That's All Folks!

After writing almost 3,000 blog columns for slightly more than 11 years, this will be my last blog entry. 

I have followed credit unions for approximately 25 years over my career. This blog was just one part of my career. 

I am an outsider. I never belonged to a credit union.  For some true believers in the credit union industry, my views may have been heresy. 

My first entry was on June 16, 2009 and it looked at the NCUA Board allowing corporate credit unions to retroactively backdate their capital levels. 

Over the years, I have written about the corporate credit union crisis, the credit union taxi medallion lending debacle, the merger of banks into credit unions, and other issues. 

I have decided that this is the right time to stop writing this blog. 

However, that does not mean that I will quit following credit unions and the National Credit Union Administration. I may even opine on arbitrary actions by NCUA. 

In conclusion, I wish to express my gratitude to the people who have read this blog.

Net Worth at Southern Pine CU Falls by Almost 70 Percent During Q2

Conserved Southern Pine Credit Union (Valdosta, GA) reported an almost 70 percent decline in its net worth during the second quarter of 2020.

Net worth fell from $8.56 million as of March 2020 to almost $2.62 million as of June 2020. The credit union's net worth ratio tumbled from 18.43 percent to 6.23 percent during the same time period.

The $42 million credit union recorded a loss of $5.94 million for the second quarter. Year-to-date, the credit union had a loss of approximately $6.4 million. Most of the second quarter loss can be attributed to $5.82 million in miscellaneous operating expenses.

The credit union's year-to-date return on average assets was negative 27.34 percent as of June 2020.

The credit union was placed into conservatorship on June 11, 2020.

Mortgage Originations at CUs Up 30 Percent in 2019

S&P Global Market Intelligence is reporting that mortgage originations at credit unions was up almost 30 percent in 2019.

According to Home Mortgage Disclosure Data, credit union originated $177.3 billion in home mortgages in 2019. This was up from approximately $137 billion in 2018.

However, credit union market share of mortgages slipped from 6.9 percent in 2018 to 6.7 percent in 2019.

Navy Federal Credit Union (Vienna, VA) was the top credit union mortgage originator in 2019 funding $19.78 billion in mortgages. This was up 20.3 percent from the prior year. Navy FCU is the 19th largest mortgage lender in 2019.

Read more.

NCUA Overstates the Interest Rate Differentials Between Credit Unions and Banks

The National Credit Union Administration (NCUA) is overstating the interest rate differential between banks and credit unions for various loan and deposit products.

NCUA uses data from S&P Global Market Intelligence, which compares the national average rates for 23 common loan and deposit products at banks and credit unions, as well as the average rates for these same products at banks that converted from credit unions.

However, a 2020 paper by a Credit Union National Association economist -- Jordan van Rijn -- and others are critical of previous studies that used naive estimates from institution- and branch-level interest rate data.

The authors write that studies relying on this data are subject to selection bias. The authors note that studies using institution- and branch-level data do not reflect the actual rates paid by households, but the best advertised rate.

In other words, advertised or average rates do not control for household and loan characteristics. Therefore, the authors write that this best advertised rate may significantly differ from the actual rates paid by consumers.

The study, which examines new and used car loan rates, found that credit unions offer lower rates than banks on auto loans, but found that the interest rate differential is smaller than the interest differentials implied by institution- and branch-level data.

The paper compared its results with the data reported by NCUA. It concluded that this selection bias can explain about half of interest rate differential on new auto loans and approximately a quarter of the interest rate differential on used car loans.

Given this selection bias associated with institution- and branch-level data, which leads to an overstating of the interest rate differential between banks and credit unions, NCUA should remove this information from its website.

However, if the agency continues to publish this information, it needs to include a disclaimer that its interest rate differential data do not reflect the actual interest rates paid or received by consumers and the differences are overstated. This disclaimer should be in bold, large type at the very top of the website.

The paper, Financial Institution Objectives & Auto Loan Pricing: Evidence from the Survey of Consumer Finances, can be found on the Social Science Research Network (www.ssrn.com).

NCUA Should Publish Stress Test Results

The National Credit Union Administration (NCUA) should publish a summary of the annual supervisory stress test results for covered credit unions.

The stress test estimates losses, pre-provision net revenues, loan and lease loss provisions, and net income; and the potential impact on the credit union's capital ratio under different scenarios.

Credit unions with at least $15 billion in assets are required to perform the stress test.

However, NCUA does not publish the results from the stress test.

But NCUA should follow the Federal Reserve's example.

On June 25, the Federal Reserve disclosed aggregate results for covered banks.

NCUA should publish information on aggregate losses, pre-provision net revenue, loan and lease loss provisions, and net income for covered credit unions under the different scenarios, as well as the impact on the net worth ratio for covered credit unions.

NCUA should also publish losses by loan types.

Credit union members, as well as the industry, have a right to know the ability of these covered credit unions to absorb losses under these different stress scenarios.

NCUA's Harper Critical of CUs Garnishing Stimulus Payments, Senate Passes Bill Exempting Payments from Garnishment

In a July 13 opinion piece in Credit Union Journal, the National Credit Union Administration Board member Todd Harper criticized those credit unions that had garnished members economic impact payments.

While the CARES Act exempted these stimulus payments from being offset for debts owed to federal and state agencies (except for child support), it did not protect these payments from garnishment or the right of offset.

Harper wrote that these payments were meant to cover daily living expenses of credit union members, who had been impacted by COVID-19.

Credit unions that garnished these payments faced potential damage to their reputation and potentially their business model.

He also pointed out that these credit unions could damage the image of the whole industry.

In related news, the Senate voted unanimously on July 23 to pass a bill (S. 3841) that would exempt the CARES Act economic impact payments from assignment or garnishment.

The legislation must still be passed by the House and signed into law in order to protect these payments from garnishment.

CEOs at Large State Chartered CEOs Earned 12.5 Times Average Employee Compensation

In 2018, Chief Executive Officers at state chartered credit unions with at least $1 billion in assets earned on average 12.5 times the average compensation of their employees.

The median ratio of CEO compensation to average credit union employee compensation was 10.99.

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

The following table lists the 10 credit unions with the highest ratio of CEO compensation to average employee compensation. Elizabeth Dooley of Educational Employees Credit Union (Fresno, CA) had the highest ratio of CEO compensation to average employee compensation at 41.28.

However, this data should not be used to compare the compensation of bank CEOs to their employees. The information reported by publicly-traded banks uses median employee pay, while this analysis substitutes average employee compensation for median compensation, because median compensation is not available.

Median employee compensation would be lower than average employee compensation. In other words, if median compensation was used, the ratio of CEO compensation to median employee compensation would be higher.

Average CEO Compensation at Large State Chartered CUs Tops $1 Million for Fifth Consecutive Year

The average compensation for Chief Executives at large state chartered credit unions with at least $1 billion in assets was $1,030,696 for 2018. This is the fifth consecutive year were the average compensation topped $1 million.

The median total compensation for 2018 was almost $838,372.

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

Compensation information was obtained from Schedule J of Form 990s filed by state chartered credit unions with at least $1 billion in assets.

At the time this blog post was written, Form 990s for 2018 were not available for the following credit unions -- Municipal Credit Union (NY), Canvas Credit Union (CO), Rogue Credit Union (OR), and Cobalt Credit Union (IA).

Self-Help Credit Union (NC) filed a Form 990, but did not publish Schedule J.

Sixty-two CEOs reported total compensation of at least $1 million. The following table lists the 10 highest compensated large state chartered credit union CEOs.

Mean and median base compensation was $552,498 and $525,599, respectively. Seven CEOs had a base pay in excess of $1 million.

Mean and median incentives and bonuses were $172,853 and $118,419, respectively. Most large state chartered CU CEOs received some sort of incentive or bonus compensation.

Compensation information for CEOs at federal credit unions was not available as federal credit unions are not required to file Form 990s.

Corrections and Amplifications:

The Form 990 for Patelco Credit Union had an error. It was reported that Erin Mendez had a total compensation for 2018 of $2,470,580. The corrected total compensation for 2018 was $916,565. The error arose from the inclusion of Mr. Mendez's unvested 457(f) plan.
This blog post had earlier stated that 63 CEOs had total compensation of at least $1 million.
An earlier version reported that the base salary for University of Wisconsin CU's Paul Kundert was $1,915,557, which was the correct amount in Schedule J Part II B(1). However, it has been brought to the attention of this blogger that the narrative for Schedule J Part III included a deferred compensation payment in the amount of $1,317,000 in the $1,915,557 figure. Therefore, his base salary was $598,557.

House Adds AML Provisions to Defense Bill

With a bipartisan majority of 336 to 71, the House on July 20 voted to add anti-money laundering (AML) provisions to the 2021 National Defense Authorization Act (NDAA).
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Financial trade groups had urged House Armed Services Committee leaders to include key anti-money laundering provisions in NDAA. The provisions would direct the Financial Crimes Enforcement Network to establish and maintain a registry of beneficial ownership information and also modernize Treasury authorities and certain anti-money laundering requirements.

The groups noted that these provisions will “assist in preventing money laundering, human trafficking, drug smuggling, terrorism financing, fraud and other illicit activity.”

The House still needs to vote on passage of NDAA, as amended.


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NTU Calls Congress to Enact Reforms

In a July 16 letter to Chairman Crapo (R - ID), Ranking Member Brown (D - OH), Chairwoman Waters (D - CA), and Ranking Member McHenry (R - NC), the National Taxpayers Union (NTU), the nation's oldest taxpayer advocacy organization, called on Congress to enact serious reforms before raising the member business loan (MBL) cap for credit unions to address the economic crisis stemming from COVID-19.

NTU wrote that "Congress has a responsibility to demand enhanced transparency from the credit union industry, examine potential abuses that run counter to an institution’s tax-exempt purpose, and strengthen membership rules."

Specifically, the NTU is urging the Congress enact the following reforms:

• to require federal credit unions to file Form 990s;
• to subject federal credit unions to Unrelated Business Income Tax;
• to ensure tax parity with other financial institutions; and
• to address field of membership concerns.

NTU believes that these reforms would strike "a reasonable balance between increasing credit union [business] lending capacity and accountability, transparency and fairness."

NTU stated that it would oppose any legislation to increase the MBL cap, if these reforms are not addressed.

Read the letter.

Togther Credit Union Buys Naming Rights to Plaza

Together Credit Union (St. Louis, MO) is the title sponsor of Ballpark Village's newly completed outdoor plaza.

Ballpark Village is a mixed-use retail, entertainment, office and residential district that spans seven blocks in downtown St. Louis.

The newly opened Together Credit Union Plaza comprises nearly 40,000 square feet of outdoor public gathering space framed by Busch Stadium, OneLife Fitness, Sports & Social St. Louis, Live! by Loews – St. Louis, and Phase 1 dining and entertainment venues along Clark Street.

The Together Credit Union Plaza currently features tabled seating for more than 300 guests and a state-of-the-art LED screen for guests

The price tag of the sponsorship was not disclosed.

Read more.

NCUA Board Upholds FOM Expansion Denial

The National Credit Union Administration (NCUA) Board upheld the denial of a credit union's field of membership (FOM) expansion by the agency's Director of the Office of Credit Union Resources and Expansion (CURE).

As background, an unnamed multiple common bond credit union on January 25, 2019 requested CURE to add the local chapter of an unnamed association to its FOM. CURE on April 5, 2019 notified the credit union that it was deferring action and requested additional information, including whether the local the chapter has a physical location within reasonable proximity of the credit union’s service facility. On May 6, the credit union provided additional narrative and information documenting the chapter's existence and location. On October 29, 2019, CURE denied the FOM expansion request.

There were two reasons for the denial. First, CURE concluded that the local chapter did not exist as a separate legal entity and did not meet the reasonable proximity test. Second, because the group had more than 16,000 members, the group must demonstrate its inability to form its own credit union. CURE stated that the information provided was insufficient to substantiate the group’s claim.

The credit union appealed the denial to the NCUA Board.

In its appeal, the credit union submitted additional evidentiary support and information documenting the local chapter’s existence and the chapter's inability to form its own credit union.

However, the NCUA Board on May 21 affirmed the decision of CURE noting that this new information was not available to CURE during either its initial analysis or its resubmission analysis. The NCUA Board further stated that this Decision and Order does not preclude the credit union from submitting a new FOM expansion request to provide additional, updated information for CURE’s consideration.

Read more.

Application Withdrawn Regarding Collins Community CU's Acquisition of Small Illinois Savings Bank

The Federal Deposit Insurance Corporation is reporting that the application for First Savanna Savings Bank (Savanna, IL) to merge into Collins Community Credit Union (Cedar Rapids, IA) was withdrawn on June 18, 2020.

No explanation was provided for the withdrawal of the application.

This is the fourth application of a credit union acquiring a bank to be withdrawn this year.

Merge Will Create $6 Billion CU

Kinecta Federal Credit Union (Manhattan Beach, CA) and Xceed Financial Credit Union (El Segundo, CA) on July 16 announced that the two credit unions have reached a tentative agreement to merge.

The combined credit union will operate under the Kinecta Federal Credit Union name and charter and will have approximately $6 billion in assets, 300,000 members and 33 locations. It will be the nation’s 35th largest credit union, and California’s eighth largest in terms of asset size.

The merger requires approval by regulatory authorities and Xceed’s membership.

The merger is planned to be completed before the end of the first quarter of 2021.

Read more.

Digital Divide Between Large and Small CUs in the Age of COVID-19

S&P Global Market Intelligence is reporting that larger credit unions are increasing their investment in electronic services leading to a digital divide between large versus small credit unions.

The fallout from COVID-19 is underscoring the need to adopt electronic banking services as a vehicle to connect to members/consumers, as many branches closed their lobbies.

Mobile-based banking services offered by credit unions have steadily gained ground on internet-based banking services in recent years.

For example, 77.3 percent of credit unions offered internet-based banking, while only 48.7 percent provided mobile-based banking services. However, by the first quarter of 2020, the percent of credit unions offering internet-based banking and mobile-based banking services was 79.8 percent and 65.9 percent, respectively.

However, mid-sized and large credit unions are offering the most electronic financial services and are the most tech-savvy.

Over 97 percent of credit unions with more than $100 million in assets offer mobile banking services. But just over half of credit unions with less than $100 million in assets offer such services.

S&P Global Market Intelligence noted that there is a significant gap in e-signature authorizations between smaller credit unions, at 19.01 percent, and mid-sized and large institutions at 63.41 percent, and 70.06 percent, respectively.

Only 41.61 percent of the smallest credit unions permitted new loans to be originated electronically, compared to 92.38 percent of mid-sized credit unions and 95.76 percent of the biggest institutions.

The article makes it clear that these larger credit unions are better positioned to make the investments in technology than smaller institutions.

Read more.

Sharonview FCU to Buy Two S.C. Branches, Deposits and Loans from Bank OZK

Sharonview Federal Credit Union (Indian Land, SC) on July 15 entered into an agreement to with the Bank OZK (Little Rokc, SC) to purchase two branches in South Carolina.

The two branches -- Hilton Head Island and Bluffton -- have combined deposits of $107 million and $3 million in loans.

The deal is expected to close in the fourth quarter, pending regulatory approval.

The price tag of the deal was not disclosed, but the bank expects a small gain on the transaction.

After the transaction closes, Bank OZK will have no branch offices in South Carolina.

Read the Sharonview press release.

Read the Bank OZK press release.

Study Found Mixed Results for Credit-Builder Loans at CU

A recently released report by the Consumer Financial Protection Bureau (CFPB) found mixed outcomes for participants enrolling in credit-builder loan (CBL) program at a credit union.

CBLs are designed to allow individuals with no credit files or poor credit histories to build or repair their credit.

The CFPB’s study examined 1,531 CBL borrowers at a Midwestern credit union. Enrollment took place from September 2014 through February 2015.

About 82 percent of participants that entered the study had a credit score. Among participants who entered the study with a credit score, the average credit score was a subprime 560. Seventy percent of participants had an existing loan when entering the study, and 32 percent had a non-CBL loan from the credit union. Forty-five percent had been delinquent on one or more loans in the past twelve months. Sixty-two percent of participants had annual household income under $30,000. The majority of participants were female, nearly 90 percent were African American, the average age was 43, and about one in four had a college degree.

According to the study, when a borrower opened the CBL, the credit union moved $600 of its own dollars into a locked savings account. Borrowers were then required to make 12 monthly payments of $50 plus interest. After each payment, the lender released $50 to the borrower’s regular savings account. The credit union reported the borrowers’ payment histories to the three major credit reporting agencies: Equifax, Experian, and
TransUnion.

According to the study, CBLs were most likely to have positive outcomes for borrowers with no existing debt or credit score. For participants without an existing loan, opening a CBL increased their likelihood of having a credit score by 24 percent. Participants without existing debt saw their credit scores increase by 60 points higher than participants with existing debt. Forty-five of the participants entering the study without existing debt made at least one late payment on CBL.

However, the study found that CBLs appeared to cause a slight decrease in credit scores for participants with existing debt.

The CFPB concluded that borrowers with existing debt may have had difficulty making payments on their CBLs and their current debts. The CBL was associated with a higher late-payment rate on non-CBL loans, and nearly four in 10 CBL borrowers made at least one late payment on their CBL.

The CBL was associated with an average increase in participants’ savings balances of $253. This increase was entirely driven by borrowers with existing debt.

“Overall, the results suggest that the CBL worked as intended for people without existing debt, but not for consumers who already had debt,” the bureau found, adding that “CBL delinquency rates serve as a reminder that CBLs may harm some consumers’ credit.”

According to the National Credit Union Administration, 1,509 federally insured credit unions offer credit builder loans, as of March 2020.

Read the study.

PPP Loan Data by Lender Type

The following table has information on the number of Paycheck Protection Program (PPP) loans, dollar amount of loans, and jobs by lender type as of the end of June 2020.

NCUA Should Revise Its Time Period Metrics for Measuring Performance

The National Credit Union Administration (NCUA) uses average time period metrics by which to measure its performance.

For example, the agency sets the goal of resolving troubled credit unions as within an average of 24 months of an initial CAMEL downgrade or making a determination on a completed field of membership application as within the average of 60 days.

Instead of setting the goal as averages, NCUA should set the goal as resolving troubled credit unions within 24 months or making a determination on a completed field of membership application within 60 days.

NCUA currently reports the average time period for resolving problem credit unions or processing field of membership applications; but the agency should also report the median time for these metrics, as averages can be deceptive.

The agency ought to report the number and percent of credit unions that met the agency's goals. The Federal Deposit Insurance Corporation (FDIC) discloses this information, as part of its transparency and accountability initiative.

In addition, NCUA should set a time period goal for making a determination on completed merger applications. I would suggest 60 days, which is the goal set by the FDIC.

Two Georgia CUs in Process of Defecting from Federal Charter

Marshland Community Federal Credit Union (Brunswick, GA) and Interstate Unlimited Federal Credit Union (Jesup, GA) are seeking to convert to state charters.

Marshland Community FCU primary objective in seeking a state charter is to enhance the credit union’s potential for growth. As a state charter, the credit union will be able to extend membership to more people beyond the current areas served by the credit union. Also the change in charter will position the credit union to offer new products and services, improve convenience and potentially open new branches in the future.

The Georgia Department of Banking and Finance approved the charter conversion on May 28.

The credit union is encouraging members to turn in their ballots on the charter conversion no later than July 16.

Marshland Community FCU has $154 million in assets, as of its most recent call report.

Interstate Unlimited FCU stated that the change in charter would better position the credit union to grow and to serve people that they currently could not.

The credit union stated that the conversion would cost approximately $20,000.

The credit union will hold a virtual special meeting on July 27.

Interstate Unlimited FCU has almost $196 million in assets, as of the end of March 2020.

Read more about Marshland's conversion.

Read more about Interstate Unlimited's conversion.

Should FOM Be Eliminated?

After the Supreme Court ruled in favor of NCUA's field of membership rule, the credit union lobby is calling for the end to any membership restrictions for credit unions.

Jim Nussle, President and CEO of the Credit Union National Association, in a recent op-ed called for Congress to eliminate the field of membership (FOM) requirement for credit unions.

Nussle argued that FOM has gone the way of the horse and buggy. He stated that common bond was a tool used to establish the credit-worthiness of members. But today FOM has been replaced by sophisticated modern tools that assess the ability of borrowers to repay their debts.

However, Laurie Stewart, President and CEO of Sound Financial, in an op-ed stated that relaxing field of membership rules is yet another move by the credit union industry and its regulator to create an unlevel playing field between tax-exempt credit unions and taxpaying community banks.

Stewart wrote: "“Eliminating the field of membership requirement is a gross perversion of the mission and purpose of credit unions as conceived by Congress in 1934."

In fact, Congress in 1998 re-affirmed that "a meaningful affinity and bond among members, manifested by a commonality of routine interaction, shared and related work experiences, interests, or activities, or the maintenance of an otherwise well-understood sense of cohesion or identity is essential to the fulfillment of the public mission of credit unions."

Stewart further argued that if credit unions want to act like banks, they should operate under the same rules, regulations and regulators as banks do.

In my opinion, if the field of membership requirement is an anachronism, so is the credit union tax exemption.

UK FCU Acquires Naming Rights to Esports Lounge and Theater

University of Kentucky Federal Credit Union (Lexington, KY) and JMI Sports, the University of Kentucky’s multimedia rights partner, have announced a naming rights partnership with the university for the esports complex in The Cornerstone, a new multiuse facility under construction on campus.

The lounge and theater will be called The UK Federal Credit Union Esports Lounge and Theater.

The naming rights deal will include both interior and exterior signage. UKFCU will also sponsor a feature night throughout the academic year, a speaker series and an esports conference as part of their partnership with UK and JMI Sports.

The naming rights deal is for 13 years. The price tag of the naming rights deal was not disclosed.

Read more.

201 CUs Borrowed from the Federal Reserve During Q2 2018

Credit unions borrowed an aggregate $270.7 million from the Federal Reserve's Discount Window during the second quarter of 2018.

The Federal Reserve reported that 201 credit unions visited the Discount Window 244 times during the quarter.

The average amount borrowed was $1,138,138. The median amount borrowed was $10,000.

The maximum amount borrowed during the quarter was $30,800 by Redstone Federal Credit Union (Huntsville, AL).

The credit union that frequented the Discount Window the most during the quarter were Aurora Credit Union (Milwaukee, WI), which borrowed from the Federal Reserve 15 times, and Redstone FCU (10 times).

The vast majority of the credit unions borrowing from the Discount Window used the primary credit program, which is available for the healthiest institutions. Three credit unions borrowed from the secondary credit program. One credit union 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.

Over Half of CUs Reported Fewer Members Compared to a Year Ago

Over half of all federally insured credit unions reported a year-over-year decline in membership at the end of the first quarter of 2010, according to the National Credit Union Administration (NCUA).

At the median, credit union membership declined by 0.1 percent over the last year.

NCUA noted that credit unions with declining membership tend to be small with almost 70 percent of the credit unions had less than $50 million in assets.

In 23 states and the District of Columbia (D.C.), the median membership growth rate was negative. That means at least half of the credit unions in those states and D.C. had a year-over-year drop in membership.

At the median, membership at credit unions declined the most in New Jersey at -1.8 percent, Pennsylvania at -1.2 percent, North Dakota at -1.1 percent, and Arkansas at -1.0 percent.

Report: Very Little Progress Has Been Made in Reforming COSSEC

A 2020 Fiscal Plan report of the Financial Oversight and Management Board for Puerto Rico found that very little progress has been made in reforming the Public Corporation for Supervision and Insurance of Cooperatives of Puerto Rico (COSSEC) that was proposed in 2016 and 2017 by the Puerto Rico government.

According to the report, COSSEC’s system is composed of 113 locally-chartered and insured credit unions, holding approximately $8.3 billion in shares and deposits.

However, the Fiscal Plan noted that the island's credit unions face numerous challenges. Puerto Rican cooperatives had increased their investment in Puerto Rico government bonds in the run-up to the government's default on its debt. In addition, COVID-19 and the subsequent 4-month loan moratorium will have a negative impact on many cooperatives’ cash flows in the short term. Approximately, $1 billion in loans have participated in the 4-month loan moratorium.

The 2020 COSSEC Fiscal Plan recommends that COSSEC to develop and commit to a plan to identify and resolve any cooperatives that are currently insolvent and undercapitalized within 24 months.

The report states that COSSEC governance must be overhauled to allow COSSEC to act quickly, decisively, and in the best interests of the safety and soundness of the cooperative system and to ensure depositor protection. The COSSEC Board must be reformed to ensure that it is an independent
body.

Currently, COSSEC’s board is comprised of 9 members, 5 of which are cooperative members and the remaining 4 are government officials. It is being recommended that the board be comprised of 5 members, who cannot have any affiliation or financial ties to a cooperative regulated by
COSSEC or the cooperative movement. The Oversight Board recommended that legislation reforming COSSEC become law by March 2021.

The 2020 COSSEC Fiscal Plan looked at improving transparency in accounting. The legal system currently allows cooperatives to use Regulatory Accounting Principles (RAP). However, RAP does not require disclosure of the current market value of assets under distress.

Additionally, legislation permitted cooperatives to amortize over a 15-year period any losses resulting from the default of Puerto Rico Government Bonds.

The Government must submit legislation that addresses this critical gap by requiring all cooperatives to adhere to GAAP within 5 years. Also, legislation needs to abolish any special accounting treatment for holdings of Puerto Rico Government Bonds.

Furthermore under the current structure, COSSEC is the regulator for both financial and certain non-financial cooperatives in Puerto Rico. However, non-financial cooperatives do not contribute to COSSEC’s resources. The report recommended that the regulatory power over these non-financial cooperatives be transferred to Comisión de Desarrollo Cooperativo with an effective date of no later than the end of Fiscal Year 2023.

To read the document, go to the Financial Oversight and Management Board's documents page.

Consumer Credit Shrinks at CUs in May

The economic disruption caused by the COVID-19 pandemic caused outstanding consumer credit at credit unions to fall for the month of May. However, the pace of decline slowed compared to April's pace, according to data from the Federal Reserve.

Outstanding consumer credit at credit unions declined by $5.7 billion in May to $470.4 billion.

Both revolving and nonrevolving credit fell for May.

Revolving credit slipped from $61.6 billion in April to $60.8 billion in May. This was the fifth consecutive monthly decline in revolving credit at credit unions.

Nonrevolving credit declined by $4.8 billion in May to $409.7 billion after falling by $10.2 billion in April.

Read the G.19 Report.

NCUA to Reinstate Rural District for 18 CUs Impacted by ABA Lawsuit

The National Credit Union Administration (NCUA) announced that it will reinstate rural districts for 18 credit unions that were removed by the American Bankers Association (ABA) lawsuit.

This action was based upon the United State Supreme Court denying ABA's appeal to review the D.C. Circuit Court of Appeal’s decision on the NCUA’s field of membership rules.

The NCUA’s Office of Credit Union Resources and Expansion will contact these 18 credit unions by July 10, 2020, to confirm the reinstatement. No further action will be required for these credit unions.

For any federal credit union with a rural district field of membership application in limbo during the litigation period, the NCUA will resume processing these applications, immediately. The NCUA will also begin accepting new rural district field of membership applications, immediately.

A proposed area would generally qualify as a rural district if it has well-defined, contiguous geographic boundaries, and the total population of the proposed district does not exceed one million. A rural district must also meet the criteria that either more than 50 percent of the proposed district's population resides in census blocks or other geographic units that are designated as rural by either the Consumer Financial Protection Bureau or the United States Census Bureau, or the district has a population density of 100 persons or fewer per square mile.

Read more.

AMAC Adequately Safeguards Personal Identifiable Information at Liquidated CUs

The National Credit Union Administration (NCUA) Office of Inspector General (OIG) conducted a self-initiated audit to assess the NCUA’s Asset Management and Assistance Center’s (AMAC) ability to protect personally identifiable information (PII) found within the records of liquidated credit unions.

NCUA’s liquidation process consists of three phases: liquidation planning, on-site liquidation tasks, and off-site liquidation tasks.

The OIG found that AMAC’s control activities over its liquidation process adequately safeguarded PII during: (1) the pre-liquidation planning process, (2) records maintenance, and (3) destruction of records of liquidated credit unions.

As a result, the OIG did not make any recommendations.

Read the report.

4 out of 5 FICUs Reported Positive Net Income in Q1 2020

Approximately 80 percent of all federally insured credit unions (FICUs) reported a profit for the first quarter of 2020.

At the end of 2019, 89 percent of FICUs were profitable.

The increase in provisions for loan and lease losses due to COVID-19 pandemic related economic disruption and narrower net interest margins caused fewer FICUs to report a profit in the first quarter.

First quarter call report data show that 4,175 FICUs had positive net income.

Net income and size are positively correlated.

Roughly two-thirds of credit unions with less than $10 million in assets were profitable during the first quarter of 2020. In comparison, almost 89 percent of credit unions with at least $1 billion in assets reported a profit.

The following table shows the percent of credit unions that are profitable by asset size.

Heritage FCU to Buy Indiana Community Bank

Heritage Federal Credit Union (Newburgh, IN) has agreed to buy The Elberfeld State Bank (Elberfeld, IN).

Heritage FCU has almost $700 million in assets, as of the last call report.

The Elberfeld State Bank has three branches. The bank has $82.1 million in assets and $71.3 million in assets.

The deal needs the approval of the bank's shareholders and regulators.

The deal is expected to close in the first quarter of 2021.

The price of the transaction was not disclosed.

Read the story.

Net Income at FICUs Fell by 40 Percent Compared to a Year Ago

Net income at federally insured credit unions (FICUs) fell by 40 percent at the end of the first quarter of 2020 compared to a year ago, according to the National Credit Union Administration.

Net income was $2.1 billion as of March 31, 2020. In comparison, net income was $3.5 billion as of March 2019.

The decline in net income was partially due to an increase in provisions for loan and lease losses. Provisions for loan and lease losses were $2.13 billion at the end of the first quarter of 2020, up from $1.6 billion at the end of the first quarter of 2019.

The return on average assets was 0.53 percent as of March 2020, down from 0.95 percent from a year earlier and 0.93 percent at the end of 2019. The median return on average assets was 0.41 percent as of March 2020, down 14 basis from the first quarter of 2019 and 19 basis points at the end of 2019.

Net interest margins at FICUs fell 16 basis points from a year ago to 2.95 percent as of the first quarter of 2020.

As of March 2020, provisions for loan and lease losses as a percent of average assets were up 10 basis points from a year ago to 0.53 percent.

Assets and Shares Post Solid Growth During First Quarter

Assets at FICUs increased by 4.6 percent during the first quarter of 2020 to $1.64 trillion.

Total shares and deposits were up 4.3 percent during the first quarter, while loans grew by just 0.8 percent over the same time period.

FICUs reported a decline in new car, credit card, and payday alternative loans during the first quarter of 2020. First mortgages, used car, and commercial loans grew during the quarter.

As a result of shares growing faster than loans, the loan to shares ratio fell from 83.95 percent as of December 2019 to 81.14 percent as of March 2020.

Most FICUs Are Well-Capitalized

Net worth at FICUs grew by 1.2 percent during the first quarter of 2020 to $180.4 billion. However, the net worth ratio fell by 36 basis points during the first quarter of 2020 to 11.01 percent. One year earlier, the net worth ratio was 11.13 percent.

Slightly more than 98 percent of FICUs had net worth ratio of at least 7 percent as of March 2020 -- the minimum requirement for being well capitalized. Three credit unions had negative net worth ratios as of March 2020.

Delinquent Loans Fell During Q1 2020

FICUs reported $7.1 billion in delinquent loans as of March 2020 -- this is down from $7.8 billion at the end of 2019. The delinquency rate fell 7 basis points during the first quarter of 2020 to 0.63 percent.

Net charge-offs were $1.6 billion as of March 2020, up from $1.5 billion from a year earlier. The net charge-off rate rose by 1 basis point from a year ago to 0.58 percent as of March 2020.

Allowance for loan and lease losses was $10.1 billion at the end of March 2020, up from $9.2 billion a year earlier. The industry's coverage ratio was 142.16 percent as of March 2020.

At the end of March 2020, 168 credit unions had a CAMEL Composite rating of 4 and 4 credit unions had a CAMEL Composite rating of 5.

At the end of March 2020, there were 5,195 FICUs, down from 5,236 FICUs at the end of 2019.

Read the quarterly data summary.

NetFlix Invests $10 Million into Hope CU

Netflix on June 30 announced a $10 million deposit in Hope Credit Union (Jackson, MS).

This deposit is part of a $100 million initiative launched by Netflix to invest in Black communities.

According to Hope CU, this deposit from Netflix will support more than 2,500 entrepreneurs, homebuyers and consumers of color.

Read the press release.

Trade Groups Call for Inclusion of AML Bill in NDAA

In a June 27 letter to Senate Armed Services Committee leaders, seven financial trade organizations called for the inclusion of the Anti-Money Laundering (AML) Act of 2020 as part of the 2021 National Defense Authorization Act (NDAA).

The bill includes critical provisions for law enforcement investigations into organized transnational criminal operations, human trafficking, terrorism financing and other unlawful activity.

Among other things, the bill would direct the Financial Crimes Enforcement Network to create and maintain a secure beneficial ownership registry of legal entities. “The bill strikes the right balance between imposing minimal requirements on small businesses and providing critical information to law enforcement and financial institutions,” the groups wrote. “In addition, if enacted prior to the COVID outbreak, the bill could have assisted financial institution efforts to serve new customers under the Small Business Administration’s Paycheck Protection Program.”

The bill also modernizes anti-money laundering control and processes, enabling financial institutions to better assist law enforcement efforts to detect and deter financial crime and terrorism, the groups noted.

Certiorari Denied in ABA's Appeal regarding NCUA's FOM

The Supreme Court on June 29 denied to hear an appeal of the American Bankers Association lawsuit against the National Credit Union Administration regarding the agency' field of membership (FOM) rule.

NCUA Provides Update on Minority Depository Institution CUs

Minority Depository Institution (MDI) credit unions lagged behind all federally insured credit unions (FICUs) with respect to most performance metrics for 2019 except net worth ratio, according to the National Credit Union Administration (NCUA) 2019 Annual Report to Congress.

The following table looks at select performance metrics for all FICUs versus MDI CUs for 2019

Also, here is some demographic information about MDI CUs.

As of December 31, 2019, there were 514 federally insured credit unions (FICUs) with the MDI designation in 36 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Approximately 10 percent of all FICUs are MDIs.

The number of MDI credit unions declined by 16 between 2018 and 2019, mirroring the general long-term trend of consolidation in the financial services sector.

MDI credit unions tend to be smaller institutions. Eighty-seven percent reported total assets of $100 million or less at the end of 2019. Fifty-seven percent had less than $10 million in assets. The average asset size was $78.86 million.

Additionally, 79 percent of MDI credit unions had a low-income designation.

Read more.

CDC Posts Information for Banks and CUs for Keeping Employees Safe from COVID-19

The Centers for Disease Control and Prevention (CDC) has posted webpages for banks and credit unions and their employees with tips for protecting staff and slowing the spread of COVID-19.

The tips for bank employers include creating a COVID-19 workplace health and safety plan, conducting a hazard assessment and developing hazard controls.

Among these controls are engineering controls (isolating workers from hazards through workspace distancing and transparent shields, as well as adjusting HVAC ventilation and adding filtration) and administrative controls (including changing workflows and practices, cleaning facilities and encouraging cloth face coverings as appropriate).

Read the bank employee page.
Read the bank employer page.

Capital Holders of Southwest Corporate FCU Will Receive $171.3 Million Distribution

On June 25 during a briefing on NCUA Guaranteed Notes Program, the President of the National Credit Union Administration’s Asset Management and Assistance Center stated that the capital holders of Southwest Corporate Federal Credit Union will receive a distribution of $171.3 million in July.

This payout equals 42 percent of $403.5 million in claims of capital account holders of the failed corporate credit union.

The Southwest Corporate asset management estate has 1,120 member capital account holders, including 1,092 credit unions. After accounting for mergers, purchases and acquisitions, and liquidations, almost 900 active credit unions will receive a distribution.

Southwest Corporate Federal Credit Union was liquidated on October 31, 2010.

Members Approve Cobalt CU's Switch to Federal Charter

Earlier this year, I wrote that Cobalt Credit Union was seeking to convert from an Iowa state chartered credit union to a federal credit union.

On May 1, the membership of the credit union voted to approve the switch to a federal charter.

According to information obtained from the National Credit Union Administration thru a Freedom of Information Act (FOIA) request seeking Cobalt's charter conversion application, the credit union has applied for a community charter serving the Omaha-Council Bluffs Metropolitan Statistical Area plus additional Iowa counties.

The proposed service area includes the Iowa counties of Pottawattamie, Mills, Harrison, Crawford, Carroll, Shelby, Ida, Monona, and Sac and the Nebraska counties of Sarpy, Douglas, Cass, Saunders, and Washington (counties in italics are part of the Omaha-Council Bluffs Metropolitan Statistical Area).

In response to the FOIA request, NCUA provided 30 pages of information and withheld 190 pages based upon one or more of the exemptions at 5 U.S.C. § 552(b)(4), (5), (6), (7)(C), and (8).

Y-o-Y Loan Growth Up 71 Percent at Pentagon FCU

Lending at Pentagon Federal Credit Union (McLean, VA) grew by 71 percent during the first five months of 2020 compared to a year ago.

The credit union noted that consumer lending grew by 15 percent and mortgage lending was up 200 percent during the first five months of 2020.

Total membership growth was up 10 percent during the time period of January 2020 thru May 2020.

The credit union announced on June 25 that it topped $26 billion in assets -- two months after it surpassed $25 billion in assets.

I wonder how much of this growth was due to its open charter arising from the emergency merger of Progressive Credit Union.

Read the press release.

Teachers CU Discusses Growth Plans

The CEO of Teachers Credit Union (South Bend, IN) outlined the credit union's expansion plans in MiBiz.com.

In the article, the CEO of Teachers Credit Union stated that the credit union was a Midwest powerhouse.

Indiana's largest credit union is looking to grow strategically into contiguous states of Ohio, Michigan, Kentucky, and possibly Illinois, as well as expanding its presence in Indiana.

The credit union wants to double its footprint over the next decade with between 33 percent to 40 percent of its business coming from Michigan.

The credit union will consider acquisitions, buying branches from other financial institutions, or new office development as potential vehicles to further its expansion plans into new markets.

Read the article.

Allegacy FCU Provides $6.5 Million in Financing for Real Estate Project

Richmond BizSense is reporting that Allegacy Federal Credit Union (Winston-Salem, NC) provided $6.5 million line of credit for a development project on the southside of Richmond, Virginia.

The project will redevelop the 15-acre Model Tobacco Company site and transform its main Art Deco-style building into a 275 income-based apartments.

Also, the developers are planning a 47,000-square-foot entertainment venue with a beer garden and restaurant space.

This is an illustration that large credit unions are venturing into financing larger commercial deals.

Read more.

Guidance Issued to Examiners for Assessing COVID-19 Impacts

Recognizing the significant and long-lasting effects of the coronavirus pandemic on financial institutions, federal and state financial regulators on June 23 issued joint guidance for how examiners should assess the effects of COVID-19 on the safety and soundness of banks and credit unions.

The guidance directs examiners to assess institutions according to existing agency policies and procedures, and to consider the appropriateness of management actions to address COVID-19 challenges. It provides specific instructions for examiners when considering an institution’s risk assessment, capital adequacy, asset quality, management actions, earnings, liquidity and market risk sensitivity.

“Examiners should assess the reasonableness of management’s actions in response to the pandemic given the institution’s business strategy and operational capacity in the distressed economic and business environment in which the institution operates,” the agencies said. “When assigning the composite and component ratings, examiners will review management’s assessment of risks presented by the pandemic, considering the institution’s size, complexity, and risk profile.”

The guidance states that examiners will not criticize financial institutions for the appropriate use of government backstops to meet liquidity needs, such as the Federal Reserve's discount window or the National Credit Union Administration's Central Liquidity Facility.

When determining whether a formal or informal enforcement is necessary, examiners should consider whether the institution appropriately planned for resiliency and operational continuity, has implemented prudent policies and is pursuing “realistic resolution of the issues confronting the institution,” they added.

Read more.

C

Truliant FCU Buys Former Macy's Department Store

Triad Business Journal is reporting that Truliant Federal Credit Union (Winston-Salem, NC) purchased the former Macy's department store at Hanes Mall.

While Truliant did not disclose the purchase price for the 154,000 square-foot store, excise tax records indicated a price of $8 million.

According to Todd Hall, president and CEO of Truliant, the purchase meets its expansion needs and will give the credit union "a centrally located new office close to our headquarters with easy access, ample parking, and a ready and flexible infrastructure." He also stated that this will add to the city's tax base.

Read more.

Groups Write in Support of Replacing CFPB Director with Five-Member Commission

A broad coalition of financial and housing industry groups, including bank and credit union trade groups, wrote Sen. Deb Fischer (R - NE) expressing their support for her recent bill, S. 3990, that would replace the Consumer Financial Protection Bureau’s sole director with a bipartisan, five-member commission.

In the June 18 letter, the groups noted that this structure “will provide a balanced and deliberative approach to supervision, regulation and enforcement by encouraging input from all stakeholders.”

They added that there has long been bipartisan support in Congress for a CFPB five-member commission, with several bills passed by the House with both Democratic and Republican support in recent years. Additionally, the House version of the Dodd-Frank Act that passed in 2009 also envisioned a commission governance structure for the bureau, the groups said.‌

The letter came as the Supreme Court prepares to render a decision in Seila Law v. the Consumer Financial Protection Bureau, where the question of the bureau’s governance structure is under review.

Read the letter.

Op-Ed Calls for Equal Treatment of Banks and CUs on Military Bases

In a BankThink op-ed in the American Banker, the CEOs of the American Bankers Association and the Association of Military Banks of America wrote that if Congress truly wanted to help military personnel and their families, it should expand the financial service choices for service members by incentivizing more banks to operate on military bases.

Currently, tax-exempt credit unions are permitted to operate rent-free on military bases, while taxpaying banks do not. The authors argued that banks and credit unions should be granted equal treatment with regard to serving service members.

“As the Senate and House begin their work reauthorizing the National Defense Authorization Act, lawmakers must make this sensible change and push back against credit union lobbying that only limits the financial choices for service members and their families.”

The op-ed also noted that the recent decision by the National Credit Union Administration to presume all active duty military personnel as low-income does not provide any tangible benefits to struggling service members.

Read the op-ed.

NCUA Urges CUs to Participate in Fed's Main Street Lending Program

The National Credit Union Administration on June 17 urged credit unions to participate in the Federal Reserve's Main Street Lending Program, if appropriate.

The Program is designed to help credit flow to small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 crisis, but now need loans to help maintain their operations until they have recovered from, or adapted to, the impacts of the pandemic.

The program offers 5-year loans, with floating rates, and principal and interest payments deferred. The loans range in size from $250,000 to $300 million.

The loans will be offered as a participation with the Federal Reserve providing 95 percent of the loan and the credit union providing 5 percent. Credit unions will service the loans.

Read a review of the program.

ABA Opposes NCUA's CU Bank Acquisition Proposed Rule

In a June 15 letter to the National Credit Union Administration, the American Bankers Association (ABA) vigorously opposed a proposal that would formalize a process for credit unions to purchase taxpaying banks.

ABA opined that credit unions -- aided by their tax advantage position -- are able to outbid taxpaying banks for the same deals.

ABA contended in its letter that credit unions are aggressively targeting banks for acquisition to expand their business lines, such as originating riskier business loans.

ABA also noted that many of these acquisitions are out-of-state. For example, ABA pointed out Grand Rapids, Michigan-based Lake Michigan CU's acquisition of Encore Bank, which operated in southwestern Florida.

Moreover, ABA wrote that these large credit unions are targeting banks serving wealthier communities outside of their chartered mandate to serve low- and moderate-income individuals.

ABA further stated that large credit unions acquiring tax-paying banks should be regulated similarly to the institutions they are purchasing.

Read the letter.

Court Compels Arbitration for Two Named Plaintiffs in Overdraft Class Action

A federal court ruled that two of three named plaintiffs in a class action lawsuit could only pursue their claims through arbitration.

The class action lawsuit alleges that Alliant Credit Union charged insufficient funds fees even when there was enough money in their checking accounts. The lawsuit was filed in September 2019 in the United States District Court for the Northern District of Illinois Eastern Division.

At issue is an August 2019 amendment to Alliant's membership agreement that Alliant e-mailed to plaintiff's Muniz and Cooper between July 24 and July 25, 2019.

The amendment stated that unless you opt out of this arbitration agreement, then all disputes shall be decided by arbitration and you have waived your right to participate in a class action lawsuit. The disclosures were the conspicuous and unambiguous.

The plaintiffs had 60 days to opt out of the arbitration agreement and class action waiver.

The plaintiffs claimed that they did not read the July 2019 e-mails or the hyperlinked amendments.

The court opined "[a]lthough plaintiffs claim they did not read the arbitration clause, nothing was hidden from them as they now suggest" and their silence constitutes assent to the arbitration provision.

The court granted Alliant's motion to compel arbitration for plaintiffs Muniz and Cooper.

Read the decision.

White House to Nominate Kyle Hauptman to NCUA Board

President Trump has announced his intent on June 15 to nominate Kyle Hauptman to serve as a member of the National Credit Union Administration Board.

Mr. Hauptman is currently Senator Tom Cotton’s advisor on economic policy, as well as Staff Director of the Senate Banking Committee’s Subcommittee on Economic Policy.

Prior to joining Senator Cotton’s office, Mr. Hauptman worked on the 2016 Presidential Transition Team.

Hauptman will replace Board member McWatters, whose term has expired.

Read more.

PPPLF Advances to CUs Topped $410 Million at the End of May

Thru May 31, 16 credit unions received slightly more than $410 million in advances from the Federal Reserve's Paycheck Protection Program Liquidity Facility(PPPLF).

Current outstanding advances were almost $409.6 million.

The Federal Reserve disclosed the data on June 10th.

The Federal Reserve created the PPPLF to bolster the effectiveness of the Small Business Administration's Paycheck Protection Program (PPP).

The PPPLF extends credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value.

Small Business Administration-qualified PPP lenders—both depository institutions and non-depository institutions—are eligible to borrow under the PPPLF.

The following tables list the credit unions with PPPLF advances and the current amount of aggregate outstanding advances.

Crane CU to Acquire Small Indiana Community Bank

Crane Credit Union (Odon, IN) has signed a definitive agreement to acquire Community State Bank of Southwestern Indiana (Poseyville, IN).

Crane Credit Union has almost $636 million in assets.

Community State Bank of Southwestern Indiana has $89 million in assets and six branches.

The transaction is expected to close later this year and is subject to customary closing conditions, including approval from the bank's shareholders and regulatory agencies.

The price tag of the deal was not disclosed.

Read more.

Southern Pine CU Conserved

The National Credit Union Administration (NCUA) placed Southern Pine Credit Union (Valdosta, GA) in conservatorship on June 11.

The decision to place Southern Pine Credit Union into conservatorship was due to unsafe and unsound practices at the credit union.

The credit union had approximately $46.4 million in assets.

The action to conserve the credit union was taken in consultation with the Georgia Department of Banking and Finance.

Read the press release.

ABA Urges Supreme Court to Restore Limits on Chevron Deference

The American Bankers Association (ABA) on June 8 filed its reply brief urging the U.S. Supreme Court to review a lower court ruling in the association’s challenge of the National Credit Union Administration’s 2016 field of membership rule.

In August, a three-judge panel of the D.C. Circuit Court of Appeals upheld much of rule while remanding a portion related to redlining concerns. The court will grant ABA’s petition if four of the nine justices vote to accept the case.

In appealing, ABA argued that the D.C. Circuit’s decision “stretches Chevron deference past the breaking point” in ruling that NCUA could define a “local community” as a combined statistical area inhabited by up to 2.5 million people or define an entire state as a “rural district.” Under the Supreme Court’s Chevron doctrine, courts defer to administrative agencies’ interpretation of statutes they administer where Congress has not specifically addressed the question at issue.

In its reply brief, ABA said that NCUA sought to “dodge the issue” of Chevron deference. The association argued that the case does in fact present the question of whether an express delegation of definitional authority expands an agency’s discretion at Chevron step two, and that agencies are not granted “vast discretion” simply because of express delegation. “The Court should grant review and restore appropriate limits on Chevron deference,” ABA said.

Read the reply brief.

NCUA Denies FOIA Appeal Regarding Sale of Taxi Medallion Loans

The National Credit Union Administration (NCUA) denied an appeal of a Freedom of Information Act (FOIA) request denial for information related to the sale of taxi medallion loans by the agency.

On March 13, a FOIA request was filed seeking a copy of the sale agreement and any supporting documents related to the February 19, 2020 taxi medallion loan sale to Marblegate Asset Management LLC (Marblegate).

On April 14, NCUA denied the FOIA request. NCUA stated that the documents were withheld from public release under one or more of the FOIA exemptions at 5 U.S.C. § 552(b)(4), (5), and (8). In addition, the agency wrote "the requested documents are not agency records subject to the Freedom of Information Act."

On April 16, this denial was appealed. On May 14, NCUA denied the appeal.

This story first appeared at WashingtonCUDaily.com.

Read the letter.

NCUA/EXIM Bank Launch 3-Year Partnership

The National Credit Union Administration announced on June 9 a three-year partnership with the Export-Import Bank (EXIM).

The NCUA and EXIM signed a memorandum of understanding to undertake a series of initiatives that will help credit unions better understand and make use of EXIM guaranteed loans and resources.

EXIM guaranteed loans would be exempt from the member business loan cap of 12.25 percent of assets.

Read the press release.

June Call Report Changes Address COVID-19

The National Credit Union Administration has released information related to changes in its June call report.

The changes address issues associated with the COVID-19 pandemic.

For example, credit unions will be expected to report information on Small Business Administration (SBA) Paycheck Protection Program (PPP) loans, CARES Act forbearance loans, SBA PPP loans pledge as collateral to the Federal Reserve's Paycheck Protection Program Lending Facility (PPPLF), and Federal Reserve PPPLF loans.

There are also adjustments in total assets for calculating the net worth ratio and risk-based net worth requirement.

Read more.

New Buffalo Savings Bank Becomes Teachers Credit Union (Updated)

Teachers Credit Union (South Bend, IN) completed its acquisition of New Buffalo Savings Bank (New Buffalo, MI) on June 5.

The bank will re-open on June 8th as Teachers Credit Union.

Shareholders of New Bancorp, the holding company of the bank, will be paid $26 per share; but the price could be less based on the level of post-closing expenses and other factors.

This is the seventh merger of a bank into a credit union completed this year.

Read more.

Read press release.

Consumer Credit at CUs Fell in April Due to Pandemic Economic Disruption

The Federal Reserve reported on June 5 that outstanding consumer credit at credit unions fell in April, according to its G. 19 report.

Total outstanding consumer credit declined from $489 billion in March to $476.7 billion in April, due to economic disruptions arising from COVID-19. This would translate to an annualized decline in consumer credit at credit unions of $147.4 billion.

Both revolving and nonrevolving credit at credit unions declined in April.

Revolving credit fell by $2.6 billion in April to almost $61.7 billion. This is the fourth consecutive monthly decline in outstanding revolving credit at credit unions.

Nonrevolving credit tumbled in April by $9.6 billion to approximately $415.1 billion.

Bank Credit Union Merger News

The Office of the Comptroller of the Currency (OCC) approved on May 19, 2020 the sale of Neighborhood National Bank (Mora, MN) to Wings Financial Credit Union (Apple Valley, MN).

3River Credit Union (Fort Wayne, IN) completed its acquisition of West End Bank (Richmond, IN) on June 1, 2020.

NCUA Should Publish Its Analysis

In a May letter to credit unions, the National Credit Union Administration (NCUA) stated that it will no longer exclude military personnel with APO and FPO mailing addresses from calculating whether a credit union qualifies for low-income designation.

This decision was based upon analysis by the agency's Office of Chief Economist, which determined that the majority of military personnel would qualify as low-income members.

However, NCUA has not published the analysis of the Office of Chief Economist.

If NCUA had subjected this action to the rulemaking process, it would have had to disclose details of this analysis.

The agency needs to make public its analysis. It should also make public the data behind the analysis.

Federal Credit Unions Should File Form 990s

The Tax Cuts and Jobs Act of 2017 imposed a new 21 percent excise tax on applicable tax-exempt organizations that pay more than $1 million in remuneration to any covered employee for any taxable years beginning after December 31, 2017.

A covered employee is one of the five highest compensated employees for any taxable year beginning after December 31, 2016. Once a person becomes a covered employee, he or she will remain a covered employee for all subsequent tax years regardless of whether the individual continues to be one of the five highest compensated employees by the organization.

Almost all tax-exempt organizations file Form 990s. The Form 990 includes compensation information for senior management at tax-exempt entities.

However, compensation information is not available for federal credit unions; because federal credit unions are not required to file Form 990s.

The Internal Revenue Service (IRS) should require federal credit unions to file Form 990s.

The Form 990 is an important tool for the IRS to monitor and track potential noncompliance with the new excise tax.

It would also allow the public to determine if federal credit unions are providing excess compensation to senior management.

NCUA Liquidates IBEW Local Union 712 FCU

The National Credit Union Administration on May 29 liquidated IBEW Local Union 712 Federal Credit Union in Beaver, Pennsylvania.

West Penn P&P Federal Credit Union of Beaver, Pennsylvania, immediately assumed IBEW Local Union 712 Federal Credit Union’s assets, member shares, and loans. West Penn P&P Federal Credit Union has 2,150 members and assets of nearly $14.8 million, according to the credit union’s most recent Call Report.

At the time of liquidation and subsequent purchase by West Penn P&P Federal Credit Union, IBEW Local Union 712 served 2,935 members and had assets of approximately $7.7 million. The credit union was insolvent with a net worth ratio of negative 18.32 percent. The credit union reported net income of minus $2.34 million for the first quarter of 2020, as provision for loan and lease losses was almost $2.37 million.

This is the first credit union liquidation in 2020. The last credit union to be liquidated in Pennsylvania was First African Baptist Church Federal Credit Union (Sharon Hill, PA) on November 29, 2016.

Read the press release.

Coalition Writes Congress for Liability Protection as Economy Reopens from COVID-19 Pandemic

A diverse coalition of over 200 trade associations and other organizations, including bank and credit union trade groups, wrote lawmakers on May 27 to enact “temporary and targeted liability relief legislation” to safeguard businesses, nonprofits and others from frivolous lawsuits as employees return to workplaces.

“Absent a targeted safe harbor for those that work to follow applicable guidelines, the fear and uncertainty from boundless liability threatens to impede our country’s social and economic recovery,” the groups wrote. “In the wake of prior crises, Congress came together to pass timely and targeted liability protections with strong bipartisan support because lawmakers understood the acute economic threat of lawsuits at moments of maximum economic vulnerability.”

The groups stated that these protections would be “limited in scope and preserve recourse for those harmed by truly bad actors who engage in egregious misconduct.”

Read the letter.

Credit Unions Are Using PPPLF

Credit unions have availed themselves of the Federal Reserve's Paycheck Protection Program Liquidity Facility (PPPLF).

The Federal Reserve created the PPPLF to bolster the effectiveness of the Small Business Administration's Paycheck Protection Program (PPP).

The PPPLF extends credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value.

Small Business Administration-qualified PPP lenders—both depository institutions and non-depository institutions—are eligible to borrow under the PPPLF.

On May 15, the Federal Reserve disclosed the name of the participants using the PPPLF, the amount borrowed, interest rate charged, and the value of collateral.

Credit unions using the PPPLF between April 16 and May 6 include:

• Potlatch No 1 Financial Credit Union (Lewiston, ID);
• Greater Nevada Credit Union (Carson City, NV);
• Carter Federal Credit Union (Springhill, LA);
• Aneca Federal Credit Union (Shreveport, LA);
• Elements Financial Credit Union (Indianapolis, IN);
• United Federal Credit Union (Saint Joseph, MI);
• Notre Dame Federal Credit Union (South Bend, IN);
• Capital Area Realtors Federal Credit Union (Rockville, MD);
• Noteworthy Federal Credit Union (Cleveland, OH);
• Self-Help Federal Credit Union (Durham, NC);
• Stepping Stones Community Federal Credit Union (Wilmington, DE); and
• Empire Financial Federal Credit Union (Bayside, NY).

The outstanding collateral from these credit unions was $119 million.

NCUA Writes FCC Regarding Emergency Exception for Automated Calls

National Credit Union Administration Chairman Rodney E. Hood on May 19 wrote to the Federal Communications Commission (FCC) regarding a third-party petition to permit certain automated calls to fall under the Emergency Purposes Exception of the Telephone Consumer Protection Act (TCPA).

Hood wrote: "Autodialed calls providing information about payment deferrals, fee waivers, loan term extensions, other loan modifications, and forbearance could assist consumers during this challenging time."

In the letter, Hood noted that financial institutions are not seeking permission to use automated calls related to advertising, telemarketing, or seeking payment on a debt. Like other financial institutions, federally insured credit unions must comply with all other consumer protection laws governing autodialed calls.

In a related matter, a coalition of financial trade groups on May 21 wrote the FCC requesting an expedited ruling or waiver stating that phone calls and text messages placed by banks, credit unions, and other customer-facing financial service providers using an automatic telephone dialing system or prerecorded or artificial voice on matters related to the COVID-19 pandemic are “call[s] made for emergency purposes."

The trade groups signing the letter were the American Bankers Association (ABA), American Financial Services Association, Consumer Bankers Association, Credit Union National Association, Independent Community Bankers of America, Mortgage Bankers Association, and National Association of Federally-Insured Credit Unions.

Read the NCUA letter.

Read the joint trade group letter.

NCUA Makes Two Temporary Changes to PCA Requirements

The National Credit Union Administration (NCUA) Board on May 21 approved an interim final rule making two temporary changes to its prompt corrective action (PCA) requirements for credit unions that become less than well capitalized..

This interim rule temporarily reduces the earnings retention requirement for credit unions classified as adequately capitalized. For those credit unions that do not meet the earnings retention requirement, they will not have to submit a written application requesting approval to decrease its earnings retention amount. But if a credit union poses an undue risk to the National Credit Union Share Insurance Fund or exhibits material safety and soundness concerns, the appropriate NCUA Regional Director may require the credit union to submit an earnings transfer waiver request.

The interim final rule temporarily permits an undercapitalized credit union to submit a streamlined net worth restoration plan, demonstrating that the reduction in capital was caused predominantly by share growth and that this is a temporary condition because of the pandemic. However, if a credit union becomes less than adequately capitalized for reasons other than share growth, they must still submit a net worth restoration plan under the current requirements in NCUA’s regulations.

The NCUA Board believes that these amendments will provide federally insured credit unions with additional flexibility without jeopardizing the safety and soundness of the credit union system.

The interim final rule will become effective once it is published in the Federal Register.

These temporary changes will be in place until the end of 2020.

Read the interim final rule.

Acquisition of Ben Franklin Bank by CU Completed

Corporate America Family Credit Union (Elgin, IL) completed its acquisition of Ben Franklin Bank of Illinois (Arlington Heights, IL) on April 30, 2020.

The Federal Deposit Insurance Corporation approved the merger on April 13, 2020.

Corporate America Family CU had $617 million in assets, as of March 2020. Ben Franklin Bank had $93 million in assets at the end of the first quarter of 2020.

499 CUs Had Not Filed Call Reports as of May 15

S&P Global Market Intelligence is reporting that a number of credit unions took advantage of the regulatory delay in filing their call reports during the coronavirus pandemic.

The National Credit Union Administration extended the deadline for federally insured credit unions that file call reports to May 26 from April 26.

According to S&P Global Market Intelligence, 499 credit unions or 9 percent of all federally-insured credit unions had not filed their first quarter 2020 call report as of May 15.

These credit unions held over 8 percent of the industry's assets, based upon December 31, 2019 call reports.

Read more.

Federal Regulators Issue Guidance on Responsible Small-Dollar Lending

To encourage depository institutions to engage in responsible small-dollar lending, federal financial regulators on May 20 issued long-awaited joint guidance for offering these types of loans to consumers and small businesses.

“Well-designed small-dollar lending programs can result in successful repayment outcomes that facilitate a customer’s ability to demonstrate positive credit behavior and transition into additional financial products,” the agencies noted. They added that these programs should be developed in accordance with sound risk management principles.‌‌

When making small-dollar loans, the agencies said that lenders may underwrite loans using internal or external data sources, such as deposit account activity, to assess a customer’s creditworthiness, effectively manage risk, and lower the cost of providing responsible small-dollar loans.

Lenders also should ensure that they comply with all applicable laws and regulations, including fair lending laws, the agencies said. Other core lending principles include effectively managing the risks associated with the products offered and underwriting small-dollar products based on prudent policies and practices. These policies and practices should generally address loan structures, pricing, underwriting, marketing and disclosures, along with servicing and safeguards for customers who may find themselves experiencing stress or unexpected circumstances.

The guidance was issued by the Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency.

Read the joint principles.

Fewer Problem CUs During the First Quarter of 2020, NCUSIF Reserves Up

The number of problem credit unions fell during the first quarter of 2020, according to the National Credit Union Administration (NCUA).

There were 175 problem credit unions at the end of the first quarter of 2020. In comparison, there were 190 problem credit unions at the end of 2019.

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

Shares (deposits) in problem credit unions declined from $9.7 billion at the end of 2019 to $9.4 billion, as of March 2020. At the end of first quarter of 2020, 0.77 percent of total insured shares were problem credit unions compared to 0.79 percent of total insured shares at the end of 2019.

Most problem credit unions were small credit unions.

NCUA reported that almost 88 percent of the problem credit unions have less than $100 million in assets, while 1.7 percent of problem credit unions have more than $500 million in assets.

However, almost 45 percent of insured shares in problem credit unions were in credit unions with $500 million or more in assets.

In addition, NCUA stated that reserves at the National Credit Union Share Insurance Fund increased during the first quarter of 2020 from $117 million to $177.7 million.

Moody's Analytics: The Road Ahead for Credit Unions

A webinar by Moody's Analytics looks at the impact of COVID-19 on credit unions.

Here are some insights from the webinar.

Moody's Analytics expects auto and unsecured balances at credit unions to decline. However, mortgage balances are expected to grow.

Credit union default rates on consumer loans will trail initial unemployment claims by six months to one year. This would mean loss rates will peak toward the end of this year or in the first half of next year.

Auto loans are an area of concern. Gross loss rates on auto loans at credit unions will peak at around 3.5 percent, which will be above loss rates during the financial crisis.

According to the webinar, loss rates on credit cards will be in unchartered territory and will come quickly, especially at the largest credit unions.

Click here to watch the webinar.

MidFlorida CU's Car Repossession Gets Unwelcomed Media Scrutiny

An investigative reporter for WFLA News Channel 8 was called about Lakeland, Florida-based MidFlorida Credit Union's repossession of a nurse's car.

The nurse was told her car was repossessed due to missed payments. But she was not able to get answers to her question about the missing payments until the reporter got involved.

The car was flagged for repossession by the $4.6 billion credit union because her payments were short by 66 cents each month.

The credit union agreed to pay the $400 repossession fee and to have the nurse's car towed to her driveway.

A spokesperson for the credit union stated that before repossessing a vehicle, the credit union will attempt to contact the member by phone, mail and even door-knock service to make payment arrangements.

The nurse stated she was never contacted by the credit union.

Read more.

A Snapshot of Y-o-Y Performance of the 10 Largest CUs

The 10 largest credit unions at the end of 2019 saw in aggregate increases in provisions for loan and lease losses and allowance for loan and lease losses in the first quarter of 2020 compared to a year earlier. Net income at these 10 credit unions in aggregate fell year-over-year.

These 10 credit unions accounted for almost 18 percent of the industry's assets.

In aggregate, provisions for loan and lease losses grew by 47.2 percent Boeing Employees Credit Union posted the largest year-over-year percentage change in provisions for loan and lease losses of almost 389 percent.

Net income fell by a combined 55 percent year-over-year at these 10 credit unions. two credit union reported a year-over-year increase in net income, while two credit unions posted losses in the first quarter of 2020 after posting positive earnings a year earlier. The credit union with the largest year-over-year percentage decline in net income was Alliant Credit Union of 341 percent.

Allowance for loan and lease losses grew year-over-year by a combined 19.5 percent. Alliant CU posted the largest year-over-year percentage change, followed by Pentagon FCU.

Some CUs Could Be Hit Hard by Coronavirus Layoffs

The Wall Street Journal examined credit unions whose membership have been hit hard by the economic shutdown arising from the coronavirus.

The article noted there are a number of credit unions exposed to casinos, oil, and other industries that have been affected by coronavirus mass layoffs.

According to the Credit Union National Association, almost a third of credit unions are tied to a single employer, industry, or association. This means that these credit unions could see sudden mass layoffs in their membership.

For example, WestStar Credit Union (Las Vegas, NV) is closely tied to the Las Vegas casino industry. On March 18, all casinos were closed by an order from the governor of Nevada. The credit union reported that one in five borrowers have asked for a deferral on a car or home loan.

Provisions for loan and lease losses at WestStar went from $67,300 at the end of the first quarter in 2019 to $553,800 one year later, according to its Financial Performance Report.

Read the story (subscription required).

Indiana DFI Approved Merger of West End Bank into Three Rivers FCU

The Indiana Department of Financial Institutions (DFI) on May 14 approved the resolution of the Board of Directors of West End Bank, S.B. (Richmond, IN) to sell all of its assets to Three Rivers Federal Credit Union (Fort Wayne, IN).

Three Rivers FCU will also assume most of the liabilities of West End Bank.

National Credit Union Administration (NCUA) worked with the credit union to alter its field of membership from a community charter to a multiple common bond charter, so that it could acquire West End Bank's customers.

West End Bank has $288 million in assets and $30.6 million in bank equity capital, as of December 31, 2019.

Three Rivers FCU has $1.26 billion in assets as of March 31, 2020.

The purchase price is $43.3 million with conditions.

The Federal Deposit Insurance Corporation approved the application last week and the NCUA is expected to approve the application on May 15.

The vote was unanimous.

11 Corporate CUs Joined the CLF as Agent Member

The National Credit Union Administration (NCUA) announced on May 11 that all eleven corporate credit unions had joined the Central Liquidity Facility (CLF) as agent members for a subset of their members.

As agent members, the corporate credit unions have purchased the CLF capital stock for their member credit unions with assets less than $250 million.

This means that all credit unions with assets less than $250 million that are members of a corporate credit union are now eligible to apply for a loan from the CLF.

According to NCUA, this action has extended CLF coverage to more than 3,700 credit unions and increased the CLF’s borrowing capacity by over $13 billion.

This arrangement was made possible by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. However, it is temporary and will sunset on December 31, 2020.

Read more.

Merger Between Suncoast CU and Apollo Bank Called Off

Apollo Bank (Miami, FL) and Suncoast Credit Union (Tampa, FL) have mutually agreed to terminate their planned merger, according to the Miami Herald.

The decision to withdraw the merger application with Suncoast’s regulator, the National Credit Union Administration, follows a series of coronavirus-related regulatory delays.

Read the story.