Monday, December 31, 2018

NCUSIF Reserves Fell in October to $116.7 Million

Insurance and Guarantee Program Liabilities Reserves for the National Credit Union Share Insurance Fund (NCUSIF) were $116.7 million, as of October 31, 2018.

Reserves for specific natural person credit unions were $7.9 million and general reserves were $108.8 million.

NCUSIF reserves were $156.2 million, as of September 30, 2018. Reserves for specific natural credit unions were $47.4 million, while general reserves were $108.8 million.

The NCUSIF did not recognize any insurance loss expense during the month of October 2018.

Thursday, December 27, 2018

FSOC: CUs Post Strong Performance; But Challenges Persist

The Financial Stability Oversight Council (FSOC) in its 2018 Annual Report stated that the credit union industry posted relatively strong performance due to solid loan demand and a strengthening economy.

FSOC noted the credit union industry performance has bifurcated. Larger credit unions have fared better than smaller credit unions across many performance measures.

FSOC also commented that credit unions continue to struggle with interest rate risk.

It wrote that some credit unions appear to be reaching for yield by lengthening the term of their investments in order to boost near-term earnings. However, these credit unions' financial performance could be adversely impacted, if short-term interest rates rise faster than expected. But it seems that this risk is retreating as markets are anticipating fewer rate hikes from the Federal Open Market Committee in 2019.

The report further noted that credit unions' exposure to localized economic distress can present unique challenges, as they are closely tied to specific geographic areas or business organizations.

For example, credit unions exposed to the taxicab industry, which has been disrupted by ridesharing companies, have undergone significant financial distress. As of the second quarter of 2018, there were seven credit unions with with $3.0 billion in taxi medallion loans either on their balance sheets or sold to other credit unions. Two of these credit unions with total assets more than $1.5 billion and specializing in taxi medallion loans were placed into conservatorship in the first half of 2017 and liquidated in the third quarter of 2018.

Read the report.

Tuesday, December 25, 2018

Louisiana CU Pays $110,000 to Settle EEOC Lawsuit Charging Racial Discrimination

Meritus Credit Union (Lafayette, LA), formerly Lafayette Schools Federal Credit Union, has agreed to pay a former branch manager $110,000 to settle a racial discrimination lawsuit brought by the U.S. Equal Employment Opportunity Commission (EEOC).

According to the lawsuit, the credit union fired Connie Fields-Meaux because she opposed - and assisted another employee in opposing - the credit union's use of a racially offensive video during a training session, which depicted a caricature of a black fast food worker, as an example of "how not to provide customer service." Within days, the credit union fired her without warning or explanation.

In addition, as part of the settlement agreement, the credit union will provide regular training to its employees on retaliation.

Read more.

Monday, December 24, 2018

Bill Would Ban Implementation of CECL

Representative Blaine Luetkemeyer (R - MO) introduced legislation on December 21 that would block the implementation of the Financial Accounting Standards Board’s (FASB) Current Expected Credit Loss (CECL) standard by federal financial regulators.

The legislation would make implementation contingent on a quantitative study that analyzes the impact of CECL on the broader United States economy, market stability, and credit availability, particularly to small businesses and low- and moderate-income borrowers.

Read the press release.

Read the bill.

Thursday, December 20, 2018

NCUA to Fast Track Alternative Capital for CUs

The Credit Union Journal is reporting that the National Credit Union Administration (NCUA) may fast track a proposal to give complex credit unions access to alternative capital.

Complex credit unions have at least $500 million in assets and are subject to the agency's risk-based capital requirement, which will become effective on January 1, 2020.

The agency on December 13 approved a report calling for action on alternative capital by May of 2019.

Currently, only low-income credit unions have the authority to issue secondary or alternative capital.

While granting credit unions access to alternative capital will generate strong support from the credit union trade associations, the proposal, when issued, will also fuel vehement opposition from banking trade groups.

Alternative capital could become the Pandora's Box for credit unions. Once opened, it will become a curse for the credit union industry.

Read the story (subscription required).

Wednesday, December 19, 2018

WSECU Pays Almost $3 Million to Settle OD Fee Lawsuit

Another credit union settled an overdraft fee class action lawsuit in 2018.

Washington State Employees Credit Union (WSECU), headquartered in Tacoma, Washington, agreed to pay $2.99 million to settle a class action lawsuit over the credit union's overdraft (OD) practices.

The lawsuit claims that WSECU charged overdraft fees for transactions for which there were funds in the checking account to cover the transaction.

The class action includes any member who was charged an overdraft privilege fee for non-recurring debit card or ATM transactions at any time from October 1, 2009 through December 31, 2016, and, at the time such fee was imposed, that person had sufficient funds in the ledger balance but not the available balance in his or her account to complete the transaction.

The $2.99 million settlement fund was approximately 47 percent of identified sufficient fund damages of $6,363,771.

Payments to eligible class members were mailed around October 20, 2018.

Read more.

Monday, December 17, 2018

Graphs Look at Relationship Between Membership Growth and Deposit and Loan Growth

Looking at state level data, membership growth at credit unions is partially explained deposit and loan growth at credit unions.

The analysis uses state level data from the National Credit Union Administration for the 3rd quarter of 2018. Variables included in the analysis are median year-over-year membership growth rate, median year-over-year deposit growth rate, and median year-over-year loan growth rate.

Membership growth is treated as the independent variable and the dependent variables are deposit growth and loan growth.

The first graph looks at state level data regarding membership growth and deposit growth. There is a positive relationship between membership growth and deposit growth. The R-squared (goodness of fit) was almost 30 percent.

R-squared values range from 0 to 100 percent. A higher R-squared value means that the independent variable is doing a better job in explaining variances in the dependent variable.

The second graph looks at the relationship between loan growth and membership growth by state. Once again, there is a positive relationship between these variables and the R-squared was nearly 29 percent.

Friday, December 14, 2018

NCUSIF Normal Operating Level Lowered to 1.38 Percent

The National Credit Union Administration (NCUA) Board lowered the normal operating level for the National Credit Union Share Insurance Fund (NCUSIF) from 1.39 percent of insured shares to 1.38 percent of insured shares.

The NCUSIF normal operating level will be set by the NCUA Board between 1.20 percent and 1.50 percent, according to the Federal Credit Union Act.

NCUA stated that setting the normal operating level at 1.38 percent would insure that the NCUSIF equity ratio would not fall below 1.20 percent under a moderate recession scenario. If the equity ratio drops below 1.20 percent, NCUA would be required by law to assess premiums.

NCUA assumed that a moderate recession would cause a 13 basis point decline in the NCUSIF equity ratio.

NCUA estimates that the value of the NCUSIF's claim on the corporate estate is 2 basis points in a moderate recession, down from 4 basis points.

Finally, investment income to the NCUSIF fell as its investment portfolio shrank, because of the resolution of a large credit union. The estimated decline in the equity ratio was 3 basis points.

Read more.

Thursday, December 13, 2018

Roughly Half of CUs Had Fewer Members Y-O-Y

While overall membership at credit unions grew in the third quarter, roughly half of the country's credit union reported fewer members at the end of the third quarter of 2018 than a year ago.

Median membership growth was negative in 13 states. The District of Columbia had a median membership growth rate of negative 1.6 percent, followed by Illinois at minus 1.5 percent. Other states with negative median year-over-year membership growth at the end of the third quarter were Connecticut (-0.2 percent), Louisiana (-0.5 percent), Massachusetts (-0.6 percent), Maryland (-0.1 percent), North Carolina (-0.2 percent), North Dakota (-1.1 percent), New Jersey (-1.1 percent), Oklahoma (-0.3 percent), Pennsylvania (-1.4 percent), Texas (-0.2 percent), and West Virginia (-0.6 percent).

Median membership growth was unchanged in New York, Tennessee, and Virginia.

Credit unions reporting negative membership growth tend to be smaller with approximately 75 percent have less than $50 million in assets.

Read more.

Wednesday, December 12, 2018

Almost 88 Percent of CUs Reported Positive Net Income Thru Q3

Almost 88 percent of federally insured credit unions reported earning a profit thru the first 3 quarters of 2018.

Of the 5,436 federally insured credit unions, 4,783 reported positive net income.

Higher interest rates have caused an improvement in net interest margins at credit unions, which helped to lift net income. Net interest margins are up 13 basis points thru the first 3 quarters of 2018 and 24 basis points since the end of 2016.

There is a positive relationship between net income and credit union size. All credit unions with at least $1 billion in assets reported positive net income.

Tuesday, December 11, 2018

Landmark Exploring New HQ Building Site

The Milwaukee Journal Sentinel is reporting that Landmark Credit Union (New Berlin, WI) is exploring buying 19.5 acre site in the city of Brookfield for a new headquarters building.

The $3.9 billion credit union would construct a 150,000 to 160,000 square-foot building on the site.

The credit union hopes to close on the property by next spring or summer.

The price tag of the project was not disclosed.

Read the story.

Monday, December 10, 2018

Mazuma CU Settles Overdraft Lawsuit

Mazuma Credit Union (Overland Park, KS) has agreed to pay $1.36 million to settle class action lawsuit over its overdraft practices.

The lawsuit (Bowens v. Mazuma Credit Union) alleges the credit union charged an overdraft fee on transactions although the member had sufficient funds in the current account to complete the transaction. The credit union used the available balance method to levy an overdraft fee.

The lawsuit claims breach of contract and violations of Regulation E.

The class settlement includes anyone charged an overdraft fee by the credit union between April 1, 2011 and September 30, 2015.

Mazuma Credit Union charged approximately $3.4 million in overdraft fees when there was enough money in the account to cover the transaction. Analysis found 12,031 members of Muzama were in the class.

The settlement agreement will also require the credit union to assess overdraft fees using the current balance in a member's account rather than on the available balance. This operational change would have reduced overdraft fees at Muzuma over the four year period by almost $3 million.

Read more.

Sunday, December 9, 2018

Merger Will Create $3.3 Billion CU

Gesa Credit Union (Richland, WA) and Inspirus Credit Union (Tukwila, WA) announced their intention to merge.

The merger would create a credit union with $3.3 billion in assets with 23 offices throughout the state of Washington.

Inspirus Credit Union has $1.3 billion in assets and almost 80,000 members.

Gesa Credit Union has $2 billion in assets and almost 163,000 members.

According to the FAQ, the merger would create increased efficiencies, which would provide greater benefits to members and would allow the credit union to invest in new technologies and services.

The merger requires the approval of regulators and is expected to close in April 2019.

Read more.

Saturday, December 8, 2018

Consumer Credit at CUs grew at faster pace in October

Outstanding consumer credit at credit unions grew at a faster rate in October, according to the Federal Reserve.

Outstanding consumer credit at credit unions increased by $7 billion in October to $461.6 billion. In September, outstanding consumer credit at credit unions grew by $3.3 billion.

Revolving credit at credit unions was $60.2 billion in October compared to $59.9 billion in September.

Nonrevolving credit jumped by $6.7 billion in September to $401.4 billion.

Read more.

Thursday, December 6, 2018

Net Income Tops $10 Billion thru the First 3 Quarters of 2018

The National Credit Union Administration reported that federally insured credit unions (FICUs) reported $10.2 billion in net income thru the first nine months of 2018. This was just below the $10.4 billion in net income recorded for all of 2017.

The industry's return on average asset (ROAA) was 0.96 percent -- this was up from 0.90 percent as of June 2018 and 0.78 percent at the end of 2017.

The improvement in profitability during the third quarter (as a percentage of average assets) was driven by a 5 basis point increase in net interest margin, a 1 basis point increase in fee and other income, and a 3 basis point decline in provisions for loan and lease losses. A 2 basis point increase in operating expenses to 3.12 percent adversely impacted the profitability of credit unions during the quarter.

The median ROAA was 0.60 percent as of September 2018 -- this was up 8 basis points from 0.52 percent as of June 2018.

Net Worth Ratio Increases

The net worth for FICUs was $161.51 billion as of September 2018. The industry's aggregate net worth ratio was 11.21 percent -- this was up 20 basis points from the prior quarter.

Over 98 percent of FICUs (98.33 percent) had a net worth ratio of at least 7 percent, the minimum leverage ratio to be considered well capitalized. Only 23 FICUs had a net worth ratio below 6 percent and no FICU was critically undercapitalized with a net worth ratio below 2 percent.

Loans Grow, While Shares Largely Unchanged

FICUs reported $1.026 trillion in loans as of September 2018. This was up from $1.002 trillion at the end of the second quarter of 2018. Almost all major loan categories grew during the third quarter.

Indirect loans rose during the third quarter from $211.38 billion to $218.94 billion. Approximately 21.34 percent of all loans were indirect loans.

Share and deposit growth stalled in the third quarter. Total shares and deposits were $1.209 trillion as of September 2018. This was just barely above the $1.208 in shares and deposits as of June 2018.

Due to loans growing faster than shares during the third quarter, the loan-to-share ratio rose from 82.98 percent as of June 2018 to 84.91 percent as of September.

To help fund the loan growth, investments and cash at FICUs fell during the third quarter. Cash and short-term investments as a percent of assets declined from 12.19 percent as of June 2018 to 11.38 percent at the end of the third quarter of 2018. The 10-year average for the cash plus short-term investments to assets ratio is 14.69 percent. This might suggest greater scrutiny by regulators of FICUs' liquidity management practices.

Delinquency Rate Unchanged, Net Charge-Off Rates Lower

Delinquent loans rose from $6.7 billion in June to $6.9 billion as of September 30, 2018. The delinquency rate was unchanged between June 2018 and September 2018 at 0.67 percent.

Net charge-offs were $4.2 billion as of September 2018. If annualized, it would equate to $5.6 billion. The net charge-off rate was 0.57 percent. In comparison, the net charge-off rate was 0.60 percent as of June 2018.

Read the Quarterly Credit Union Data Summary.

NCUA Financial Trends in Federally Insured Credit Unions.

Treasury Postal Reform Task Force Says Nyet to Postal Banking

The U.S. Postal Service (USPS) should not move into “postal banking” with new financial services offerings, according to a report issued on December 4 by a Treasury Department task force focused on postal reform.

“Given the USPS’s narrow expertise and capital limitations, expanding into sectors where the USPS does not have a comparative advantage or where balance sheet risk might arise, such as postal banking, should not be pursued,” the task force said.

The report instead highlighted areas where USPS could grow revenue without taking on balance sheet risk, such as processing hunting and fishing licenses or renting space to complementary retail establishments.

Both banks and credit unions can agree that the USPS should not be in the business of providing banking services.

The task force was established by President Trump in April 2018.

Read the report.

Wednesday, December 5, 2018

ABA to NCUA: Appraisal Threshold Proposal Would Create Uneven Playing Field

A recent proposal by the National Credit Union Administration (NCUA) to raise the threshold at which credit unions must obtain appraisals for commercial real estate (CRE) transactions from $250,000 to $1 million would create an unlevel playing field between banks and credit unions, the American Bankers Association (ABA) said in a comment letter to the NCUA today.

The letter was also shared with members of the Federal Financial Institutions Examination Council.

ABA noted that the proposal would “[put] NCUA’s regulatory treatment of credit unions dramatically out-of-step with its sister agencies,” which earlier this year raised the CRE appraisal threshold for banks from $250,000 to $500,000.

ABA stated that it "does not oppose credit unions enjoying the benefit of an increased $500,000 threshold that aligns" with standards recently adopted by other federal banking regulators.

“Two different standards for commercial real estate lending appraisal thresholds or any other real estate lending thresholds, made by what are functionally equivalent lending institutions, would negatively impact prudent risk management practices and undermine local markets,” ABA said. It added that “FFIEC and all participating agencies should uniformly agree to abide by consistent standards, rulemaking and thresholds that are now in jeopardy as a result of this proposal.”

Read ABA's letter.

Tuesday, December 4, 2018

Regulator Cites CU for Illegally Operating in California, NCUA Is Missing in Action

The California Department of Business Oversight issued a cease and desist order on November 29 against Indian Federal Credit Union (Santa Clara, CA) and Atri Macharla.

The state regulator found that Indian Federal Credit Union was operating in the state without first obtaining a certificate allowing it to operate as a credit union in violation of state law.

The cease and desist order requires Indian Federal Credit Union to stop operating or advertising as a credit union until the credit union has obtained a certificate from the commissioner.

Moreover, Indian Federal Credit Union advertises itself as a federal credit union. But there is no evidence of Indian Federal Credit Union on the National Credit Union Administration's website.

The National Credit Union Administration (NCUA) is the charterer and regulator of federal credit unions.

Also, federal credit unions are required to be insured by the National Credit Union Share Insurance Fund. However, the credit union's website makes no mention to deposit insurance.

So, why hasn't NCUA acted to block this credit union from operating?

Shouldn't NCUA be concerned about a credit union calling itself a federal credit union?

It is possible that NCUA is not aware of this institution calling itself a federal credit union.

But after this commentary, NCUA has no excuse for not acting.

Read the enforcement order.

Lake Michigan CU to Pay $2.45 Million for Bank's Michigan Branch and Deposits

Lake Michigan Credit Union (Grand Rapids, MI) has entered into a purchase and assumption agreement to buy the Rochester Hills (MI) branch of CCF Bank, the subsidiary of Citizens Community Bancorp (Eau Claire, WI).

The purchase and assumption agreement includes approximately $35 million in deposits and approximately $300,000 in fixed assets.

Lake Michigan CU has agreed to pay a 7 percent deposit premium or approximately $2.45 million.

All loans will remain with CCF Bank.

The purchase is subject to regulatory approvals and is expected to close in the second quarter of 2019.

Read more.

Monday, December 3, 2018

Healthy Corporate Governance?

Does your credit union have a healthy corporate governance?

Sarah Moore, Administrator for the Alabama Credit Union Administration, posed the following questions in a November 9 presentation that should be addressed by members of a credit union's Board and supervisory committee regarding healthy corporate governance practices.
  • Is the Board performing an evaluation of themselves?
  • Does the Board have goals and metrics by which to evaluate the Board performance?
  • Does the Board review the mission statement of the credit union annually?
  • Do the members of the Board reflect the member base of the credit union, specifically race, gender, age, employer (particularly for SEG groups)?
  • Are Board members rewarding themselves through international or luxury training trips or other perks not available to other members of the credit union?
  • Are committees, other than Supervisory Committee, acting with specific authority from the board?
  • Are committee minutes included in Board packages each month?
  • Are committee chairs reporting substantive information to the Board? If there is a “no report” from a committee chair, why?
  • Do the bylaws contain term limits for Board members and Supervisory Committee members?
  • Do the bylaws contain an age limit in order to run for another term of office?
  • Is the Board actively soliciting and recruiting new Board and committee members to run for office?
  • Are the bylaws of the credit union up to date with laws and regulations?
  • Is the Supervisory Committee actively engaged in audits of the activities of the credit union?
  • Is the Supervisory Committee serving as a check on the Board of Directors?
  • Are the Board and Supervisory committee reviewing items in enough detail to be an independent check on management?
  • Does the Board have a strong conflict of interest policy? Is the policy being adhered to and who is checking to ensure that the policy is adhered to?
  • Do Board and Supervisory Committee members maintain their personal finances in good order?
I suspect the Administrator felt the need to discuss these corporate governance issues, because these issues were identified during recent examinations.

Below is a link to her presentation.

View presentation.

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