The Credit Union National Association is arguing that legislation expanding the ability of credit unions to make business loans would increase business loans by $10 billion at credit unions and help create 108,000 jobs.
However, is this actually a net expansion of business loans for the economy or just a shifting of loans from banks to credit unions?
My thinking is that it is the latter.
I suspect given the economy, credit unions are only going to make prudentially sound loans to creditworthy business customers, just like banks.
Moreover, I doubt their regulators would permit them to go hog wild and make business loans to weak or marginal credits.
There might be some differences in judgment as to creditworthiness on the margin; but overall, banks and credit unions would continue to compete for the same customers.
So, the net impact is that this bill will not increase the size of the business loan pie.
Tuesday, January 12, 2010
Saturday, January 9, 2010
Kern Central Closed
The National Credit Union Administration (NCUA) was appointed liquidating agent of Kern Central Credit Union (Kern Central) of Bakersfield, California, by the California Department of Financial Institutions (DFI).
As of September 2009, Kern Central was significantly undercapitalized and reported a year-to-date loss of almost $2.2 million.
At liquidation, Kern Central had approximately $34.9 million in assets and served approximately 8,400 members.
Self-Help FCU assumed the assets and deposits of Kern Central.
As of September 2009, Kern Central was significantly undercapitalized and reported a year-to-date loss of almost $2.2 million.
At liquidation, Kern Central had approximately $34.9 million in assets and served approximately 8,400 members.
Self-Help FCU assumed the assets and deposits of Kern Central.
Friday, January 8, 2010
Future Premium Assessments: NCUSIF Versus FDIC
Recently, NCUA Chairman Deborah Matz was asked at a credit union conference in California whether credit unions should consider avoiding future NCUA premium assessments by converting to a bank or thrift charter. She responded that NCUA’s assessments are miniscule compared to FDIC premium assessments. She also made a huge point about banks prepaying 3 years of assessments in December.
I would like to address NCUA Chairman Matz’s comment.
It is true that FDIC-insured banks prepaid 3¼ years of assessments on December 30, 2009. These prepaid assessments appear as an asset on the books of the banks, just like the one percent NCUSIF capitalization deposit of credit unions. The purpose of the prepaid assessment is to provide FDIC with sufficient working capital to handle an anticipated elevated level of bank failures this year.
However, as premiums come due over the next 3 years, the FDIC will bill each bank for the quarter’s assessment based on the bank’s actual assessment rate and deposits at that time. That amount will be deducted from the bank’s prepaid assessments balance.
Currently, the base assessment rate ranges between 12 and 16 basis points (depending on supervisory evaluations and financial ratios) for banks that are well capitalized and have a CAMELS composite rating of 1 or 2. But the actual risk-based premium rate includes adjustments for secured liabilities, brokered deposits and capitalization, which can increase or lower the premium rate paid. Beginning in 2011, the base assessment rate will go up by 3 basis points. These premium rates will remain in effect until 2018, when FDIC expects the insurance fund to be fully recapitalized. The FDIC believes that premiums at this level will be sufficient to return the insurance fund to its normal operating level, without borrowing from the government.
By way of comparison, NCUA at its November 2009 Board meeting estimated credit unions will be assessed a premium of between 15 and 40 basis points in 2010.
I have not seen where NCUA provides any estimates regarding assessment rates for credit unions after 2010. However, Congress in 2009 authorized NCUA to borrow up to $6 billion from the government to stabilize the corporate credit union system. Federally-insured credit unions are responsible for repaying these borrowings. Depending on the ultimate cost of stabilizing corporate credit unions, some have estimated that federally-insured credit unions could pay an annual assessment of approximately 14 basis points a year thru 2016.
I hope this provides some needed clarity without demagoguery.
I would like to address NCUA Chairman Matz’s comment.
It is true that FDIC-insured banks prepaid 3¼ years of assessments on December 30, 2009. These prepaid assessments appear as an asset on the books of the banks, just like the one percent NCUSIF capitalization deposit of credit unions. The purpose of the prepaid assessment is to provide FDIC with sufficient working capital to handle an anticipated elevated level of bank failures this year.
However, as premiums come due over the next 3 years, the FDIC will bill each bank for the quarter’s assessment based on the bank’s actual assessment rate and deposits at that time. That amount will be deducted from the bank’s prepaid assessments balance.
Currently, the base assessment rate ranges between 12 and 16 basis points (depending on supervisory evaluations and financial ratios) for banks that are well capitalized and have a CAMELS composite rating of 1 or 2. But the actual risk-based premium rate includes adjustments for secured liabilities, brokered deposits and capitalization, which can increase or lower the premium rate paid. Beginning in 2011, the base assessment rate will go up by 3 basis points. These premium rates will remain in effect until 2018, when FDIC expects the insurance fund to be fully recapitalized. The FDIC believes that premiums at this level will be sufficient to return the insurance fund to its normal operating level, without borrowing from the government.
By way of comparison, NCUA at its November 2009 Board meeting estimated credit unions will be assessed a premium of between 15 and 40 basis points in 2010.
I have not seen where NCUA provides any estimates regarding assessment rates for credit unions after 2010. However, Congress in 2009 authorized NCUA to borrow up to $6 billion from the government to stabilize the corporate credit union system. Federally-insured credit unions are responsible for repaying these borrowings. Depending on the ultimate cost of stabilizing corporate credit unions, some have estimated that federally-insured credit unions could pay an annual assessment of approximately 14 basis points a year thru 2016.
I hope this provides some needed clarity without demagoguery.
Wednesday, January 6, 2010
Velocity CU's Members Approve Conversion to Private Insurance
According to an article published by the Austin American-Statesman, members of Velocity Credit Union, one of the largest credit unions in Central Texas, have voted to drop the company's federally backed deposit insurance in favor of coverage from a private company, ASI.
Approval of a conversion of federal to nonfederal insurance requires the affirmative vote of a majority of the credit union’s members who vote on the proposition, provided at least 20 percent of the total membership participates in the voting.
The vote is still awaiting certification by the National Credit Union Administration. If approved, Velocity CU will become the second Texas credit union to opt for private insurance.
If the conversion receives regulatory approval, NCUA rules state that "the credit union will, at any time before the effective date of conversion, permit all members who have share certificates or other term accounts to close the federally-insured portion of those accounts without an early withdrawal penalty."
In a related story, Credit Union Journal (paid subscription) is reporting that ASI is in negotiations with NCUA to wind down its business (see second paragraph).
If this true, then was the vote to convert to ASI an exercise in futility?
Approval of a conversion of federal to nonfederal insurance requires the affirmative vote of a majority of the credit union’s members who vote on the proposition, provided at least 20 percent of the total membership participates in the voting.
The vote is still awaiting certification by the National Credit Union Administration. If approved, Velocity CU will become the second Texas credit union to opt for private insurance.
If the conversion receives regulatory approval, NCUA rules state that "the credit union will, at any time before the effective date of conversion, permit all members who have share certificates or other term accounts to close the federally-insured portion of those accounts without an early withdrawal penalty."
In a related story, Credit Union Journal (paid subscription) is reporting that ASI is in negotiations with NCUA to wind down its business (see second paragraph).
If this true, then was the vote to convert to ASI an exercise in futility?
Tuesday, January 5, 2010
Commercial Lending Undid HeritageWest
More details are coming out about the failure of HeritageWest FCU in Utah.
Ronald L. Burniske, president and CEO of Virginia Beach-based Chartway FCU, which acquired HeritageWest FCU, told the Virginian-Pilot that HeritageWest's difficulties arose from a loss of focus on consumer lending and its move into lending to commercial builders.
In a separate interview with Credit Union Times, Burniske pointed out that "any number of CUs, unlike banking counterparts, lack internal expertise to handle large scale real estate or commercial development endeavors, factors that undid the $311 million HeritageWest FCU."
Ronald L. Burniske, president and CEO of Virginia Beach-based Chartway FCU, which acquired HeritageWest FCU, told the Virginian-Pilot that HeritageWest's difficulties arose from a loss of focus on consumer lending and its move into lending to commercial builders.
In a separate interview with Credit Union Times, Burniske pointed out that "any number of CUs, unlike banking counterparts, lack internal expertise to handle large scale real estate or commercial development endeavors, factors that undid the $311 million HeritageWest FCU."
Monday, January 4, 2010
Beer Summit, Part 2
In a comment to my December 14, 2009 post on nonmember business loans, Robbie Wright wrote:
“Your statement to the reporter is a little misleading, insofar as the "non-members" are members of the originating institution. By selecting large CU's, their participation numbers will obviously be large, but it effectively gets your alarmist point across. I'd bet you a beer that their %'s are inline with the industry.”
So, I decided to run the numbers looking at nonmember business loans as a percent of total assets.
I used data from the third quarter for federally-insured credit unions. I excluded any credit union from the analysis that did not report holding a nonmember business loans. If I included all credit unions this would have lowered the average and median and I want to be as fair as possible.
As of September 30, 2009, 713 credit unions reported outstanding nonmember business loans.
The average ratio of nonmember business loans as a percent of total assets was 2.76 percent with a median of 1.50 percent. Seventy-five percent of credit unions held less than 3.66 percent of assets in nonmember business loans.
Below is the ratio of nonmember business loans to total assets for the 10 credit unions holding the most nonmember business loans.
Patelco (CA), 10.27%
Premier America CU (CA), 13.64%
Western FCU (CA), 7.98%
Schoolsfirst (CA), 1.75%
America First (UT), 2.48%
Langley (VA), 7.14%
California Coast (CA), 5.95%
Keypoint (CA), 12.52%
Royal CU (WI), 9.43%
Travis (CA), 5.93%
Eight of these 10 credit unions are in the top 25 percent of credit unions holding nonmember business loans as a percent of total assets.
This would suggest that their holdings of nonmember business loans are not representative of credit unions holding nonmember business loans or the industry as a whole.
So, when we have our beer summit, I’ll have a Yuengling.
“Your statement to the reporter is a little misleading, insofar as the "non-members" are members of the originating institution. By selecting large CU's, their participation numbers will obviously be large, but it effectively gets your alarmist point across. I'd bet you a beer that their %'s are inline with the industry.”
So, I decided to run the numbers looking at nonmember business loans as a percent of total assets.
I used data from the third quarter for federally-insured credit unions. I excluded any credit union from the analysis that did not report holding a nonmember business loans. If I included all credit unions this would have lowered the average and median and I want to be as fair as possible.
As of September 30, 2009, 713 credit unions reported outstanding nonmember business loans.
The average ratio of nonmember business loans as a percent of total assets was 2.76 percent with a median of 1.50 percent. Seventy-five percent of credit unions held less than 3.66 percent of assets in nonmember business loans.
Below is the ratio of nonmember business loans to total assets for the 10 credit unions holding the most nonmember business loans.
Patelco (CA), 10.27%
Premier America CU (CA), 13.64%
Western FCU (CA), 7.98%
Schoolsfirst (CA), 1.75%
America First (UT), 2.48%
Langley (VA), 7.14%
California Coast (CA), 5.95%
Keypoint (CA), 12.52%
Royal CU (WI), 9.43%
Travis (CA), 5.93%
Eight of these 10 credit unions are in the top 25 percent of credit unions holding nonmember business loans as a percent of total assets.
This would suggest that their holdings of nonmember business loans are not representative of credit unions holding nonmember business loans or the industry as a whole.
So, when we have our beer summit, I’ll have a Yuengling.
Friday, January 1, 2010
NCUA Closes HeritageWest FCU
The National Credit Union Administration liquidated HeritageWest Federal Credit Union of Tooele, Utah, and accepted Chartway Federal Credit Union’s offer to purchase and assume the credit union.
Chartway Federal Credit Union purchased and assumed HeritageWest Federal Credit Union’s assets, loans and shares.
At closure, HeritageWest Federal Credit Union had $311 million in assets and served 40,000 members.
Information on the cost to the NCUSIF was not released.
Chartway Federal Credit Union purchased and assumed HeritageWest Federal Credit Union’s assets, loans and shares.
At closure, HeritageWest Federal Credit Union had $311 million in assets and served 40,000 members.
Information on the cost to the NCUSIF was not released.
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