Tuesday, January 31, 2017

Anti-MBL Cap Evasion

The National Credit Union Administration (NCUA) does not count non-member business loans and non-member business participation interest against the aggregate member business loan (MBL) cap of 12.25 percent of assets.

According to an NCUA spokesperson, 946 federally-insured credit unions, or about 16 percent of the industry, reported holding non-member business loans or participation interest on their books as of September 30, 2016. These credit unions hold an aggregate outstanding amount of these loans of slightly below $7.5 billion at the end of the third quarter of 2016.

In addition, there are 381 low-income designated federally-insured credit unions with non-member business loans or participation interest on their books as of the third quarter of 2016 – this represents almost 16 percent of all low-income designated credit unions. In total, these credit unions held $2.26 billion in non-member business loans or participation interest.

Low-income designated credit unions are exempt from the MBL cap.

However, the agency has stated that credit unions cannot trade or swap non-member business loans to evade the MBL cap.

In its response to the Independent Community Bankers of America complaint, NCUA stated that under its 2003 MBL Regulation the approval of the Regional Director was required for any transaction that would cause the total of purchased non-member business loans and non-member participation interests, when added to the credit union’s member business loans, to exceed the statutory cap. As part of the waiver application, the credit union would have to “attest that the purchase is not being used, in conjunction with one or more other credit unions, in a manner that has the effect of trading [member business loans] that would otherwise exceed the aggregate limit.”

In other words, the credit union had to give its word that it was not engaged in swapping business loans for the purpose to circumvent the MBL cap.

In its 2016 revision to its MBL rule, NCUA abolished the requirement of getting the pre-approval of the Regional Director, where the total of purchased non-member business loans and non-member participation interests, when added to the credit union’s member business loans, exceeds the statutory cap.

This leaves some unanswered questions.

How many credit unions have been granted a waiver to exceed the MBL cap?

How does NCUA examine credit unions to determine if credit unions are trading or swapping business loans to evade the aggregate MBL cap?

Has NCUA cited any credit unions for demonstrating a pattern or practice of evading the MBL cap?

Sunday, January 29, 2017

CoastHills Credit Union Unveils Plan for 3-Story HQ Building

CoastHills Credit Union (Santa Maria, CA) unveiled plans to construct a 3-story, 90,000 square-foot corporate headquarters building.

The corporate headquarters will be built on a 16-acre parcel of land in Santa Maria and will be dubbed the CoastHills Center.

The new headquarters building will include a state-of-the-art branch and a meeting room/auditorium that can seat up to 300 people.

Groundbreaking on the new facility is expected to take place in the second quarter of 2017 with construction scheduled to be completed in late 2018. The project is currently being reviewed by the city.

The corporate headquarters project is estimated to cost $25 million.

In comparison, the credit union paid its members only $22.5 million in dividends and interest payments over the last five years.

Read more.

Thursday, January 26, 2017

McWatters Named Acting NCUA Chairman

President Donald J. Trump has designated National Credit Union Administration (NCUA) Board Member J. Mark McWatters as the Acting Chairman of the NCUA Board.

McWatters succeeds Rick Metsger, who was designated Board Chairman in May 2016. Metsger continues to serve as an NCUA Board Member.

McWatters was nominated to the NCUA Board by then-President Barack Obama on January 7, 2014. Following Senate confirmation, he took office as an NCUA Board Member on August 26, 2014.

Read the press release.

IH Credit Union, Inc. Becomes Privately Insured

The National Credit Union Administration approved IH Credit Union, Inc. (Springfield, OH) conversion from federal share insurance to private share insurance.

In explaining its change to private share insurance, the credit union wrote: "We believe that the people in Columbus have a much better feel for what is happening in Springfield than government bureaucrats in Washington, D.C."

Moreover, the credit union stated that during the financial crisis NCUA essentially went bankrupt and IH Credit Union was forced to send $1.3 million to Washington. These funds were required to replenish the National Credit Union Share Insurance Fund and to pay for the corporate credit union bailout.

The $298 million credit union will be insured by American Share Insurance (ASI) going forward.

However, it should be noted that ASI had to assess special premiums in the aftermath of the financial crisis.

Read more.

Tuesday, January 24, 2017

Federal Court Dismisses MBL Lawsuit

The U.S. District Court of the Eastern District of Virginia dismissed the lawsuit filed against the National Credit Union Administration (NCUA) over the agency’s member business lending (MBL) rule.

The Court dismissed the suit on procedural grounds but also indicated the suit would have been dismissed on the merits as well.

The Court agreed with NCUA that the lawsuit was time-barred and the plaintiff, Independent Community Bankers of America, lacked standing.

The Court noted that even if the plaintiff could establish that it had standing and the lawsuit was filed in a timely fashion, the Court would still find that the regulation would pass muster under the Administrative Procedure Act and Chevron.

12 CDCI CUs Partially or Fully Repurchase Securities

Twelve credit unions repurchased either fully or partially outstanding securities owned by U.S. Department of the Treasury (Treasury) under the Troubled Asset Relief Program (TARP) Community Development Capital Initiative (CDCI) in 2016.

On August 1, 2016, Treasury, as part of its effort to wind down the TARP, began offering participating CDCI institutions an opportunity to repurchase early their outstanding securities owned by Treasury at fair value. On December 9, the window for CDCI institutions to submit proposals closed under the early repurchase option.

Under the early repurchase program, the fair value of the securities repurchased was less than the amount borrowed by thee credit unions.

Below is the list of credit unions that repurchased partially or fully their securities along with the amount paid and the amount borrowed.

As of the end of 2016, 21 credit unions reported outstanding securities owned by the Treasury through its CDCI program. Fairfax County Federal Credit Union (Fairfax, VA) owed the most to Treasury at $8.04 million, followed by Hope Federal Credit Union (Jackson, MS) at $4.52 million.

Monday, January 23, 2017

NCUA Seeks Comment on Alternative Capital

The National Credit Union Administration (NCUA) Board issued for comment an advance notice for proposed rulemaking (ANPR) on alternative capitl for credit unions.

The NCUA Board is considering changes to the existing secondary capital regulation and whether to authorize federally insured credit unions to issue supplemental capital instruments that would only count toward a credit union’s risk-based net worth requirement.

The ANPR identifies two categories of alternative capital: secondary capital and supplemental capital.

The Federal Credit Union Act currently permits low-income credit unions to issue secondary capital. By law, secondary capital counts toward both the net worth ratio and the risk-based net worth requirement of NCUA’s prompt corrective action standards.

The Board is considering whether non-low income credit unions can issue supplemental capital to meet their risk-based capital requirement. Also, can low-income credit unions issue supplemental capital.

The ANPR seeks comment on a wide range of issues regarding alternative capital, including:
  • Associated regulatory changes that would be necessary;
  • Potential tax implications related to issuing alternative capital, particularly for state-chartered credit unions;
  • Potential director and management liability issues from issuing alternative capital;
  • Investor protection issues and whether the sale of secondary capital, like supplemental capital, should be restricted to knowledgeable institutional investors;
  • The impact of alternative capital on the mutual ownership structure of credit unions;
  • Limiting the amount of supplemental capital issued by credit unions;
  • Loss absorbing capacity of supplemental capital;
  • The treatment of reciprocal holdings of alternative capital; and
  • The application of securities law to both supplemental and secondary capital.
The comment period will be for 90 days after the ANPR is published in the Federal Register.

Over the coming months, I will comment on various aspects of the ANPR.

Read the ANPR.

Friday, January 20, 2017

Q4 2016 NYC Taxi Medallion Prices Averaged Almost $520,000

New York City taxi medallion prices averaged almost $520 thousand during the fourth quarter of 2016, according to information from the New York City Taxi and Limousine Commission.

However, this average taxi medallion price was based upon a small sample.

There were six transactions during the three month period with a non-zero value. Three transfers were foreclosures and two involved estate transfers.

Medallion transfer prices ranged from a high of $600,000 to a low of $387,717.60.

This would indicate that credit unions with outstanding New York City taxi medallion loans will probably need to reduce the outstanding principal on these loans.

Wednesday, January 18, 2017

Navy FCU Earnings Surpass $1 Billion for 2016

Navy Federal Credit Union (Vienna, VA) reported a record net income of $1.198 billion for 2016.

Navy FCU is the first U.S. credit union to break the $1 billion profit milestone.

Navy FCU's 2016 earnings are up approximately 37 percent from a year ago.

The $79.85 billion credit union reporting almost $5.4 billion in revenues for 2016. Navy had total operating expenses of $2.3 billion and non-operating expenses of $1.6 billion. Navy paid almost $432 million in dividends.

Navy's financial results show that the credit union is very profitable and it could easily afford to pay corporate income taxes.

Read Navy Federal Credit Union's Statement of Income.

Tuesday, January 17, 2017

Coalition of Conservative Groups Ask Incoming Administration to Preserve NCUA's Business Loan Rule

In a letter to President-Elect Donald Trump and Vice President-Elect Mike Pence, a coalition of conservative, libertarian, and free market groups urged them to preserve the new member business lending rule of the National Credit Union Administration (NCUA).

The groups stated that the final rule would deregulate business lending for credit unions. The rule would exclude business loans to non-members from aggregate member business loan cap of 12.25 percent of assets and reduce many burdensome paperwork requirements for credit unions.

The groups requested that President-Elect Trump and Vice President-Elect Pence to not rescind the rule.

In addition, the group urged the incoming Administration to support legislation that would further deregulate business lending at credit unions.

It is unfortunate that these groups have decided to side with government subsidized credit unions to the detriment of all other taxpaying financial institutions.

The signatories of the letter include Competitive Enterprise Institute, American Legislative Exchange Council (ALEC), Americans for Tax Reform, Campaign for Liberty, Center for Freedom and Prosperity, FreedomWorks, Frontiers of Freedom, Grassroot Hawaii Action, Inc., Independent Women's Voice, National Federation of Republican Assemblies, National Taxpayers Union, R Street Institute, Small Business & Entrepreneurship Council, and Taxpayers Protection Alliance.

Read the letter.

324 CUs Borrowed from Fed's Discount Window, Q4 2014

In the fourth quarter of 2014, 324 credit unions borrowed from the Federal Reserve's Discount Window.

In comparison, 179 credit unions borrowed from the Federal Reserve's Discount Window during the third quarter of 2014.

The National Credit Union Administration required any federally-insured credit union with at least $250 million in assets to establish access to either the Federal Reserve's Discount Window or the Central Liquidity Facility. NCUA expected that these credit unions would test their access to these two contingent emergency sources of liquidity by the end of 2014.

These credit unions borrowed 392 times from the Federal Reserve's Discount Window and borrowed an aggregate $399.8 million from the Discount Window.

The average size of a loan from the Discount Window was slightly more than $1 million, while the median loan size was $10,000.

The largest amount borrowed was $45 million by Chevron FCU (Oakland, CA).

The vast majority of the borrowing was from the Federal Reserve's primary credit program. Two credit unions access the Federal Reserve's seasonal credit program, while one credit union borrowed from the secondary credit program.

Primary credit is a lending program available to depository institutions that are in generally sound financial condition. Secondary credit is available to depository institutions that are not eligible for primary credit. The seasonal credit program assists small depository institutions in managing significant seasonal swings in their loans and deposits.

The Federal Reserve is required by law to disclose with a two year delay information on borrowings from the Discount Window.

Sunday, January 15, 2017

BECU Buys Eight Buildings in Tukwila Office Park for $78 Million

Boeing Employee Credit Union (BECU) has purchased eight buildings at the Gateway Corporate Center office and industrial park in Tukwila for $78 million.

BECU built its corporate headquarters at Gateway Corporate Center in 1990.

The new purchase will allow the almost $15.7 billion BECU to increase its holdings in the office park by 376,000 square feet to 589,000 square feet at the office park.

An earlier version of this post stated the purchase price was not disclosed.

Read the story.

Read another story.

Friday, January 13, 2017

Navy FCU Unveils Major Expansion Plan to Meet Robust Growth Targets

Virginia Governor Terry McAuliffe on January 11 announced that Navy Federal Credit Union (Vienna, VA) will invest $100 million to expand its Winchester operations center in Frederick County.

The project will nearly double Navy Federal’s workforce employee-count and physical square footage in Frederick County. Virginia.

This expansion in its operation center is meant to support Navy Federal Credit Union's aggressive growth plan. The $79 billion credit union plans to to grow to $120 billion in assets in five years and expand its membership from 6.5 million members to more than 10 million, according to Washington Business Journal.

Governor McAuliffe approved a $2 million grant from the Commonwealth Opportunity Fund to assist Frederick County with the project. The Governor also approved $4 million in funds from the Virginia Economic Development Incentive Grant (VEDIG).

While $6 million in public funds will be used to support Navy's investment in the Commonwealth of Virginia, Navy FCU does not pay any state corporate income taxes as it is exempt from state taxation.

Read the Governor's press release.

Thursday, January 12, 2017

NCUA's Supervisory Priorities for 2017

The National Credit Union Administration sent a letter to credit unions outlining its supervisory priorities this year.

The letter identified six areas of supervisory focus:
  • Cybersecurity;
  • Bank Secrecy Act compliance;
  • Internal controls and fraud prevention;
  • Interest rate and liquidity risk;
  • Commercial lending; and
  • Consumer compliance, especially changes to the Military Lending Act.
Read the letter.

Jammin' in Jamaica

Credit union volunteers are Jammin' in Jamaica.

Credit Union National Association's Volunteer Conference is being held in Montego Bay, Jamaica at the Hilton Rose Hall Resort and Spa.

The all-inclusive resort is located between scenic mountains and turquoise Caribbean waters of Jamaica.

Hotel room rates per night are $319 for a single room or $375 for a double room.

The conference is scheduled to run from January 15 thru January 18. There is a pre-conference workshop on January 14.

Taxpayers are subsidizing this Caribbean junket for credit union officials.

Wednesday, January 11, 2017

OCC: Auto Lending Risk Is Increasing

The Office of the Comptroller of the Currency (OCC) in its Semiannual Risk Perspective for Fall 2016 noted that auto lending risk has been increasing for several quarters.

This report should be of interest to credit unions as auto lending remains an important line of business for most credit unions.

The OCC wrote that underwriting standards for direct and indirect auto loans for some lenders were less stringent due to increased competition for auto loans.

In addition, OCC commented that they are seeing increased risk layering at lenders as they grant loans with longer terms combined with higher advance rates resulting in higher loan-to-value ratios.

Moreover, lenders are seeing higher loss severities (lower recoveries) associated with charged off auto loans.

It would be interesting to hear from the National Credit Union Administration as to what it is seeing with respect to auto lending risk at credit unions.

Read the report.

Tuesday, January 10, 2017

Rep. Royce Introduces the Credit Union Residential Loan Parity Act

Representative Ed Royce (R-CA) introduced on January 10 the Credit Union Residential Loan Parity Act (H.R. 389).

According to the press release, the bill would remove loans made by credit unions for the purchase of non-owner occupied, 1-4 unit dwellings from the calculation of the member business lending (MBL) cap of 12.25 percent of assets.

However, the bill would permit the National Credit Union Administration (NCUA) to impose stringent underwriting and servicing requirements to these loans.

This legislation, if it becomes law, would significantly expand the ability of credit unions to make more business loans.

Other co-sponsors of the bill include Jared Huffman (D-CA), Don Young (R-AK), and Peter DeFazio (D-OR).

Read the bill.

Read the press release.

Advia CU Announces Plan to Buy Another Bank

Advia Credit Union (Parchment, MI) announced that it plans to acquire the $232 million Peoples Bank (Elkhorn, WI).

If the deal is completed, this would make the second time the $1.3 billion credit union acquired a bank. In 2016, Advia Credit Union acquired Mid America Bank (Janesville, WI).

The deal still requires shareholder and regulatory approvals.

The deal is expected to close in the third quarter of 2017.

The price of the deal was not disclosed.

Read the press release.

Monday, January 9, 2017

CU Outstanding Consumer Credit Increased in November, But Pace Slowed from October's Growth Rate

The Federal Reserve reported on January 9 that outstanding consumer credit at credit unions grew by almost $1.5 billion in November to $380.3 billion, according to the G. 19 report.

However, the November pace of consumer credit growth at credit unions slowed compared to October's growth rate.

Both revolving and non-revolving credit increased at credit unions in November.

Revolving credit rose by almost $900 million to $52 billion in November, while outstanding non-revolving grew by nearly $800 million to $328.4 billion.

NCUA Makes Case for NCUSIF Premium, Says Impact on CUs Will Be Minimal

National Credit Union Administration (NCUA) Chairman Rick Metsger in a January 6, 2017 letter to Rep. Sean Duffy (R -WI) stated "a premium of 3 to 6 basis points would have a minimal impact on credit unions in the aggregate."

Based upon September Call Report data, the impact of a 6 basis point premium assessment would cause:
  • the aggregate net worth ratio to fall 4 basis point to 10.81 percent;
  • the average return on average assets would fall from 0.78 percent to 0.73 percent;
  • the aggregate cash-to-asset ratio to decline from 8.56 percent to 8.52 percent;
  • the number of credit unions reporting negative earnings would rise from 1,174 credit unions to 1,388 credit unions;
  • eight credit unions to slip from adequately capitalized to undercapitalized and 12 credit unions would drop from well-capitalized to adequately capitalized; and
  • credit union lending would be reduced by 0.04 percent.
The letter also makes the case for NCUA assessing credit unions by pointing out that the National Credit Union Share Insurance Fund (NCUSIF) equity ratio was trending downward from 1.27 percent due to strong insured share growth and the low return on the NCUSIF investment portfolio. Under its base case assumption, the NCUSIF equity ratio will fall to 1.25 percent at the end of 2017 and 1.22 percent by the end of 2019. If no premiums are assessed between now and the end of 2019, credit unions would face a premium assessment between 5 and 10 basis points at that time based on current trends.

However, the base case assumption does not assume an economic downturn or the unexpected failure of one or more large credit unions. NCUA's analysis shows that the NCUSIF equity ratio of 1.32 percent would allow the NCUSIF to withstand two consecutive years of stress and still maintain an equity ratio of at least 1.20 percent. Under the Federal Reserve's severe economic stress scenario, the equity ratio would have to be at 1.44 percent to avoid falling below 1.20 percent over a five-year period and an equity ratio of 1.27 percent to keep the NCUSIF equity ratio from falling below 1.00 percent. It should be noted that by statute NCUA must charge a premium if the equity ratio falls below 1.20 percent and if the equity ratio falls below 1 percent, credit unions would be required to expense a portion of its NCUSIF capitalization deposit.

Chairman Metsger further noted that NCUA's operating expenses charged to the NCUSIF would have the smallest impact in altering the trend in the NCUSIF equity ratio. Chairman Metsger wrote that NCUA would have to cut its operating expenses charged to the NCUSIF by 50 percent ($100 million) to increase the NCUSIF equity ratio by 1 basis point. NCUA charges the NCUSIF almost $200 million to fund its current operating budget of $298.2 million.

In addition, the letter stated that credit unions cannot directly receive a rebate from the Temporary Corporate Credit Union Stabilization Fund (TCCUSF). Rather when the TCCUSF is closed, the residual assets will be transferred to the NCUSIF. If the residual assets push the NCUSIF equity ratio above its normal operating level at the end of the calendar year, then insured credit unions could be entitled to a rebate. Based upon information from September 2016, the closure and transfer of the TCCUSF would raise the NCUSIF equity ratio by as much as 15 basis points. However, the agency cautions that closing the TCCUSF early and transferring the corporate system resolution program assets and obligations to the NCUSIF could introduce significant volatility to the NCUSIF equity ratio.

NCUA estimated that the range of a potential TCCUSF assessment rebate would be between $1.9 billion and $2.4 billion. This assessment rebate would be paid out after recoveries are paid to depleted capital holders.

Friday, January 6, 2017

Study: Fee Income Surpasses Net Income at 76 Percent of CUs

For most credit unions, fee income exceeds net income.

According to research by Moebs $ervices, 76 percent of credit unions have fee income greater than net income. In comparison, Moebs $services found that fee income exceeded net income for only 25 percent of banks.

The study noted that the increase in fee revenue at credit unions was tied to the growth in checking account at credit unions.

Mike Moebs stated that the increase in checking accounts at credit unions has allowed credit unions to take advantage of increased transaction revenue from interchange and overdrafts.

Thursday, January 5, 2017

Emergency Mergers and Hybrid Common Bonds

The Federal Credit Union Act recognizes three types of federal credit union charters — single common bond, multiple common bond, and community. The only exception is that a multiple common bond federal credit union may also serve an underserved area.

However, under National Credit Union Administration's emergency merger authority, two credit unions with dissimilar charter types may be merged.

An emergency merger occurs when the credit union to be merged is either insolvent or in danger of becoming insolvent.

The field of membership of the merging credit union may be transferred intact to the continuing federal credit union without regard to any common bond restrictions.

In addition, the National Credit Union Administration's Chartering and Field of Membership Manual maintains that the common bond characteristic of the continuing credit union in an emergency merger does not change.

According to a National Credit Union Administration spokesperson, there were 3 emergency mergers approved during 2015 and 5 during the first 11 months of 2016

Examples of emergency mergers with dissimilar field of membership include:
  • Navy Federal Credit Union (single common bond) with United Services of America (USA) Federal Credit Union (multiple common bond);
  • Bethpage Federal Credit Union (community common bond) with Montauk Credit Union (open field of membership); and
  • Michigan State University Federal Credit Union (multiple common bond) with Clarkston Brandon Community Credit Union (community common bond).
Moreover, America First Federal Credit Union used its emergency merger with Intermountain Credit Union to switch charter type from a community to a multiple common bond and still retain Salt Lake County in its field of membership, as Salt Lake County was part of Intermountain's field of membership.

Hybrid charters are not permitted under the Federal Credit Union Act. Policymakers need to revisit National Credit Union Administration's emergency merger policy as it permits hybrid charter types.

Wednesday, January 4, 2017

Community First CU Sponsors Jacksonville Theatre

The Florida Times-Union is reporting that Community First Credit Union (Jacksonville, FL) has agreed to become the Florida Theatre’s first season-long sponsor and partner for all its programs and events.

Financial terms of the agreement were not disclosed but both Numa Saisselin, president of the Florida Theatre, and John Hirabayashi, CEO and president of the credit union, said the commitment is substantial.

The $1.4 billion credit union’s name and logo will now be on every email or mailer the Florida Theatre sends out. It will be on the tickets and the programs for each show and on the theater’s marquee.

The agreement will run for next three years after which Community First will have the option to continue the arrangement.

However, is the sponsoring of a Theatre the purpose of the credit union tax exemption?

Read the story.

Association Provides Backdoor to Navy FCU Membership

DepositAccounts.com is reporting that anyone can become a member of Navy Federal Credit Union (Vienna, VA), the country's largest credit union, by joining the San Diego Council of the Navy League.

Anyone can join the San Diego Council of the Navy League.

Information obtained via a Freedom of Information Act request discovered that the association was added to Navy FCU's field of membership as part of an emergency merger of United Services of America (USA) Federal Credit Union (San Diego, CA) on December 10, 2010.

Under an emergency merger, the field of membership of the merging credit union may be transferred intact to the continuing federal credit union without regard to any common bond restrictions.

However, according to National Credit Union Administration's regulation, the common bond characteristic of the continuing credit union in an emergency merger does not change.

This allows Navy FCU to maintain the fiction that it is a single common bond credit union.

Tuesday, January 3, 2017

54 NCUA Employees Earned More Than $200K in 2015

Fifty-four National Credit Union Administration (NCUA) employees were paid $200,000 or more in 2015, according to FederalPay.org.

The average salary (base pay plus bonus) earned by an NCUA employees was slightly above $116 thousand in 2015. In 2014, the average salary was $109.7 thousand.

John Kutchey was the highest paid employee in 2015 earning $267,500.

The following table lists the ten highest paid employees in 2015 (click on image to enlarge).


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