Federal Government Sues to Evict VAntage Trust FCU

The federal government is seeking to evict VAntage Trust Federal Credit Union (Wilkes Barre, PA) from Department of Veterans Affairs owned property.

The complaint filed in federal court on February 24 states the credit union has overstayed its lease and has refused to vacate the premises.

The credit union built the branch on two acres of land owned by the federal government in 1995.

The complaint notes that the credit union has failed to pay rent on its branch.

Read the story.

MLR: Alleged Fraud Caused Failure of Six Small Pennsylvania CUs

A Material Loss Review (MLR) by the National Credit Union Administration (NCUA) Office of Inspector General (OIG) found that Chester Upland School Employees Federal Credit Union (Chester), O P S EMP Federal Credit Union (OPS), Electrical Inspectors Federal Credit Union (Electrical), Triangle Interests % Service Center Federal Credit Union (Triangle), Cardozo Lodge Federal Credit Union (Cardozo) and Servco Federal Credit Union (Servco) failed due to alleged fraud.

All six Credit Unions outsourced their management, recordkeeping, and maintenance of financial records to a third party provider, Service Center for Credit Unions, Inc. (SCCU), in Bensalem, Pennsylvania.

NCUA liquidated all six credit unions on April 5, 2016. The failure of the six credit unions resulted in an estimated loss of $3.2 million to the National Credit Union Share Insurance Fund (NCUSIF).

The MLR reported that the six credit unions failed due to overstatement of approximately $3.2 million in assets, primarily investments in certificates of deposit (CDs).

The MLR cited three reasons for the failure of these six credit unions:

• Management displayed a lack of integrity and did not manage the six credit unions in the best interest of their members; 
• The Supervisory Committees failed to obtain Supervisory Committee Audits that included confirmation of investments; and 
• The Boards of these six credit unions exercised weak oversight.

The MLR further stated that the alleged fraud could have been discovered sooner, if examiners "had followed National Supervision policies and identified the Supervisory Committee Audits as unacceptable, confirmed account balances directly with institutions, and addressed risks related to the failures of the Supervisory Committees and Boards of Directors." This would have potentially mitigated the loss to the NCUSIF.

Read the Material Loss Review.

State and Local Incentives Played Role in Navy FCU's Florida Expansion

State and local incentives played a direct role in Navy Federal Credit Union's choice to expand in the Pensacola (FL) region.

As part of an incentive package, the credit union committed in 2014 to adding 5,000 jobs at its operations in Beulah by 2026. The growth would coincide with the completion of its $1 billion campus at the location.

Through the governor's Quick Action Closing Fund, jointly administered through Enterprise Florida, the state agreed to give the credit union about $20 million over a 10-year period for its pledge to expand in the region. The company also received a 10-year tax exemption for all new capital structures built on the campus.

Read the story.

FDIC IG Report Finds Deficiencies with TSP Vendor Contracts

An article in Banking Exchange found banks had troubling lapses in their contracts with technology service providers (TSPs).

The article cited the findings of a Federal Deposit Insurance Corporation's Office of the Inspector General (IG) report, which examined a total of 48 contracts between 19 financial institutions and various technology service providers.

The IG report found example after example of lapses in contracts it studied.

For example, contracts with TSPs typically did not address TSPs responsibilities and lacked specific provisions to protect and preserve the rights of financial institutions.

The contracts had limited information and assurance that TSPs (1) could recover and resume critical systems, services, and operations in a timely and effective manner, if disrupted, and (2) appropriate actions would be taken to contain and control incidents and report them in a timely fashion to the appropriate parties.

The IG report noted that 18 of the 19 financial institutions' contracts allowed TSPs to subcontract work. However, 15 financial institutions, which contractually allowed subcontractor use, failed to document subcontractor considerations within their technology service provider risk assessment matrix or due diligence reviews.

These are just a few of the findings of the report.

In response to the IG's findings, the FDIC said it would work with other Federal Financial Institution Examination Council agencies to update guidance on business continuity planning and incident response and that it would continue examinations and off-site monitoring of vendor management.

Credit unions should read this report. It could help them identify and address potential deficiencies in their TSP contracts.

It is likely that these contracts may become a focus of examinations by credit union regulators in the coming year.

Read the Inspector General report.

Problem CUs Fell During the 4th Quarter of 2016

The number of problem credit unions fell during the fourth quarter of 2016, according to the National Credit Union Administration (NCUA).

At the end of the fourth quarter, there were 196 problem credit unions. In comparison, there were 201 problem credit unions at the end of the third quarter 2016 and 220 problem credit unions at the end of 2015.

A problem credit union has a composite CAMEL rating of 4 or 5.

During the fourth quarter both total shares (deposits) and assets in problem credit unions were unchanged. Shares in problem credit unions were $8.6 billion as of the end of 2016 and assets were $9.7 billion. A year earlier, problem credit unions held $7.7 billion in shares and $8.6 billion in assets.

According to NCUA, 0.83 percent of total insured shares and 0.8 percent of industry assets were in problem credit unions at the end of the fourth quarter.

NCUA reported credit unions with less than $100 million in assets accounted for the decline in problem credit unions.

Supplemental Capital and Corporate Governance

The National Credit Union Administration (NCUA) Board is inviting comments on the potential effect supplemental capital may have on the
mutual ownership structure and governance of credit unions. Specifically, the Board is exploring whether it should impose restrictions, such as non-voting and limits on covenants, in the investment agreement that may give investors levels of control over the credit union.

The Board believes that federal credit unions can issue supplemental capital only as subordinated debt. Debt holders do not have an ownership interest and cannot vote. It would not endanger the one member one vote structure of credit unions. So, the issuing of supplemental capital will not affect the mutual ownership structure of the credit unions.

However, the Board should not seek to limit covenants in the investment agreement. These covenants are the only way to protect the interest of the investors in supplemental capital. These covenants should be the result of private negotiations between investors in supplemental capital and the credit union and NCUA should not seek to abridge the rights of investors.

The Board should address what happens to a credit union if it is in violation of its covenants in the investment agreement.

Reserves for NCUSIF Losses Rose in 2016

Reserves to cover potential losses to the National Credit Union Share Insurance Fund (NCUSIF) rose in 2016, according to the National Credit Union Administration's Office of the Inspector General (IG).

According to audited financial statement for the NCUSIF, "[t]he NCUSIF ended 2016 with Insurance and Guarantee Program Liabilities of $196.6 million to cover potential losses as compared with $164.9 million for the previous year-end, an increase of $31.7 million." Year-end reserves were up $14 million from $182.6 million as of November 30, 2016.

Reserves were divided into $2.9 million in specific reserves. Specific reserves are identified for those credit unions where failure is imminent and where additional information is available to make reasonable estimate of losses. General reserves were $193.7 million.

However, the audited financial statement notes that estimated losses from conserved Melrose Credit Union were part of the general reserve methodology. The IG goes on to state that "the conservatorship [of Melrose Credit Union] is a distinct and subsequent action from the determination of year-end general reserves. Actual losses could vary and may be materially different from the estimated losses recognized as of December 31, 2016."

Read the audited NCUSIF statement.

MAPS CU Serving Oregon Marijuana Industry

Jefferson Public Radio is reporting that MAPS Credit Union (Salem, OR) is providing banking services to marijuana businesses.

The story notes that MAPS Credit Union has opened more than 100 accounts for marijuana businesses.

According to the story, the credit union extensively vets account holders, including visiting their businesses to make sure they are not doing anything illegal.

This extra work to vet account holders has allowed the credit union to charge relatively high fees to these accounts.

The credit union, however, stated it will stop serving these accounts, if the Federal government starts to crack down on financial institutions serving the marijuana business.

Read the story.

Rhode Island Treasurer Announces Bank Local Program to Fund Small Business Loans

Rhode Island General Treasurer Seth Magaziner on February 16th announced "Bank Local", a community deposit program.

"Bank Local" program will move state deposits to local banks and credit unions to encourage loans to Rhode Island small businesses.

Currently, six Rhode Island banks and credit unions have joined the program, and in recent weeks more than $4.5 million has been deposited to in-state accounts for 47 qualifying local small business loans.

Qualifying loans are made by banks and credit unions to small businesses of up to 100 employees. Loan amounts cannot exceed $250,000. Loans can be secured or unsecured, term loans or credit lines. Participating financial institutions must meet minimum requirements for financial soundness, including proof of FDIC or NCUA insurance. All state deposits must be fully collateralized.

The amount deposited in each institution is based on loans made to small businesses in the community.

Read the press release.

Additional Thoughts on Melrose

While I have commented on Melrose Credit Union's solvency, I have not focused enough attention on Melrose's liquidity position.

During the fourth quarter, Melrose, which is in conservatorship, had a deposit outflow of $102 million, as deposits fell from almost $1.716 billion to approximately $1.614 billion.

The credit union has $737.1 million in deposits that mature in less than one year.

In addition, it reported uninsured deposits of almost $41 million. These uninsured deposits pose a flight risk.

On the other hand, Melrose Credit union had $58.6 million in cash at the end of 2016. Its cash on hand fell by almost $124 million during the quarter

Cash and short-term investments were 3.92 percent of assets at the end of 2016. This was down from 9.66 percent on September 30, 2016; but higher than the 1.50 percent at the end of 2015.

The credit union reported uncommitted lines of credit of $175.7 million. This is down from $249.3 million from a year earlier. However, I am not sure that these lines of credit will be available.

Also, Melrose should have established a contingent emergency borrowing authority with either the Central Liquidity Facility (CLF) or the Federal Reserve.

The National Credit Union Administration does not comment on whether a credit union is a member of the CLF.

Furthermore, the conservatorship of Melrose may have closed its access the Federal Reserve's Discount Window.

Moreover, Melrose as of the end of 2016 has borrowed $55,643,796 from a Federal Home Loan Bank (FHLB). These advances from a FHLB are secured with assets and over-collateralized.

If Melrose is liquidated by NCUA, these advances from a FHLB would increase the size of the loss to the National Credit Union Share Insurance Fund, as FHLBs have super lien priority. This means that FHLBs claims come before the NCUSIF.

How Are Other CUs with Exposure to Taxi Medallion Loans Performing?

My earlier posts have looked at the three large New York City taxi medallion lending credit unions. However, there are several other credit unions within the greater New York metropolitan region that have some exposure to taxi medallion loans -- Quorum Federal Credit Union (Purchase, NY), Bay Ridge Federal Credit Union (Brooklyn, NY), Aspire Federal Credit Union (Clark, NJ), and First Jersey Credit Union (Wayne, NJ).

Quorum Federal Credit Union
While Quorum did not originate taxi medallion loans, it purchased taxi medallion participation loans. According to its 2015 Annual Report, it had $76.3 million in taxi medallion loans. The credit union stated that it stopped its tax medallion participation purchase program in 2013.

Quorum Federal Credit Union reported a 2016 loss of $6.7 million, driven by an increase in loan loss provisions. Loan loss provisions rose from $7.9 million at the end of 2015 to $24.5 million at the end of 2016.

The credit union saw its net worth fall from $72.2 million to $65.5 million. The credit union had a net worth ratio of 7.25 percent at the end of 2016.

The credit union has almost $35 million in delinquent loans. Its delinquency rate was 4.67 percent on December 2016. Delinquent loans represent 53.43 percent of the credit union's net worth.

Early delinquencies (30 days to 59 days past due) were slightly less than $8.1 million.

Quorum FCU reported almost $30.8 million in Troubled Debt Restructured TDR) loans, of which $24.5 million were business loans. TDR loans as a percent of total loans and net worth were 4.10 percent and 46.97 percent, respectively.

The credit union reported allowance for loan and lease losses of $27.8 million. Its coverage ratio was 79.51 percent at the end of 2016.

Bay Ridge Federal Credit Union
Bay Ridge Federal Credit Union posted a profit for 2016 of $434,189. As a result, the credit union's net worth rose to almost $19 million as of December 2016.

Its net worth ratio at the end of 2016 was 9.47 percent.

Loans 60 days or more past due were $6.6 million -- up from $3.8 million at the end of the third quarter and $4 million at the end of 2015. Approximately, $4 million were member business loans (MBLs). The delinquency rate on December 31, 2016 was 3.74 percent. Delinquent loans to net worth was 34.81 percent.

In addition, early delinquencies were $5.2 million at year end.

Bay Ridge FCU stated as of the end of 2016 it had $23.1 million in TDR loans, of which $21.3 million were MBLs. TDRs were 13.05 percent of loans and 121.48 percent of net worth.

The credit union reported holding allowance for loan and lease losses of $3.8 million. Its coverage ratio was 57.17 percent.

Aspire Federal Credit Union
Aspire Federal Credit Union has a taxi medallion lending credit union service organization (CUSO).

The credit union reported a full-year loss of $1.6 million. As a result of the loss, the credit union's net worth fell from $19.1 million to $17.5 million during 2016. Its net worth ratio of 10.11 percent as of December 2016, down from 10.48 percent a year earlier; but up from the prior quarter.

The credit union reported almost $7.3 million in delinquent loans, of which $3.3 million were member business loans (MBLs). The delinquency rate was 5.18 percent on December 31, 2016. Delinquent loans comprised 41.37 percent of the credit union's net worth.

In addition, the credit union is reporting early delinquencies of $3.7 million at the end of 2016.

Outstanding TDR loans were $5.9 million, of which $3.6 million are business loans. TDR loans were 4.22 percent of all loans and 33.71 percent of net worth.

The credit union reported allowances for loan and lease losses of $4.3 million. Its coverage ratio was 59.45 percent.

First Jersey Credit Union
First Jersey Credit Union also has a taxi medallion lending CUSO.

The credit union reported a loss of almost $2.6 million for 2016, after posting a loss of slightly less than $2.7 million for 2015.

As a result, the credit union's net worth fell from $12.3 million on December 2015 to $9.7 million on December 2016. Over the year, the net worth ratio fell by 30 basis points to 8.24 percent.

At the end of 2016, almost $5.7 million loans were 60 days or more past due and its delinquency ratio was 7.82 percent. Delinquent MBLs were $3.2 million.

Early delinquent loans were $2.8 million.

Outstanding TDR loans were $4.5 million, of which almost $2.9 million were business loans. TDR loans were 6.24 percent of loans and 46.73 percent of net worth.

Affinity Plus FCU Sponsors University's Athletic Program

Affinity Plus Federal Credit Union (St. Paul, MN) has entered into a new three-year sponsorship agreement with St. Cloud State University Huskies Athletics.

The sponsorship includes:

• Opportunities to use the SCSU Huskies logo in credit union signage, advertisements and customized promotions for students, faculty, alumni and the greater St. Cloud community;
• Visibility through radio and digital advertising, e-mail communications to students and season-ticket holders, and arena signage in the Herb Brooks National Hockey Center and Halenbeck Hall.
• Creation of the Community Organization of the Night program. During the 2017-2018 season Huskies’ hockey games, Affinity Plus will spotlight and feature nominated Central Minnesota Region organizations and community groups.

The financial terms of the sponsorship was not disclosed.

Read the press release.

Landmark CU Sued over Unfair Overdraft Fees

Landmark Credit Union (New Berlin, WI) is being sued for charging its customers overdraft fees in a way that violates the Electronic Funds Transfer Act and various state laws.

The plaintiff alleges that she was a victim of an unfair overdraft fee policy that violates the terms of the credit union's contracts with depositors and the Consumer Financial Protection Bureau’s Regulation E.

The complaint seeks restitution and damages for two potential subclasses of credit union members who were allegedly harmed by Landmark's overdraft policies over the past six years.

The case is Behrens v. Landmark Credit Union and was filed in the U.S. District Court for the Western District of Wisconsin.

Read the story.

Charge-Offs Jump in Q4 at Taxi Medallion Lender Progressive CU

Taxi medallion lender Progressive Credit Union (New York, NY) posted a small profit of $265 thousand for the fourth quarter of 2016; but a loss of $52.1 million for the full year of 2016.

The credit union had set aside provisions of almost $61.7 million at the end of 2016 to help cover expected taxi medallion loan losses.

Progressive Credit Union's net worth was $200.3 million at the end of 2016 and had a net worth ratio of 33.5 percent.

The credit union reported approximately $66.5 million in delinquent loans at the end of 2016, which was down $4.1 million from the prior quarter. As a result, delinquency rate on loans edged lower from 11.62 percent as of September 2016 to 11.45 percent at the end of 2016; but was well above the delinquency rate of 3.45 percent as of December 2015.

The credit union at the end of 2016 had a delinquent loan to net worth ratio of 33.18 percent.

Early delinquencies (loans 30 to 59 days past due) rose by 3.1 percent during the fourth quarter to $14.64 million.

The credit union recorded a jump in charged off loans during the fourth quarter. Net charge-offs went from $10.8 million as of September 2016 to $37.4 million as of December 2016. The net charge-off rate rose 2.37 percent to 6.32 percent over the same time period.

Outstanding Troubled Debt Restructured (TDR) loans at the end of 2016 were $124.3 million -- up 0.7 percent from the prior quarter. TDR loans as a percent of total loans and net worth were 21.41 percent and 62.06 percent, respectively.

Due to the increase in charge-offs, the credit union's allowance for loan and lease losses (ALLL) fell by $25.3 million during the fourth quarter to $65.8 million. As a result, the coverage ratio (ALLL to delinquent loans) was 99.05 percent at the end of 2016. The portion of ALLL allocated to TDR loans was $21.1 million at the end of 2016.

At the end of 2016, the credit union had a buffer of $266.1 million to absorb expected and unexpected losses.

Taxi Medallion Lender LOMTO Reports Loss of $18.4 Million, Net Worth Plummets

LOMTO Federal Credit Union (Woodside, NY) reported a loss of almost $18.4 million for the full year of 2016 as problem taxi medallion loans undermined the financial performance of the credit union..

The loss can be attributed to an increase in provisions for loan and lease losses in 2016. The credit union reported provisions for loan and lease losses were almost $16.8 million for 2016.

As a result of the loss, the credit union's net worth plummeted from $32.3 million at the end of 2015 to less than $13.9 million at the end of 2016.

The credit union's net worth ratio was 5.87 percent as of December 31, 2016 -- down from 12.25 percent a year ago and 8.40 percent as of September 30, 2016. This means that LOMTO FCU was undercapitalized at the end of 2016.

The $236 million credit union reported delinquent loans of $30.9 million at the end of 2016 -- up from $30.4 million as of September 2016 and $6.4 million as of December 2015, respectively.

The credit union's delinquency ratio increased during the quarter to 14.36 percent at the end of 2016. In comparison, the delinquency rate was 13.43 percent as of September 2016 and 2.65 percent at the end of 2015.

Also, delinquent loans were more than double the credit union's net worth at 222.86 percent.

In addition, the pipeline of early delinquencies (30 to 59 days past due) grew during the fourth quarter from $7.7 million to $10.9 million.

The credit union saw an surge in net charged off loans during the third quarter. Net charge-offs went from $3.4 million at the end of the third quarter of 2016 to $11.2 million at the end of 2016. As of the end of 2016, the net charge-off rate was 4.90 percent.

During the fourth quarter, troubled debt restructured (TDR) loans fell by almost $10.7 million to $23.1 million at LOMTO FCU. The ratio of TDR loans to total loans was 10.72 percent and the ratio of TDR loans to net worth was 166.46 percent.

The credit union stated that its allowance for loan and lease losses (ALLL) was almost $24.9 million at the end of 2016. As a result, the credit union had a coverage ratio (ALLL to delinquent loans) of 80.41 percent. However, its coverage ratio may be overstated as roughly $8.8 million of ALLL is meant to cover potential losses associated with TDR loans.

Given the deteriorating financial performance of LOMTO FCU, the credit union should be under a formal enforcement order or conservatorship with the National Credit Union Administration.

Bad Taxi Medallion Loans Pushes Melrose CU into Conservatorship

The New York State Department of Financial Services today took possession of Melrose Credit Union, located in Briarwood, New York, and appointed the National Credit Union Administration as conservator.

Bad taxi medallion loans eroded the financial performance of Melrose Credit Union and pushed the credit union into conservatorship.

The credit union reported a 2016 loss of almost $98.7 million, after posting a loss for 2015 of $176.7 million.

Provisioning for loan and lease losses contributed to the loss, as Melrose recorded provisions for loan and lease losses of $110.3 million for 2016.

As a result of the loss, the credit union's net worth fell sharply to $102.2 million at the end of 2016. In comparison, the credit union's net worth was $205.2 million at the end of 2015 and $145.1 million as of September 2016.

The credit union was undercapitalized at the end of 2016 with a net worth ratio of 5.73 percent.

Delinquent loans grew during the quarter by almost $80 million to $501.4 million as of December 2016.

At the end of 2016, 28.64 percent of all loans were 60 days or more past due. Delinquent loans to net worth ratio was 490.41 percent.

In addition, the credit union is reporting that early delinquencies (30 days to 59 days past due) of $62.6 million.

Net charge-offs were $191.4 million at the end of 2016. The net charge-off rate was 10.23 percent.

Troubled Debt Restructured (TDR) loans were $248.7 million, as of December 2016. TDR loans were 14.21 percent of total loans and 243.25 percent of net worth.

Melrose reported an increase in allowance for loan and lease losses (ALLL) of $47 million during the fourth quarter to $149.2 million. The credit union's coverage ratio (ALLL to Delinquent Loans) was 29.76 percent, as of December 2016. The TDR portion of ALLL was almost $44 million.

Melrose reported shedding $166 million in assets during the fourth quarter. At the end of 2016, the credit union had $1.78 billion in assets.

Read the press release.

CUs More Likely to Offer Only One Checking Account

A Moebs $ervices Study on Checking Account Types & Features found that credit unions in comparison to other depository institutions tend to offer a single checking account option to consumers.

The study noted that 11.4 percent of all depository institutions offer just one type of checking account.

Among financial institutions that offer a single checking account option, 71 percent were credit unions.

The top reason cited by credit unions for offering a single checking account was "to keep servicing costs to a minimum." In addition, many credit unions with less than $100 million in assets "cannot justify the cost of 2 or more checking accounts."

Wisconsin CU Supervisor Denies CU's Request for MBL Waiver and Exception to MBL Cap

The Wisconsin Division of Credit Unions has denied the application of Community First Credit Union (Appleton, WI) for an exception to the aggregate member business loan (MBL) limit and a MBL waiver, most likely dealing with construction and development loans.

The Division of Credit Unions received Community First Credit Union's application for an exception to the MBL cap and MBL waiver on October 25, 2016.

On February 24, 2014, the Wisconsin Credit Unions supervisor approved an exception to the aggregate member business loan (MBL) limit for Community First CU to make member business loans up to 18 percent of the credit union's assets, instead of 12.25 percent of assets.

This application would suggest that the credit union was seeking a higher aggregate MBL lending threshold.

The Division of Credit Unions denied the credit union's request on January 23, 2017.

I filed an open records request to the Wisconsin Credit Union supervisor seeking information related to the denial.

However, the open records request was denied by the Department of Financial Institutions.

In denying my request, the Department of Financial Institutions wrote in an e-mail:

"Pursuant to s. 186.235(7), Stats., the department does not release facts and information obtained in the course of examinations or contained in any report provided by a credit union other than a semiannual or quarterly financial report that is regularly filed with the office of credit unions. The documentation you requested would have contained such information. Pursuant to s. 19.36(1), Stats., these records are specifically exempt from disclosure by state law and are, therefore, exempt from disclosure under s. 19.35(1), Stats. Therefore, the department cannot provide you with the records you have requested."

26 CUs Fined for Late Filing Q3 2016 Call Reports

The National Credit Union Administration announced that 26 federally insured credit unions consented to $17,485 civil monetary penalties for filing late Call Reports in the third quarter of 2016.

In comparison. one year ago 22 credit unions consented to penalties.

Individual penalties ranged from $45 to $10,000. The median penalty was $174.

Of the 26 credit unions agreeing to pay penalties for the third quarter of 2016:

• Fourteen had assets of less than $10 million;
• Nine had assets between $10 million and $50 million; and
• Three had assets between $50 million and $250 million.

Three of the late-filing credit unions had been late in a previous quarter.

Read the press release.

Outstanding Consumer Credit at CUs Grew in December

Outstanding consumer credit at credit unions grew in December by approximately $1.7 billion to $382 billion, according to the Federal Reserve's G.19 report.

Revolving credit balances at credit unions expanded by almost $1.1 billion to $53.1 billion as of December.

Non-revolving credit edged higher by $500 million in December to $328.9 billion.

The pace of consumer credit growth slowed at credit unions during the fourth quarter of 2016 compared to the third quarter of 2016. During the fourth quarter of 2016, outstanding consumer credit at credit unions grew at an annualized rate of $33.8 billion. In comparison, the annualized growth rate for consumer credit at credit unions was $62.9 billion for the third quarter.

Jury Awards Widow $580,000 After CU Freezes and Drains Funds in Her Account

The Albuquerque Journal is reporting that a jury awarded a widow $580,000 in punitive and compensatory damages after Zia Credit Union (Los Alamos, NM) froze and wiped out her account, which had approximately $100,000, and left her with $25.

The jury ruled in favor of Stella Vigil on all nine counts including unjust enrichment, conversion, intentional infliction of emotional distress and violation of the Unfair Practices Act.

At issue in the case was whether Zia Credit Union could go after the money in the joint mother-daughter account to cover debts incurred by the daughter.

According to court documents, the credit union failed to inform Vigil of the risk she assumed when opening an account with the credit union and the membership account agreement included boilerplate language.

The lawyers for the plaintiff are asking the judge to triple the amount of the award.

This verdict should have credit union compliance officers re-examining their account opening practices and membership account agreements, especially language regarding cross-collateralization clauses.

Read the story.

Will Complex CUs Issue Supplemental Capital?

If complex credit unions get the authority to issue supplemental capital, will they use it?

The National Credit Union Administration (NCUA) Board believes that federal credit unions can only issue supplemental capital as subordinated debt.

I don't expect there will be a large number of credit unions scrambling to issue supplemental capital.

Let's look at the evidence.

Currently, most credit unions have enough capital to meet their organic growth and don't need additional capital.

In addition, low-income designated credit unions already have the statutory ability to issue secondary capital, which counts towards a credit union's net worth. But only 73 low-income designated credit unions (or 3 percent of low-income designated credit unions) reported holding secondary capital, as of June 30, 2016. Since December 31, 2011, the number of low-income designated credit unions with outstanding secondary capital ranged between 72 and 79.

Furthermore, supplemental capital will not count towards a complex credit union's net worth. According to the NCUA's Advance Notice for Proposed Rulemaking (ANPR), supplemental capital would only count towards a complex credit union’s risk-based capital ratio.

The NCUA Board believes that the "most likely users would be those credit unions with net worth ratios above the well capitalized level but with a risk-based capital below or near the minimum needed to be well capitalized." NCUA estimates that 140 credit unions might issue supplemental capital to boost their risk-based capital ratio.

Moreover, supplemental capital could be very expensive for credit unions, limiting its attractiveness. The ANPR states that the interest rate paid by community banks on subordinated debt was 300 to 400 basis points above the interest rates on ten-year treasury note. Additionally community banks report expenses associated with sales commissions, ranging from 1.25 percent to 3 percent, and fees along with legal and operational costs.

Therefore, the available evidence would suggest that credit unions will not be beating down the door to issue subordinated debt.

Suncoast Credit Union Breaks Ground on 107,176-Square-Foot Office Building

Suncoast Credit Union (Tampa, FL) broke ground for a three-story, 107,176-square-foot building on the credit union’s main campus in Tampa.

The building is expected to be ready for occupancy in the second quarter of 2018.

The cost of the project was not disclosed.

Suncoast, with $8 billion in assets, is the largest credit union in Florida, and the 12th-largest credit union in the United States.

Read the story.

Joint Committee on Taxation Sets CU Tax Expenditure at $14.4 Billion over Five Years

The Joint Committee on Taxation estimates that the tax expenditures arising from the credit union exemption from corporate income taxation will equal $14.4 billion for fiscal years 2016 through 2020.

Click on below image to enlarge.

Privately-Insured Credit Unions and Stabilization Fund Rebate Assessment

When the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund) is closed, credit unions insured by American Share Insurance (ASI) may receive a payment if they have a claim as a depleted member capital holder in a failed corporate credit union recovery. The same would apply for a credit union that switches to a bank charter.

When the Stabilization Fund is closed, the residual assets will be transferred to the National Credit Union Share Insurance Fund (NCUSIF). Priority to the residual assets first goes to depleted member capital holders in failed corporate credit unions. If there is anything leftover after making depleted member capital holder whole, then a rebate will be paid to all National Credit Union-insured credit unions.

According to a National Credit Union Administration (NCUA) spokesperson, "insured status does not apply to recoveries for depleted member capital holders. So a now or future ASI-insured credit union would get a recovery on its depleted member capital if it held such a claim for a failed corporate credit union's estate with a recovery."

However, only credit unions insured by NCUA at the time of the NCUSIF assessment rebate would receive one. No rebates, if any, can come directly from the Stabilization Fund.

That means former NCUSIF-insured credit unions that paid assessments to the Stabilization Fund would not be eligible to receive an assessment rebate.