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.

Merger Would Create $3 Billion CU

Firefly Credit Union (Burnsville, MN) and TruStone Financial Federal Credit Union (Plymouth, MN) on May 5 announced their intent to merge subject to regulatory approval and a member vote.

TruStone Financial FCU has almost $1.6 billion in assets at the end of 2019.

Firefly CU has $1.4 billion in assets.

In conjunction with the merger, TruStone Financial will switch from a federal to a state charter.

TruStone Financial stated that as a state-chartered credit union it will have greater ability to expand into new counties throughout Minnesota and Wisconsin.

Read more.

Two FCUs to Switch to NY State Charters, Then Merge with Sunmark

Two federal credit unions have filed applications with the New York Department of Financial Services to convert to state charters. Upon converting to New York state-chartered credit unions, both credit unions will subsequently merge with Sunmark Credit Union (Latham, NY).

Hudson River Financial Federal Credit Union (Mohegan Lake, NY) on April 21 applied to convert to a New York state-chartered credit union under the name of Hudson River Financial Credit Union.

Columbia-Greene Federal Credit Union (Hudson, NY) also on April 21 applied to switch to a New York state-chartered credit union under the name of Columbia-Greene Credit Union.

Hudson River Financial FCU has $64.3 million in assets and Columbia-Greene FCU had $31.2 million in assets at the end of 2019.

The mergers would create an almost $840 million institution.

Read the Weekly Banking Bulletin.

NCUA's Harper Discusses Liquidity, Consumer Debt, and Succession Planning

Speaking before the Credit Union National Association Government Affairs Conference on February 26, National Credit Union Administration Board Member Todd Harper discussed three issues on the horizon that will impact credit unions.

First, Harper focused on liquidity. Harper noted that the industry's loans-to-shares ratio bottomed out in 2012 and 2013 at approximately 66 percent, but it has since rebounded due to strong loan growth. The ratio now is about 84 percent nationally and in some states like Vermont and Wisconsin, it exceeds 90 percent. He cautioned that credit unions of all sizes need to maintain ample access to cash to withstand unexpected emergencies.

Second, Harper addressed the issue of consumer debt. He pointed out the total household debt is higher than before the Great Recession. While he stated that asset quality remains good at credit unions, there are some warning signs. The percentage of credit cards that are 90 days or more past due exceeded 5 percent. He warned that if a recession occurs, delinquencies and charge-offs will rise. He told the credit union attendees that they should be carefully evaluating new credit risk and taking steps to mitigate delinquencies in their consumer loan portfolios.

Third, Harper addressed the issue of succession planning. He stated that approximately 20 percent of credit unions do not have a succession plan. He commented the lack of succession plan is one of the top two reasons for credit union mergers. He then pointed out that a large proportion of credit union CEOs and executives are Baby Boomers, who will be part of a retirement wave. He encouraged the credit union officials to raise the issue of succession planning in board discussions to ensure the survival of their credit unions.

Other topics he discussed included diversity and inclusion and compliance with consumer financial protection.

Read the speech.

Fed Analysis Found CU Competition Mitigated Anti-Competitive Impacts of Bank Merger

In its approval of First Citizens BancShares (Raleigh, NC) acquisition of Entegra Financial Corp. and its subsidiary Entegra Bank (Franklin, NC), the Federal Reserve Board (Board) found that in several North Carolina banking markets that credit unions exerted competitive influences mitigating the anti-competitive effects of the merger.

The Board specifically evaluated the competitive impact of the merger on the banking markets of Cherokee, Transylvania County, Jackson, and Macon County.

The Board found in these four banking markets, North Carolina’s State Employee’s Credit Union (SECU) exerted a competitive influence.

For example, the Board found in the Cherokee banking market, which is comprised of Cherokee and Clay Counties, that 21 percent of the residents were members of SECU. In addition, SECU operates street-level branches that are easily accessible to residents in the market and controlled approximately $166 million in deposits in the Cherokee banking market. Board also noted that there was another credit union in the market offered a wide range of products and its field of membership included almost all of the residents in the banking market.

In the other three banking markets, almost 28 percent of market residents in the Jackson banking market, approximately 21 percent of market residents in the Macon County banking market, and 12 percent of market residents in the Transylvania County banking market were members of the SECU. In addition to SECU, two of the banking markets has other credit union competitors.

Read more.

Schools Financial's Merger Notice

Beyond the usual happy talk about how the merger will benefit credit union members, the merger notice of Schools Financial Credit Union (Sacramento, CA) includes information about merger-related compensation and distribution of net worth to members.

Schools Financial Credit Union is proposing to merge with Schoolsfirst Federal Credit Union (Santa Ana, CA).

First, the credit union states that a vote for the merger will result in an up to $4 million special dividend distribution from net worth to the credit union's members. The distribution will take place on a one-time (pro-rata) basis, with individual dividends being calculated based on average month-end deposit balances in the six (6) month period from June 1, 2019 to November 30, 2019.

Second, the notice disclosed the merger-related compensation for five employees of Schools Financial. Tim Marriott, President/CEO of Schools Financial CU, could earn up to a maximum $8,011,532 in merger-related compensation. However, the notice states that the the likely amount of compensation could be significantly lower.

Also, all employees of Schools Financial Credit Union, except Mr. Marriott, are being offered retention bonuses to help ensure a smooth transition and successful integration of the merger.

The date of the member's vote is December 12, 2019.

Merger Notice.

What Was the Value of Progressive CU's Open Charter?

The 2018 Annual Report of Pentagon Federal Credit Union (McLean, VA) has information on the value of the open field of membership charter of Progressive Credit Union (New York, NY) to Pentagon FCU.

An open field of membership charter allows anyone to join a credit union.

This open charter was transferred to Pentagon FCU after the emergency merger of Progressive CU into Pentagon FCU.

In Note 14 (Subsequent Events), Pentagon FCU reported an increase of intangible assets of approximately $108 million associated with the emergency merger.

The increase in the value of intangible assets was derived from the contractual right of Pentagon FCU to use Progressive CU's open field of membership charter.

38 Pages of Heavily Redacted Documents on Progressive-PenFed Merger

On January 7, 2019, I filed a Freedom of Information Act request with the National Credit Union Administration (NCUA) regarding the emergency merger of Progressive Credit Union (New York, NY) into Pentagon Federal Credit Union (McLean, VA).

Specifically, I requested 2018 agency records regarding 1) the merger application, agreement, and NCUA approval documents; 2) communications between the NCUA and potential credit union suitors of Progressive; and 3) internal NCUA communications of potential merger partners with Progressive.

On September 25, NCUA granted my request in part and denied it in part.

The agency did provide 38 pages in response to my request, which were heavily redacted, on the unassisted emergency merger between Progressive and Pentagon FCU.

NCUA wrote that the "[r]edacted and withheld information is exempt from FOIA release under one or more of the exemptions at 5 U.S.C. § 552(b)(4), (5), (6), and (8)."

NCUA did not provide any information on potential credit union suitors for Progressive Credit Union other than Pentagon FCU. .

One section of a September 18 letter to NCUA and the New York Department of Financial Services from Robert Familiant, CEO of Progressive, on Progressive's emergency required expeditious action and a lack of reasonably available alternatives for Progressive was totally redacted. What does the lack of reasonably available alternatives mean?

In addition, the September 18 letter stated that there were seven reasons why this emergency merger with Pentagon FCU was in the public interest. However, 3 reasons were totally redacted and parts of the other 4 reasons were partially redacted.

The partially redacted reasons that the emergency merger was in the public interest were:

• the merger would eliminate the risk of a loss to the National Credit Union Share Insurance Fund;
• the merger would benefit Progressive members by expanding products and services available to them;
• the merger would eliminate duplicate positions and expenses; and
• Pentagon FCU wanted to merge now.

The section in the application detailing the reasons for the merger were extensively redacted.

Outside of saying the merger was in both credit unions' best interest, the record was pretty thin on how the merger benefited Pentagon FCU or its members.

Another redaction was the analysis of the adequacy of Progressive's allowance for loan and lease losses.

The document further redacted other financial information including the combined financials after merger adjustments.

Merger Will Create $2.1 Billion CU

Crain's Chicago Business is reporting that Consumers Credit Union (Gurnee, IL) and Andigo Credit Union (Schaumburg, IL) have announced their intention to merge.

Andigo Credit Union has $865 million in assets and Consumers Credit Union has $1.2 billion in assets.

The merger requires regulatory approval and a favorable vote by Andigo CU's members.

The merger is expected to close by the end of the year.

Read the article.

Struggling with Taxi Medallion Loans, Van Cortlandt Cooperative CU to Merge into USAlliance FCU (Updated)

Credit unions continue to experience collateral damage from the disruption of the taxi industry from ride sharing apps.

The latest casualty is Van Cortlandt Cooperative Federal Credit Union (Bronx, NY).

The National Credit Union Administration in the first quarter approved the merger of Van Cortlandt Cooperative FCU into USAlliance Federal Credit Union (Rye, NY).

While the official reason cited for the merger is expanded services, the credit union was being negatively impacted by participation loans financing taxi medallions.

Since the beginning of 2018, the credit union charged off almost $6.5 million in commercial loan participations not secured by real estate.

In addition, the credit union recorded losses of $91,630 for 2018 and $69,709 for the first quarter of 2019.

Update: Credit Union Journal is reporting that the merger between the two credit unions has been cancelled.

Interdependency Risk and An Emergency Merger

The current narrative from the credit union industry is that the emergency merger of Progressive Credit Union (New York, NY) into Pentagon Federal Credit Union (McLean, VA) saved the National Credit Union Share Insurance Fund (NCUSIF) from the loss that would have arisen from the failure of Progressive.

However, an untold story is about the interdependency risk associated with credit unions trying to prop up Progressive CU.

As I previously pointed out, Progressive Credit Union received an exemption from the nonmember deposit cap in 2015.

A document From the National Credit Union Administration (NCUA) noted that Progressive CU in recent years primarily funded itself through nonmember deposits, which were all from credit unions.

As of December 2018, the number of nonmember accounts at Progressive were 246. These dollar value of these nonmember deposits were slightly more than $76.8 million. Nonmember deposits comprised almost 32 percent of total deposits and shares at Progressive.

In addition, Progressive CU had $52 million in uninsured shares and deposits, of which $36.25 million were nonmember deposits.

Under the scenario where Progressive CU was liquidated in an insured depositor payoff, these uninsured deposits would absorb losses before the NCUSIF.

It is possible that some credit unions that funded Progressive CU could have become impaired. But only NCUA would know if this is the case.

This emergency merger seems to have more to do with keeping losses at Progressive from cascading to other credit unions.

The NCUA needs to seriously examine this issue of interdependency risk within the credit union industry.

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.

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.

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.

Merger Will Create $3.3 Billion CU

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

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

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

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

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

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

Read more.

Merger Creates $2.2 Billion Multi-State Credit Union

The merger between Nuvision Credit Union (Huntington, CA) and Denali Federal Credit Union (Anchorage, AK) became effective on October 1.

The merger was approved by National Credit Union Administration on August 15 and Denali's members on September 21.

The combined credit union would operate in five states -- Alaska, Washington, California, Arizona and Wyoming -- and have over $2.2 billion in assets.

As of the June 2018, Nuvision had almost $1.59 billion in assets and Denali had $671 million in assets.

Denali will operate as a division of Nuvision Credit Union.

Struggling Taxi-Medallion Lender Bay Ridge FCU to Merge into Island FCU

The carnage among taxi medallion lending credit unions continues.

The latest news is the announced merger of Bay Ridge Federal Credit Union (Brooklyn, NY) into Island Federal Credit Union (Hauppauge, NY) on October 1.

According to the press release, the National Credit Union Administration (NCUA) recently approved the merger.

Problem taxi medallion loans sunk Bay Ridge FCU. The $183 million credit union was undercapitalized, as of June 2018. (Click here to read my commentary on Bay Ridge's second quarter 2018 performance).

Bay Ridge FCU had an exception from the aggregate member business loan cap of 12.25 percent of assets, because it had either a history of or chartered for the purpose of making business loans.

The New York City taxi industry has been disrupted by ride sharing companies. As a result, the price of taxi medallions plummeted from 2014 highs in excess of $1 million to as low as $160,000.

On August 31, NCUA liquidated the largest taxi medallion lending credit union, Melrose Credit Union (Briarwood, NY).

Read the press release.

Turning the Table

Over the last six years, there have been almost two dozen announced or completed deals involving credit unions acquiring banks.

It is time for banks to consider acquiring credit unions as a potential growth strategy.

The board of a credit union, as part of their fiduciary duty, must consider any merger proposal.

Members would benefit from a credit union merger into a bank. Members would receive a one-time payment for their interest in the credit union's net worth.

For example, when Nationwide Federal Credit Union merged with Nationwide Bank, the members of Nationwide FCU received almost $150 for every $1,000 in an account.

However, such a transaction is not without challenges.

A bank will need to find a credit union that would be willing to entertain a merger offer. This could take time, as key decision makers at a credit union are likely to lose roles and responsibilities after the merger.

Also, the National Credit Union Administration's regulation governing a credit union merger into a bank creates obstacles to such deals. Read 12 CFR 708a Subpart C.

To ensure that the transaction is successful, a bank and credit union should have similar cultures and the merger makes sense as a strategic fit.

Conserved Ukrainian Future CU Merged

Ukrainian Future Credit Union (Warren, MI) has merged into Selfreliance Ukrainian American Federal Credit Union (Chicago, IL) on August 17.

Ukrainian Future CU was placed into conservatorship on February 23, 2018.

The Michigan Department of Insurance and Financial Services and the National Credit Union Administration decided that merging Ukrainian Future Credit Union into Selfreliance Ukrainian American Federal Credit Union was in the best interests of the members.

At the time of the merger, Ukrainian Future Credit Union was a federally insured, state-chartered credit union with 3,652 members and assets of $77.9 million. Selfreliance Ukrainian American Federal Credit Union served 20,359 members and had assets of $485.9 million.

Read the press release.

NCUA Board Amends FOM Rule and Provides Greater Transparency Regarding Voluntary Mergers

The National Credit Union Administration (NCUA) Board finalized on June 20th two rules amending the agency’s regulations governing its chartering and field-of-membership (FOM) rules with respect to applicants for a community charter and providing members of federally insured credit unions with greater transparency when those credit unions seek voluntary mergers.

The NCUA Board decided not raise the population limit for a presumptive community in its FOM rule. The Board had proposed raising the population threshold for a presumptive community charter from 2.5 million people to 10 million people.

The final FOM rule made the following changes:

• An applicant for an original community charter, conversion, or expansion has the option of submitting a narrative, with sufficient supporting documentation, to establish the existence of the required well-defined local community;
• The agency will hold a public hearing on narrative applications where the proposed community’s population exceeds 2.5 million; and
• For communities that are subdivided into metropolitan divisions, the Board will permit an applicant to designate a portion of the area as its community, regardless of division boundaries.

NCUA staff during the briefing stated that credit unions affected by the March 29 court order would not be allowed to use the narrative approach to regain communities that were invalidated.

The rule will become effective on September 1, 2018.

The Board also finalized a rule that would better inform members of a federally insured credit union seeking a voluntary merger and would give members more time to consider their votes.

Specifically, the final rule will:

• Increase the minimum required time for notice to members before a merger vote to 45 days;
• Require the merging credit unions to disclose merger-related compensation increases above $10,000 or 15 percent of compensation, whichever is greater, for certain employees and officials of the merging credit union;
• Clarify the contents and format of the members’ notice to provide better information; and
• Provide a method to communicate to the NCUA regarding the proposed merger.

The final rule goes into effect on October 1, 2018.

Read the press release.