reported only $300,000 in provisions for loan and lease losses.

Due the increase in provisions for loan and lease losses, LOMTO recorded a loss of $3.1 million for the first 3 months of 2016.

The loss caused the credit union's net worth to fall. As of March 2016, the credit union's net worth was $39.4 million. At the end of the previous quarter, the credit union had slightly less than $42.6 million in net worth.

The credit union's net worth ratio fell by 80 basis points during the quarter to 14.76 percent.

The increase in provisions caused LOMTO's allowance for loan and lease losses to rise from $10.2 million as of December 2015 to $12.2 million as of March 2016.

The jump in delinquencies caused the credit union's coverage ratio (Allowance for loan and lease losses divided by delinquent loans) to fall to 54.40 percent as of March 2016 -- down from 158.36 percent from the previous quarter.

However, the credit union's coverage ratio was overstated as $7.55 million in allowances for loan and lease losses were for TDR loans.

Avadian CU Completes Acquisition of Bank

Avadian Credit Union (Birmingham, AL) completed its acquisition of American Bank of Huntsville, Alabama.

The purchase of American Bank brings Avadian's total assets to $747 million and membership to more than 73,000.

The purchase price of the deal was not disclosed.

Read the news story.

Taxi Medallion Loan Delinquencies and TDRs Jump at Progressive

Progressive Credit Union (New York, NY) reported more problems associated with its taxi medallion loan portfolio.

After reporting a loss of $19.5 million loss for all of 2015, Progressive Credit Union posted a loss of $15.8 million for the first quarter of 2016.

Driving the loss was an increase in provisions for loan and lease losses. Progressive reported provisions for loan and lease losses of $19.1 million for the first quarter of 2016. A year earlier, the credit union had provisions for loan and lease losses of almost $1.7 million.

As of March 31, 2016, loans 60 days or more past due were slightly less than $24.6 million. This was up from $20.8 million at the end of 2015 and $3.75 million as of March 2015. At the end of the first quarter of 2016, 4.07 percent of the credit union's loans were delinquent.

In addition, early delinquencies (30 to 59 days past due) jumped from $9.9 million at the end of 2015 to $32.3 million as of March 2016.

The credit union reported a significant increase in trouble debt restructured loans (TDRs), which rose from $33.5 million at the end of 2015 to almost $89 million as of March 31, 2016. All TDRs were in nonaccrual status. TDRs represented 14.76 percent of all loans and 37.62 percent of its net worth at the end of the first quarter.

Progressive had net charge offs of almost $5 million at the end of the first quarter of 2016 compared to $1.3 million one year earlier.

Progressive Credit Union currently has a large cushion to absorb expected and unexpected losses from its taxi medallion loan portfolio.

At the end of the most recent quarter, Progressive had $55.7 million in allowances for loan and lease losses -- an increase of slightly more than $14.1 million from the end of 2015. Approximately $11.6 million in allowances for loan and lease losses was attributed to troubled debt restructured loans.

As of March 2016, the credit union had a coverage ratio (allowances for loan and lease losses to delinquent loans) of almost 227 percent.

Furthermore, Progressive is holding $232.9 million in equity at the end of the first quarter of 2016. The credit union has a net worth ratio of 37.22 percent, which fell by 186 basis points from the end of the previous quarter.

Melrose Credit Union: May Day! May Day!

First quarter 2016 data show a sharp deterioration in the financial performance of taxi medallion lender Melrose Credit Union (Briarwood, NY), as the taxi industry is disrupted by ridesharing companies.

The $1.9 billion credit union reported that delinquent loans more than doubled between December 2015 and March 2016. As of March 2016, Melrose had almost $371 million in loans 60 days or more past due. This is up from $155 million at the end of 2015.

As of March 2016, 18.62 percent of Melrose's loans were delinquent compared to 7.80 percent of loans at the end of 2015 (click on image to enlarge).

Delinquent loans at the end of the first quarter equaled 185.71 percent of the credit union's net worth.

In addition, there were more problems in the pipeline. The credit union is reporting that $72.85 million in loans were 30 to 59 days past due as of March 31, 2016.

The credit union also reported almost $376.7 million in trouble debt restructured (TDR) loans as of March 2016. All TDR loans are in nonaccrual status. TDR loans represent 18.91 percent of all loans and 188.67 percent of net worth.

Melrose reported a loss of almost $5.6 million, as it recorded provisions for loan and lease losses of $11.3 million during the first quarter of 2016.

Melrose reported that its allowance for loan and lease losses was $241.7 million as of March 31, 2016, of which $145.4 million was allocated to TDR loans. Its March 2016 coverage ratio (allowance for loan and lease losses divided by delinquent loans) was 65.18 percent -- down from 148.25 percent at the end of the prior quarter.

The credit union as of March 2016 held $199.6 million in net worth. Its net worth ratio was 10.37 percent -- down 32 basis points from the previous quarter.

This means that the credit union has a buffer of slightly more than $441 million to absorb expected and unexpected losses.