Indiana Bank to Acquire Privately Insured CU

In a rare transaction, an Indiana bank will acquire an Indiana credit union.

ABA Newsbytes is reporting that First Bank of Berne, a $711 million community bank based in Berne, Ind., will acquire the $18.7 million Adams County Credit Union in Monroe, Indiana.

Adams County Credit Union is privately insured by American Share Insurance.

Therefore, this merger will not be hindered by the National Credit Union Administration's burdensome bank-credit union merger regulations.

Details regarding the transaction were not disclosed.

Two CUs Switch from Federal to Private Share Insurance

American Share Insurance has announced that $240 million Rocky Mountain Credit Union (Helena, MT) and the $344 million River Valley Credit Union (Miamisburg, OH) have converted from federal to private share insurance provided by American Share Insurance (ASI).

Rocky Mountain Credit Union is the first credit union in Montana to convert from federal to private insurance since American Share Insurance was approved to do business in the state effective January 1, 2018.

With the addition of River Valley Credit Union, ASI now insures 51 credit unions in Ohio.

Read the news release.

Consent Order Issued to Mid-Cities Credit Union

The California Department of Business Oversight issued a consent order against Mid-Cities Credit Union (Compton, CA).

Mid-Cities Credit Union is privately insured by American Share Insurance.

As of September 2017, the credit union posted a loss of $703,246.

The consent order requires the credit union to retain management and Board of Directors acceptable to the Commissioner.

Within 45 days of the date of this order, the members of the Board of Directors will attend and participate in financial literacy training that is designed for credit union board of directors.

Also, the $20.1 million credit union needs to start a search to identify mergers partners that are acceptable to the Commissioner.

By December 31, 2018, the credit union would have an operating expense-to-average assets ratio of no more than 6 percent. As of September 2017, the credit union reported an operating expense ratio of 8.70 percent.

Also, the credit union is expected to develop, adopt, and submit a Net Worth Restoration Plan. As part of the plan, the credit union will seek to attain a minimum quarterly profitability of 0.10 percent of total assets.

Furthermore, the credit union was expected to improve procedures for the oversight of any vendors or independent contractors, who provide debt collection services.

The order was signed on December 11, 2017.

Read the consent order.

United Texas CU Abandons Federal Charter and Becomes Privately Insured

United Texas Credit Union (San Antonio, TX) has switched from a federal to state charter and converted from federal to private share insurance.

The $254 million credit union will now be insured by American Share Insurance.

The credit union's CEO stated that one of the main reasons for the charter conversion is Texas' flexible Field of Membership (FOM) rules.

Also, local supervision and lower regulatory fees played a role in the credit union's decision to change charters and insurers.

Read the press release.

Another Ohio CU Defects from Federal Share Insurance

The National Credit Union Administration approved on March 27 the request of GenFed Financial Credit Union (Akron, OH) to switch from federal share (deposit) insurance to private share insurance.

Earlier this year, Day-Met (Dayton, OH) converted from federal share insurance to private share insurance.

Going forward, GenFed Financial Credit Union will be insured by American Share Insurance.

GAO: ASI Reserves Are Adequate to Cover Future Losses, But High Geographic and Deposit Concentration Poses Risk

In a recent report, the Government Accountability Office (GAO) found that American Share Insurance (ASI) has adequate reserves and has strong ability to cover present and future losses for the credit unions it insures.

ASI insures 125 privately insured credit unions with $13 billion in insured deposits.

According to its most recent examination by the Ohio Department of Insurance, ASI’s reserves for losses were consistent with Ohio’s legal requirements and were adequate and appropriate. Ohio Department of Insurance staff told GAO that ASI is classified as a nonpriority insurer, which means ASI is considered low-risk and does not require enhanced oversight.

While none of the eight state supervisors interviewed by GAO raised concerns about ASI’s financial condition, one state credit union supervisor worried that during volatile economic times ASI might not be able to cover losses once it had exhausted its capital. The supervisor noted that ASI is not backed by the full faith and credit of the U.S. government and has no access to state guaranty funds. However, in the event ASI becomes impaired, it can charge a special assessment to privately insured credit unions.

ASI told GAO that it has several processes in place to mitigate risk and help prevent and control losses from credit unions it insures. ASI conducts an examination of about 70 percent of its credit unions annually and and the rest on a 2–3 year cycle.

At the end of 2015, ASI had $218 million in assets (cash and investments) available to pay claims. But the GAO report noted at at the end of 2015, 14 privately insured credit unions each had more than that amount in total insured deposits.

GAO found that privately insured credit unions have a similar risk profile with federally insured credit unions. However, GAO found that privately insured credit unions are less geographically diverse and have higher levels of deposit concentration than federally insured credit unions.

• Seventy-two percent of ASI-insured credit unions are located in 3 states -- Ohio, Illinois, and Indiana.
• In 2015, ASI’s 2 largest credit unions (by total assets) represented 15 percent of its total insured deposits, and its 10 largest represented 54 percent of its insured deposits. In comparison, NCUA’s 10 largest insured credit unions (by total assets) made up 15 percent of total insured deposits in 2015.

GAO concludes that given this deposit concentration if one or more large privately insured credit unions failed, ASI could face difficulty paying claims.

Read pages 9 thru 21 of GAO report.

78 Privately Insured CUs Eligible for FHLBank Membership at the End of 2015

The Fixing America’s Surface Transportation Act (FAST Act) authorized Federal Home Loan Bank (FHLBank) membership for eligible privately insured credit unions.

By law, certain types of prospective FHLBank members must have at least 10 percent of their assets in residential mortgage loans to be eligible.

As of December 31, 2015, the Federal Housing Finance Agency estimated that 78 privately insured credit unions met this eligibility requirement. In other words, approximately 62 percent of the 125 privately insured credit unions were eligible for FHLBank membership.

As of December 31, 2016, the FHLBanks had approved 16 privately insured credit unions for membership.

This information appears on pages 7 and 8 of a recently released Government Accountability Office report.

GAO: Privately Insured CUs Comply with Disclosure Requirements; But Rules Can Be Clarified

The Government Accountability Office (GAO) reported that privately insured credit unions largely complied with the Bureau of Consumer Financial Protection (CFPB) requirements to disclose that they do not have federal deposit insurance.

Federal law (12 U.S.C. § 1831t(b)) requires that any depository institution that does not have federal deposit insurance clearly and conspicuously disclose that the institution is not federally insured.

Regulation I, which is administered by the CFPB, requires disclosure that an institution does not have federal deposit insurance (1) at locations where deposits are normally received (stations or windows) except enumerated exceptions, (2) on the institution’s main Internet page (website), (3) in all advertising except enumerated exceptions, and (4) in periodic statements and account records. Also, Regulation I generally requires depository institutions to obtain a written acknowledgment from depositors that the institution does not have federal deposit insurance.

GAO found that 45 of the 47 privately insured credit unions that they visited displayed a disclosure at teller windows. However, 7 of the 17 credit unions with drive-through windows did not have disclosures at the window. GAO noted that the dimensions and font sizes of the disclosure signage varied among credit unions, with some having signage too small to be easily read, or not placed conspicuously.

GAO also reviewed 102 privately insured credit union websites and found that almost all of these websites complied with CFPB’s requirement to disclose on their main Internet page that the institution is not federally insured. However, on 28 of 99 websites the disclosures were not easily seen or readable. Over half of the websites used used a font size that was smaller than that used for the other text on the same webpage.

With respect to printed material, 8 of the 36 credit unions had at least one item that did not contain a disclosure.

While compliance with Regulation I is high, GAO believes that Regulation I may be interpreted and enforced differently by different credit unions and state regulators. GAO wrote: "Without clarity on whether or not drive-through windows are required to have disclosures, some credit unions may continue to not display them at these windows. Additionally, without more clarity or guidance around dimensions and font sizes for disclosures, the disclosures may be too small to be easily read or noticed."

GAO recommended that the CFPB should issue guidance to:

• clarify whether drive-through windows require disclosures; 
• describe what constitutes clear and conspicuous disclosure, including minimum signage dimensions and font size for disclosures; and 
• explain and provide examples of which communications are advertising.

Read the GAO Report.

DayMet Credit Union Becomes Privately Insured

The National Credit Union Administration on January 30th approved the application of DayMet Credit Union (Dayton, OH) to switch from federal to private insurance.

Going forward, the credit union will be insured by American Mutual Share Insurance (ASI).

Credit unions in nine states can opt for private share (deposit) insurance.

Privately-Insured Credit Unions and Stabilization Fund Rebate Assessment

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

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

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

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

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

IH Credit Union, Inc. Becomes Privately Insured

The National Credit Union Administration approved IH Credit Union, Inc. (Springfield, OH) conversion from federal share insurance to private share insurance.

In explaining its change to private share insurance, the credit union wrote: "We believe that the people in Columbus have a much better feel for what is happening in Springfield than government bureaucrats in Washington, D.C."

Moreover, the credit union stated that during the financial crisis NCUA essentially went bankrupt and IH Credit Union was forced to send $1.3 million to Washington. These funds were required to replenish the National Credit Union Share Insurance Fund and to pay for the corporate credit union bailout.

The $298 million credit union will be insured by American Share Insurance (ASI) going forward.

However, it should be noted that ASI had to assess special premiums in the aftermath of the financial crisis.

Read more.

Alliance FCU Changes to State Charter and Private Share Insurance

Alliance Federal Credit Union (Lubbock, TX) switched from a federal charter to a state charter and changed from federal share insurance to private share insurance provided by American Share Insurance.

According to Scott Rose, President and CEO of the $245 million Alliance FCU, one of the main reasons he and his board of directors chose to convert to American Share was the simple fact that the role of the regulator and insurer needs to be differentiated.

Another key factor in the credit union's decision to move to a state charter, and to partner with American Share Insurance, was that they wanted to be regulated by local government officials that better understand the needs of Texas residents.

This is the third Texas-based credit union to join American Share Insurance in the last 18 months.

Read the press release.

FinCen Proposes AML, CIP Rules be Extended to Non-federally Insured CUs

The Financial Crimes Enforcement Network (FinCEN) issued a proposed rule imposing -- for the first time -- anti-money laundering (AML) program and Customer Identification Program (CIP) requirements for banks without a federal functional regulator, including non-federally insured credit unions.

The proposed rule would prescribe minimum standards for AML programs and include these institutions in CIP, thus “eliminat[ing] the present regulatory ‘gap’ in AML coverage” and “reduc[ing] the opportunity for criminals to seek out and exploit banks with less rigorous AML requirements.”

Covered institutions are already subject to various Bank Secrecy Act recordkeeping and reporting requirements, so FinCEN said the proposal would not be “unduly burdensome.”

Read the proposed rule.

Latah FCU Converts to Privately-Insured, State Chartered CU

Effective September 15, 2016, Latah Federal Credit Union (Moscow, ID) will become a privately-insured, state-chartered credit union.

Accounts will be insured by American Mutual Share Insurance.

The National Credit Union Administration approved the conversion vote.

Up to the date the conversion becomes effective, the credit union will allow all members who have share certificates and other term accounts to close the federally-insured portion without an early withdrawal penalty.

Read the notice.

Privately Insured Ohio CU Approved for FHLB Membership

AurGroup Financial Credit Union (Fairfield, OH) has been approved for membership in the Federal Home Loan Bank (FHLB) of Cincinnati.

The Fixing America’s Surface Transportation Act or “FAST Act” authorized privately insured credit unions could become members of a FHLB.

The $148 million credit union is the fourth privately insured credit union to be granted FHLB membership since June.

The other three privately insured credit unions to receive FHLB membership are Beacon CU (Wabash, IN), Credit Union 1 (Rantoul, IL), and Interra CU (Goshen, IN).

Read more.

Glendale Area Schools FCU Switches to a Privately Insured, State Charter

Glendale Area Schools Federal Credit Union has successful converted to a California state charter and private share insurance.

Going forward, the credit union will be insured by American Share Insurance (ASI), the nation’s only alternative to federal share insurance.

The credit union viewed the benefits of federal share insurance were outweighed by the costs of the federal charter.

In addition, Latah Federal Credit Union in Idaho is currently finalizing its share insurance and charter conversion following its membership vote of approval and according to Dennis Adams, CEO and President of ASI, a federally chartered Texas credit union is queuing up to start its vote later this summer to become a state charter and privately insured.

Read the press release.

Illinois Regulator Liquidates Good Shepherd Credit Union

Good Shepherd Credit Union (Chicago, IL) was involuntarily liquidated by the Illinois Department of Financial and Professional Regulation.

The credit union had its operations suspended earlier this year by the state credit union regulator.

Good Shepherd was privately insured by American Share Insurance.

Read the Involuntary Liquidation Order.

Two Privately Insured CUs Approved for FHLB Membership

Two privately insured credit unions have been approved for Federal Home Loan Bank (FHLB) membership, according to American Share Insurance (ASI).

FHLB of Indianapolis approved $1.2 billion Beacon Credit Union (Wabash, IN) for membership and FHLB of Chicago approved $785 million Credit Union 1 (Rantoul, IL) for membership.

The FAST Act (H.R. 22), which was enacted in December 2015, authorized that a privately insured credit union could join a FHLB.

ASI has been meeting with seven FHLBs to educate them about private share insurance, privately insured credit unions and American Share’s role in the oversight of privately insured credit unions.

For more information, click here.

Illinois Temporarily Suspends Operations of Good Shepherd CU

The Illinois Division of Financial Institutions issued an order of suspension against Good Shepherd Credit Union (Chicago, IL).

The state regulator found that the $101 thousand credit union was operating in an unsafe and unsound manner and was substantially out of compliance with the Illinois Credit Union Act.

According to the findings, the credit union has operated at a loss in four of the last five years and has seen a dramatic decline in its net worth ratio from 19.13 percent at the end of 2014 to 8.31 percent as of December 2015. The credit union had also failed to reconcile its general ledger account balances.

The order notes that the books and records of the credit union did not reflect the true condition of the credit union. This includes not adequately funding its allowance for loan losses accounts.

Other issues cited include the board of directors not meeting as frequently as required by law and failure to notify the Department of Credit Unions regarding resignations of board members.

The order temporarily suspended the operations of the credit union for 60 days.

In addition, Jim McNeil was appointed Manager-Trustee of the credit union.

Good Shepherd Credit Union is privately-insured by American Share Insurance.

Read the Suspension Order.

Read Order Appointing Manager-Trustee.

Privately Insured CUs Can Become Members of FHLBs

Privately insured credit unions can now become members of the Federal Home Loan Banks (FHLBs).

President Obama on December 4 signed into law the Highway Bill (H.R. 22).

Section 82001 of the bill allows privately insured credit unions to join the Federal Home Loan Banks "only if the appropriate supervisor of the State in which the credit union is chartered has determined that the credit union meets all the eligibility requirements for Federal deposit insurance as of the date of the application for membership."

Also, the bill protects FHLB advances from loss by giving FHLBs priority to collateral backing FHLB advances.

This section of the bill also authorizes the GAO to conduct an audit on the adequacy of insurance reserves held by a private
deposit insurer and on the level of compliance with Federal regulations relating to the disclosure of a lack of Federal deposit insurance.

American Share Insurance is the only private insurer of credit unions.

Read the bill.