Thursday, January 31, 2019

Rep. Luetkemeyer Urges Formal Rulemaking on Guidance Issues

Congressman Blaine Luetkemeyer (R - MO) wrote on January 18, 2019 Federal Reserve Chair Jay Powell, FDIC Chair Jelena McWilliams, NCUA Chairman Mark McWatters, and Comptroller of the Currency Joseph Otting urging formal rulemaking on guidance issues.

In September 2018, the federal banking regulators released an Interagency Statement announcing an important distinction between guidance and rule.

Representative Luetkemeyer stated: "The Interagency Statement was an integral first step towards restoring sanity and clarity in the regulatory regime."

However, he stated the federal banking regulators need to adopt the stated principles of the Interagency Statement as a formal rule.

He further wrote that any enforcement action or matters requiring attention "must be based on violation of a statute, regulation or order" and not be based on guidance.

Read the letter NCUA Chairman McWatters.

Wednesday, January 30, 2019

SchoolsFirst FCU's TIP Charter Will Allow It to Prey on Smaller CUs Serving the Education Community

Credit unions in California primarily serving the educational community should be nervously looking over their shoulders at $15.2 billion SchoolsFirst Federal Credit Union (Santa Ana, CA).

The National Credit Union Administration in the third quarter granted SchoolsFirst FCU a trade-,industry-,and profession-wide (TIP) charter serving the educational community throughout the whole state of California.

Last week, SchoolsFirst announced a merger with $1.9 billion Schools Financial Credit Union (Sacramento, CA). It is likely that this merger was facilitated by the expansion of SchoolsFirst's TIP charter to the whole state.

SchoolsFirst will likely use its TIP charter to prey on the membership of other California-based educational credit unions.

In 2016, SchoolsFirst was accused of trying to poach members from Schools Federal Credit Union (Rancho Dominguez, CA) and thereby threatening the viability of the credit union.

These smaller credit unions serving the educational community are going to have a difficult time competing against SchoolsFirst and will have a hard time remaining independent.

Tuesday, January 29, 2019

Insolvent Taxi Medallion Lender Progressive CU Posted a 2018 Loss of Almost $103 Million

It appears that Progressive Credit Union (New York, NY) came clean about its true financial performance prior to its emergency merger with Pentagon Federal Credit Union (McLean, VA) on January 1, 2019.

Progressive Credit Union was a casualty of the disruption to the taxi industry by ride sharing companies.

At the end of 2018, Progressive Credit Union had $325.6 million in assets and $270.5 million in commercial loans not secured by real estate, which presumable were mostly or all loans to finance taxi medallions.

Progressive Credit Union reported a loss of $102.99 million for 2018. The loss for the fourth quarter was $49.7 million.

The fourth quarter loss was attributed to an increase in provision for loan and lease losses by $40.4 million during the fourth quarter. As of the end of 2018, provision for loan and lease losses were $$87.25 million.

The fourth quarter loss also wiped out the net worth for Progressive Credit Union. Net worth fell from $44.5 million as of September 2018 to negative $5.2 million at the end of 2018. The credit union's net worth ratio fell from 11.35 percent on September 30, 2018 to minus 1.58 percent on December 31, 2018. At the end of 2018, the credit union was critically undercapitalized.

The credit union reported that at the end of 2018 delinquent loans were almost $100.6 million. This meant that 26.7 percent of its loans were 60 days or more past due at the end of 2018.

In addition, early delinquencies increased by 37.2 percent during the fourth quarter to $21.6 million.

The credit union charged off almost $69.4 million in loans in 2018, but recorded recoveries of approximately $24.6 million. As a result, the net charge-off rate was 10.89 percent for 2018.

The credit union's allowance for loan and lease losses rose by 27.7 percent during the fourth quarter to $138.6 million. The credit union's coverage ratio (allowance for loan and lease losses divided by delinquent loans) was 137.85 percent.

The emergency merger of failed Progressive into Pentagon Federal Credit Union prevented the National Credit Union Share Insurance Fund from incurring losses.

Monday, January 28, 2019

Does Primary Financial Institution Impact Consumers' Choice of Mortgage Providers?

Raddon Research Insights found that consumers, who identify a credit union as their primary financial institution, are more likely to go to their credit union for a mortgage than individuals identifying other financial institutions as their primary financial institutions.

Eighty-three percent of credit union members, who identify their credit union as their primary financial institution, plan to use their credit union for a mortgage.

Only 32 percent of customers who state a major bank is their primary financial institution would use this major bank for a mortgage.

The percentage of regional bank and community bank customers were under 25 percent.

Friday, January 25, 2019

PenFed to Open a Regional Finance Center in San Antonio, Receives $2.5 Million Grant from State

Texas Governor Greg Abbott announced on January 25 that McLean, VA-based Pentagon Federal Credit Union (PenFed) will open a new Regional Financial Center in San Antonio, Texas, pending local incentive approvals.

The new facility is expected to create 571 new jobs and over $48 million in capital investment.

A Texas Enterprise Fund (TEF) grant of up to $2,523,850, which includes a bonus for hiring veterans, has been extended to Pentagon Federal Credit Union.

PenFed is the third largest credit union in the country with $24.1 billion in assets.

Read more.

Central Florida Educators FCU to Acquire Florida Bank

Central Florida Educators Federal Credit Union (Lake Mary, FL) has announced a deal to acquire Fidelity Bank of Florida (Merritt Island, FL).

Central Florida Educators Credit Union has $1.9 billion in assets.

Fidelity Bank of Florida has $174 million in assets and two offices -- one in Seminole County and the other in Brevard County.

The transaction, which awaits regulatory and shareholder approval, is expected to be completed in the third quarter of 2019.

The price of the deal was not disclosed.

Read the press release.

Thursday, January 24, 2019

Report: CU and Bank Execs Less Optimistic about 2019

Optimism in the C-suites at mid-sized banks and credit unions fell for 2019, according to a new report by Cornerstone Advisors.

Bank executives who are somewhat or very optimistic about the coming year dropped 16 percentage points to 52 percent in the latest survey.

Credit union executives who are somewhat or very optimistic about w2019 tumbled by nearly 30 percentage points to 48 percent.

The report found that slowing loan growth, higher funding costs and concerns of early credit softening were weighing on executive sentiment.

The report cited growing deposits was a top concern for credit union executives at 54 percent. The next two highest concerns identified by credit union executives were the interest rate environment at 37 percent and cybersecurity at 34 percent.

In addition, growing consumer deposits (64 percent) was identified as a top 2019 priority among credit unions, followed by expanding digital presence (49 percent), and growing consumer loans (40 percent).

Credit union executes stated that consumer mortgages, auto loans, and home equity loans/home equity lines of credit were the top loan priorities for 2019.

The top 2019 payment priorities for credit unions were credit cards (74 percent) and debit cards (71 percent).

Cornerstone Advisors surveyed 305 senior executives from community-based banks and credit unions.

Read the press release.

Wednesday, January 23, 2019

ABA Files Brief in CU Field of Membership Appeal

The American Bankers Association (ABA) on January 18 filed an appeal and response brief in its ongoing legal challenge to the National Credit Union Administration’s field of membership rule.

NCUA appealed Judge Dabney Friedrich’s March 2018 ruling invalidating two aspects of the rule -- (1) a Combined Statistical Area with fewer than 2.5 million people meets the requirement of being well-defined local community and (2) the expansion of the population of a “rural district” from 250,000 people to 1 million people.

ABA filed a cross-appeal challenging Judge Friedrich’s decision to uphold provisions of the rule that permit credit unions to serve core-based statistical areas without serving the urban core that defines the area -- despite calling the provisions as “troubling,” “jarring” and “a barely reasonably interpretation of the statute.”

In ABA’s brief, the association argued that NCUA’s rule on core-based statistical areas would allow credit unions to serve disparate local communities without serving the core that connects them, which would authorize credit unions “to effectively engage in ‘redlining’ by refusing to serve urban areas of the community with the highest concentrations of lower-income and minority individuals.”

ABA's brief also defended the legal reasoning behind the judge’s findings vacating portions of the NCUA rule related to combined statistical areas and rural districts.

Tuesday, January 22, 2019

Two Large Educational CUs Will Merge to Create $17 Billion CU

Two large California credit unions serving the educational community to merge creating a $17 billion credit union.

SchoolsFirst Federal Credit Union (Santa Ana, CA) and Schools Financial Credit Union (Sacramento, CA) on January 22 announced that the two credit unions have reached a tentative agreement to merge.

SchoolFirst FCU has more than $15.2 billion in assets and 50 branches. SchoolFirst has a field of membership serving the educational community throughout California.

Schools Financial CU has $1.9 billion in assets and 11 branches.

The merger will require the approval of School Finacial's members and regulators. If approved, the merger is expected to close before the end of this year.

Read more.

10 CUs Repay CDCI Investments in 2018

During 2018, 10 credit unions fully repaid investments from the Community Development Capital Initiative (CDCI) under the United States Department of Treasury's Troubled Asset Relief (TARP) program.

Below is the list of credit unions that repaid their CDCI investment and the amount of the repayment.

As of the end of 2018, there are 8 remaining CDCI financial institutions, of which 6 are credit unions.

Saturday, January 19, 2019

They Have Expensive Taste

The Washington Post is reporting on the expensive taste of National Credit Union Administration (NCUA) Chairman J. Mark McWatters and his chief of staff Sarah Vega.

According to the story, this information would have never seen the light of day except for a whistleblower complaint to the agency's inspector general about the extravagant spending by Mcwatters and Vega.

For example, the agency paid $250 for an UberBlack ride from Washington, D.C. to Alexandria.

The agency has decided that McWatters can no longer use UberBlack, but only regular Uber. This caused McWatters to lament: “I’m schlepping around in somebody’s Civic.”

The article also noted a fondness for wine and top-shelf liquor and pricey meals.

A recently retired assistant inspector general stated that "there was a sense of entitlement."

While these expenditures are lavish, they are permitted by the agency's rules.

As John Kutchey, deputy executive director of the NCUA, explained to agency investigators, "They have expensive taste."

Read the story (subscription required).

Friday, January 18, 2019

Ent CU to Build 300,000 Square Foot HQ Building

Ent Credit Union (Colorado Springs, CO) announced that it will start construction on its new corporate headquarters this summer.

Ent Credit Union will build a 300,000 square-foot building.

The credit union plans to build an adjacent parking garage to accommodate its workforce of about 500.

The new headquarters building will house Ent’s call center, consumer and mortgage lending, information technology, finance and accounting, human resources, member services, administration and the executive team.

The $5.6 billion credit union expects to move into its new headquarters building in 2021.

The cost of the project was not disclosed.

Read the story.

Thursday, January 17, 2019

Dubuque Proposes Tax Increment Financing Rebate for Dupaco Community CU's Development Project

The City of Dubuque, Iowa has proposed tax incentives for the development of a property located at 1000 Jackson Street in the Historic Millwork District by Dupaco Community Credit Union.

Under the proposed agreement, the credit union will make a $38 million capital investment in the 82,800 square foot facility, which will serve as the credit union's headquarters.

The credit union will occupy the top three floors of the building and prepare the rest of the building for commercial tenants.

Dupaco Community Credit Union will retain its current 150 employees in Dubuque and add at least 40 full-time employees employees to its Dubuque operations by October 1, 2023.

As part of the agreement, the city will provide an Urban Renewal Tax Increment Revenue Obligation for 15 years of Tax Increment Financing rebates of property tax increases, which is not expected to exceed $2 million.

The credit union is also requesting state incentives for the project.

A hearing on the project is scheduled for January 22, 2019.

Read the documents.

Tuesday, January 15, 2019

Vystar CU to Acquire Florida Community Bank

VyStar Credit Union (Jacksonville, FL) announced it has signed an Agreement and Plan of Merger to acquire Citizens State Bank (Perry, FL).

Citizens State Bank has four branches and over $280 million in assets.

Vystar Credit Union has more than $8.2 billion in assets and serves 49 counties in Central and North Florida and 4 counties in Georgia.

The transaction is expected to close midyear, and it is subject to standard closing conditions and Citizens State Bank shareholder and regulatory agency approvals.

The price of the transaction was not disclosed.

Read more.

NCUA Needs to Improve Emergency Merger Transparency

The National Credit Union Administration (NCUA) needs to improve transparency with regard to emergency merger process.

I am not the only one who believes there is a need for greater transparency.

In fact, the National Association of Federally-Insured Credit Unions (NAFCU) in a 2018 comment letter called on NCUA to increase its transparency with regard to the emergency merger process.

NAFCU wrote:

As part of this process, prospective merger partners should be fully apprised of important information regarding the selection process and should also have the opportunity to make their case for the merger. Additionally, the NCUA should provide prospective merger partners with a written explanation of the reasons for its decision. This would help increase transparency in the entire emergency merger process and help guide future emergency mergers.

For example, how did NCUA select Pentagon Federal Credit Union (McLean, VA) as the emergency merger partner for Progressive Credit Union (New York, NY), which was in danger of insolvency?

CU Today, a credit union trade publication, noted there were other credit unions that expressed interest in possibly acquiring Progressive. Why were these credit unions not selected, especially if they were headquartered in New York?

The agency's Inspector General should evaluate NCUA's emergency merger process and make recommendations on how to improve it and make it more transparent.

The Inspector General should also examine NCUA's decision to name Pentagon Federal Credit Union as the merger partner for Progressive.

Monday, January 14, 2019

237 CUs Borrowed from Fed's Discount Window During Q4 of 2016

During the fourth quarter of 2016, 237 credit unions visited the Federal Reserve's Discount Window 272 times and borrowed an aggregate amount of almost $116.4 million.

In the previous quarter, 205 credit unions borrowed from the Discount Window. Total borrowings were nearly $201 million.

The average amount borrowed by credit unions during the fourth quarter of 2016 was $427,857. The median amount borrowed was $7,500.

The was majority of the credit unions borrowing from the Discount Window used the primary credit program, which is reserved for healthy credit unions. Two credit union borrowed from the secondary credit program. Two other credit unions used the seasonal credit program, which 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 13, 2019

CU Volunteer Junket in Montego Bay

The Credit Union National Association (CUNA) is hosting its Volunteer Conference in Montego Bay, Jamaica.

The conference is scheduled for January 13 thru 16 at the Hilton Rose Hall Resort and Spa.

The price to the conference for CUNA member is $1795, while the non-member price is $3,590.

Room rates per day at the Hotel are $359 for a single and $430 for a double.

Along with educational sessions, the conference will include an optional catamaran cruise. In addition, the hotel has a championship golf course, water sports, and other amenities.

CUNA stated that credit union board members, supervisory committee members, and CEOs would benefit from this Caribbean junket.

Friday, January 11, 2019

Rep. McHenry Seeks Information on Open or Unimplemented Recommendations from Agencies

Congressman Patrick McHenry (R - NC), the Ranking Member on the House Financial Services Committee, sent letters on January 7 to the eight Inspectors General (IG) of the agencies within the committee’s jurisdiction requesting an update on the agencies’ efforts to implement the IGs recommendations to reduce waste, fraud, and abuse.

The National Credit Union Administration is one of the eight agencies.

McHenry is seeking the following information:

1. Which three open or unimplemented recommendations does your office consider to be the most important or urgent? For each, identify:

a. The status of the recommendation, including whether agency management has agreed or disagreed with the recommendation and the expected date of implementation; and,

b. The cost savings associated with the recommendation (if applicable).

2. Describe your office’s audit and investigative priorities for fiscal year 2019, to include start and end dates.

The letter requested that the IGs respond no later than January 24, 2019.

Read the press release.

Read the letter to NCUA.

Thursday, January 10, 2019

Checking Accounts Grow at Faster Pace at CUs Than Other Financial Institutions

Credit unions are gaining checking account market share, according to Moebs Services Checking Account Barometer Study.

The study found that checking accounts at credit unions increased by 4.3 percent for the year ending September 2018. Over the same time period, checking accounts at banks and thrifts grew by 1.7 percent and 1.5 percent, respectively.

At the end of September 2018, credit unions had 16 percent market share of the 359 million checking accounts. Banks had a 75 percent market share, while thrift had 9 percent of the market.

According to Moebs Services, credit unions are leading the way with bringing new consumer checking accounts on board.

Wednesday, January 9, 2019

Overdraft Revenues Up at CUs, Down at Banks and Thrifts

Overdraft revenues increased at credit unions; but fell at banks and thrifts, according to Moebs Overdraft Revenue Study.

The study found that year-over-year overdraft revenues increased by almost $500 million at credit unions as of September 30, 2018. However, overdraft revenues declined by a combined $400 million at banks and thrifts.

Credit unions saw an increase in the volume of overdraft transactions by 2.3 percent over the year ending on September 30. On the other hand, overdraft transactions dropped by 7.3 percent and 2.2 percent at banks and thrifts over the same period, respectively.

NCUA Releases Supervisory Priorities for 2019

The National Credit Union Administration (NCUA) on January 8 announced the agency's supervisory priorities for 2019.

The following areas will be the primary supervisory focus of NCUA for 2019.
  • Bank Secrecy Act Compliance
  • Concentrations of Credit
  • Consumer Compliance
  • Current Expected Credit Losses (CECL)
  • Information Systems and Assurance
  • Liquidity and Interest Rate Risks
Read more.

Tuesday, January 8, 2019

Consumer Credit Growth Slowed at CUs During November 2018

Outstanding consumer credit at credit unions grew albeit at a slower pace during November 2018, according to the Federal Reserve.

Outstanding consumer credit expanded by $3.1 billion during November to $458.7 billion, after growing by $6.2 billion in October.

The growth of revolving credit accelerated at credit unions during November, while nonrevolving credit growth slowed.

Revolving credit at credit unions was $61.3 billion in November, up from $60.5 billion in October and $60.2 billion in September.

Nonrevolving credit at credit unions expanded by $2.3 billion during November to $397.4 billion. In comparison, nonrevolving credit increased by $5.9 billion during October.

Read more.

CU Bank Merger Canceled

The Georgia Department of Banking and Finance is reporting that Southern Bank (Sardis, GA) has withdrawn its application of dissolution.

Southern Bank had on November 28, 2017 entered into agreement to be acquired by SRP Federal Credit Union (North Augusta, SC).

The Georgia Banking Regulator had approved the application for dissolution on December 7, 2018. But less than two weeks later, the application was withdrawn on December 19, 2018.

A news release dated December 21 stated, “Although the original rationale for the consolidation had merit, the parties determined that terminating the purchase and assumption agreement was in the best interest of both companies and their respective shareholders at this time.”

Read the story.

Monday, January 7, 2019

Taxi Medallion Lending CU's Request for Renewal and Extension of Nonmember Deposit Exemption Denied in 2018

The National Credit Union Administration (NCUA) Board on April 10, 2018 upheld a Regional Director's denial of a taxi medallion lending credit union's request for a renewal and extension of an exemption from the nonmember deposit cap.

NCUA's regulation caps nonmember deposits at 20 percent of total shares or $3 million, whichever is greater. But a credit union can seek an exemption from the nonmember deposit limit from the Regional Director.

While the credit union was unnamed in the document, the evidence suggests the credit union appealing the regional director's decision was Progressive Credit Union.

As background, the credit union in 2015 was granted a two-year exemption from the nonmember deposit cap, which would expire at the end of 2017. The credit union in July 2017 sought an additional two-year exemption, but the Regional Director proposed extending the exemption until June 1, 2018 to give the credit union time to develop a plan to end its reliance on costly and volatile nonmember deposits, as a primary source of liquidity. The credit union appealed the denial and the Board heard the case on March 14, 2018.

The credit union claimed that the denial of the exemption by the Regional Directors was another example of retaliation against the credit union.

According to the document, the credit union was not in sound financial condition.
  • It had a composite CAMEL rating of 4 due to its declining financial health. 
  • The credit union was experiencing a steep decline in its net worth.
  • The Regional Director expressed concerns about volatility on the liability side of the credit union's balance sheet, as nonmember deposits were 30 percent of the credit union's deposit base. All of the nonmember deposits were from credit unions. 
  • The credit union used an allowance for loan and lease methodology that may not reflect current market conditions with regard to medallions.
  • The credit union showed an unwillingness to diversify its business model.
Region 1 contended that the credit union was in denial about the scope and depth of its problems.

Read the denial.

Thursday, January 3, 2019

PenFed Acquires Troubled Taxi Medallion Lender Progressive CU

Pentagon Federal Credit Union (PenFed), headquartered in McLean, VA, has acquired distressed taxi medallion lender Progressive Credit Union (New York, NY) in an emergency merger.

With this merger, the four New York City credit unions that specialized in financing taxi medallions -- LOMTO, Melrose, Montauk, and Progressive -- are no longer in existence.

Under an emergency merger, the National Credit Union Administration “may approve an emergency merger without regard to common bond or other legal constraints” for credit unions at risk of insolvency.

This merger will permit PenFed to serve anyone in the country; because Progressive had an open charter granted by the state of New York.

Progressive in recent years has been adversely impacted by loans to finance New York City taxi medallions, whose value has plummeted due to the rise of ride-share companies Uber and Lyft.

PenFed will now absorb those problem taxi medallion loans.

According to the most recent call reports, PenFed had $24.1 billion in assets, while Progressive had almost $383 million in assets.

The effective date of the merger was January 1, 2019.

The American Bankers Association EVP Ken Clayton stated: "Congress should look no further than this combination to quickly see the fiction that large credit unions have become."

Read more.

States with the Highest Median Loan-to-Share Ratios, 3Q 2018

Nationally, the median loan-to-share (deposit) ratio for credit unions was 69 percent at the end of the third quarter of 2018.

However, there are a number of states where credit unions have much higher median loan-to-share ratios. There are eight states with median loan-to-share ratios equal to or greater than 80 percent.

Here is a list of states with loan-to-deposit ratios of at least 80 percent (click on image to enlarge).

Recently, some credit union regulators have expressed concerns that credit unions with high loan-to-share ratios could be exposed to increased liquidity risk.

Wednesday, January 2, 2019

Wisconsin CUs Need to Proactively Manage Liquidity Risk, Says Regulator

The Wisconsin Office of Credit Unions wrote Wisconsin credit unions in December that it will heighten its analysis of credit unions' liquidity management.

The state regulator noted that the loan-to-share (deposit) ratio for Wisconsin credit unions was 97.16 percent at the end of the third quarter of 2018.

The letter stated that the increase in loans has stressed liquidity for many credit unions.

Credit unions were advised that examiners will expand their analysis of credit unions with low levels of liquidity. This analysis will include looking at how a credit union measures, monitors, and manages liquidity and liquidity risk.

Things examiners will look at include balance sheet composition, funding sources and the reliance on borrowed money and nonmember deposits, projections on asset and loan growth for 2019, liquidity policy and contingent funding, and communication of liquidity events to senior management and directors.

While the state regulator acknowledges that there is not a one-size fits all approach to managing liquidity risk, it expected that credit unions to document their practices to ensure that liquidity levels are within established limits and that management and staff are proactively managing liquidity.

Read the letter.

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