The National Credit Union Administration (NCUA) has published a Letter of Understanding and Agreement (LUA) entered into with Sperry Associates Federal Credit Union, Garden City Park, New York on May 28, 2010. The LUA outlines corrective steps the credit union needs to take with regard to strategic risk, credit risk, interest rate risk, liquidity risk, transactions risk, and compliance risk.
Below are some of the actions required by the LUA.
The credit union was to charge-off $3.1 million in non-performing assets associated with CalState 9 loan participation pool and South Florida Properties participation loan. This resulted in the credit union becoming undercapitalized as of March 31, 2010.
The credit union will submit a net worth restoration plan. As part of its net worth restoration plan, the credit union must achieve a return on average assets of zero percent, .15 percent, and .25 percent by year-end 2010, 2011, and 2012, respectively. The credit union's return on average assets was -1.68 percent at the end of 2009.
The credit union will cease entering into loan participation agreements until such time it demonstates to NCUA that it has a satisfactory due diligence process. As of March 2010, slightly more than 11 percent of its outstanding loans were loan participations.
The credit union is holding 3 private label collaterialized mortgage obligations (CMOs) that have been downgraded below regulatory acceptable levels. NCUA is requiring the credit union to contract with a qualified third party to complete a portfolio analysis of the CMOs and will recognize any other than temporary impairment losses. At the end of the first, the credit union had $41.5 million in CMOs.
The credit union will also stop granting loan modifications until the board develops a loan modification policy and puts in place managerial procedures that meet NCUA's satisfaction. The credit union reported $1.5 million in modified loans at the end of the first quarter.
The credit union will perform a test of its disaster recovery/business continuity program and will contract with a third party to evaluate the security of its information security and technology program.
Friday, June 11, 2010
Royal CU's Purchase of Deposits and Assets from Anchor Bank Receives Regulatory Approval
The National Credit Union Administration (NCUA) announced today that it has approved the Purchase and Assumption of certain assets, including eleven branch offices in Wisconsin, and deposits by Royal Credit Union from Anchor Bank. The Wisconsin Office of Credit Unions, Federal Deposit Insurance Corporation, and Office of Thrift Supervision have all approved the transaction. This transaction will result in approximately 20,000 Anchor Bank customers becoming members of Royal Credit Union.
Thursday, June 10, 2010
Royal CU Awaits NCUA Approval on Bank Branch Sale
Royal Credit Union (Eau Claire, WI) in November 2009 entered into an agreement to purchase 11 branches from AnchorBank along with deposits and loans. Here are the links to AnchorBanCorp Wisconsin's 8K filing and Press Release.
Royal Credit Union will assume approximately $177 million in deposits and receive a corresponding amount in loans, real estate and other assets. The branches involved in the transaction are located in the Northwestern Wisconsin communities of Amery, Balsam Lake, Centuria, Menomonie, Milltown, New Richmond, Osceola, River Falls, St. Croix Falls, Somerset and Star Prairie. The depositors at these branches will become members of Royal Credit Union when the transaction is completed.
This deal is still awaiting regulatory approval from NCUA.
In my opinion, this transaction is a no brainer and should be approved by NCUA. But I also believe that such transactions should be a two way street.
It would be hypocritical for the credit union industry or its regulator to permit a credit union to buy a bank or bank branches along with the deposits and loans; but to restrict the ability of banks to do the same.
I know that some within the credit union industry will argue that a bank buying a credit union or credit union branches is not the same as a credit union buying a bank or bank branches, because there is a need to protect the interest of the credit union members. But as I wrote in a January 22, 2010 post,
Maybe the regulatory hold up in approving this transaction is that NCUA fears that it is opening Pandora's Box.
But what's good for the goose is good for the gander.
Royal Credit Union will assume approximately $177 million in deposits and receive a corresponding amount in loans, real estate and other assets. The branches involved in the transaction are located in the Northwestern Wisconsin communities of Amery, Balsam Lake, Centuria, Menomonie, Milltown, New Richmond, Osceola, River Falls, St. Croix Falls, Somerset and Star Prairie. The depositors at these branches will become members of Royal Credit Union when the transaction is completed.
This deal is still awaiting regulatory approval from NCUA.
In my opinion, this transaction is a no brainer and should be approved by NCUA. But I also believe that such transactions should be a two way street.
It would be hypocritical for the credit union industry or its regulator to permit a credit union to buy a bank or bank branches along with the deposits and loans; but to restrict the ability of banks to do the same.
I know that some within the credit union industry will argue that a bank buying a credit union or credit union branches is not the same as a credit union buying a bank or bank branches, because there is a need to protect the interest of the credit union members. But as I wrote in a January 22, 2010 post,
There are ample protections for members, and members are more than capable of determining what is best for them financially.
Maybe the regulatory hold up in approving this transaction is that NCUA fears that it is opening Pandora's Box.
But what's good for the goose is good for the gander.
Wednesday, June 9, 2010
The 90 Million Myth
What is the true number of credit union members in the United States?
NCUA reported that federally-insured credit unions had 90 million members. This number is arrived at by aggregating the total number of members of each credit union.
However, this number appears to be an overestimate.
The Credit Union Journal on January 24, 2008 reported that Jerry Marsh, a credit union consultant, said the actual number of credit union members is closer to 30 million, because “the so-called memberships that credit unions count represent duplicates, people who have memberships in two or three or more credit unions.”
Jerry Marsh’s estimate may be at the lower end of the range; but could accurately reflect the number of individuals that identify a credit union as their primary financial institution.
Using data from a 2004 Filene Study, Who Uses Credit Unions?, that found that 36 percent of households use credit unions – 8 percent of households only use a credit union, 12 percent primarily use a credit union, and 16 percent use a credit union, but their primary relationship is with a bank – then this would equate to about 42 million households using a credit union.
I suspect that the average number of household members using a credit union is below 2, maybe something between 1.25 and 1.5 household members. But this is strictly a guess, as I have not seen such a statistic.
This would suggest that the true number of credit union members is more likely in the range between 50 million and 60 million, not the 90 million reported by NCUA.
NCUA reported that federally-insured credit unions had 90 million members. This number is arrived at by aggregating the total number of members of each credit union.
However, this number appears to be an overestimate.
The Credit Union Journal on January 24, 2008 reported that Jerry Marsh, a credit union consultant, said the actual number of credit union members is closer to 30 million, because “the so-called memberships that credit unions count represent duplicates, people who have memberships in two or three or more credit unions.”
Jerry Marsh’s estimate may be at the lower end of the range; but could accurately reflect the number of individuals that identify a credit union as their primary financial institution.
Using data from a 2004 Filene Study, Who Uses Credit Unions?, that found that 36 percent of households use credit unions – 8 percent of households only use a credit union, 12 percent primarily use a credit union, and 16 percent use a credit union, but their primary relationship is with a bank – then this would equate to about 42 million households using a credit union.
I suspect that the average number of household members using a credit union is below 2, maybe something between 1.25 and 1.5 household members. But this is strictly a guess, as I have not seen such a statistic.
This would suggest that the true number of credit union members is more likely in the range between 50 million and 60 million, not the 90 million reported by NCUA.
Monday, June 7, 2010
Silver State Schools Charging $5 Monthly Maintenance Fee
I was tipped off by a reader that financially-troubled Silver State Schools CU on May 10th started to charge a $5 per month maintainance fee on regular checking accounts.
The credit union advertises on its website that the fee can be avoided if:
You are 60 years of age or older;
You are younger than 18 years of age;
You maintain a minimum balance of $5,000 in your checking account at all times; or
You have aggregate deposit and loan balances totaling $20,000 or more.
You can also avoid the fee if you convert your checking account into an e-checking account. However, you would incur a monthly maintenance fee if you were write a paper check; perform certain checking functions in-branch or via the credit union's Call Center including inquiries, deposits, withdrawals, and cashing services; or revert to getting paper statements.
I was told that many members of Silver State Schools did not receive proper notice about the change and incurred the fee, as they either did not receive the mailing (or recall getting the mailing) or did not see the notice on the credit union's website about the fee.
After incurring the fee, this person stated that a branch manager refused to refund the fee and told this person: "You are under the assumption that credit unions are different than banks."(emphasis added)
The credit union advertises on its website that the fee can be avoided if:
You are 60 years of age or older;
You are younger than 18 years of age;
You maintain a minimum balance of $5,000 in your checking account at all times; or
You have aggregate deposit and loan balances totaling $20,000 or more.
You can also avoid the fee if you convert your checking account into an e-checking account. However, you would incur a monthly maintenance fee if you were write a paper check; perform certain checking functions in-branch or via the credit union's Call Center including inquiries, deposits, withdrawals, and cashing services; or revert to getting paper statements.
I was told that many members of Silver State Schools did not receive proper notice about the change and incurred the fee, as they either did not receive the mailing (or recall getting the mailing) or did not see the notice on the credit union's website about the fee.
After incurring the fee, this person stated that a branch manager refused to refund the fee and told this person: "You are under the assumption that credit unions are different than banks."(emphasis added)
Thursday, June 3, 2010
Q1 Financials: Shares and Assets Up, Loans Down
The National Credit Union Administration reported that credit union assets and shares (deposits) grew during the first quarter, while loans declined.
Commenting on credit union performance during the first quarter, NCUA Chairman Debbie Matz said: “Some of the short-term numbers are moving in the right direction. However, credit unions still have a long way to go before overcoming all of the residual issues from the economic downturn of the past two years.”
Shares Post Strong Growth, Loans Fell
Federally-insured credit unions reported assets increased at a rate of 1.5 percent during the quarter to $897.6 billion, while deposits grew by 2.7 percent to $773.2 billion. However, loans fell by 1.2 percent to almost $566 billion. As a result, credit unions’ loan-to-share ratio continues to recede, down to 73.16 percent as of March 31, 2010, from 76.06 percent at year-end 2009.
With the exception of 1st mortgages and other lines of credit, all other loan categories fell during the first quarter:
• Credit card loans were down 2.9 percent;
• Other unsecured credit contracted by 2.7 percent;
• New vehicle loans fell by 5.7 percent;
• Used vehicle loans declined by 0.3 percent;
• Other real estate loans slipped by 1.8 percent; and
• Lease receivables by 5.4 percent.
Additionally, faltering loan demand caused cash, cash equivalents and investments at credit unions to increase during the first quarter. At the end of the first quarter, credit unions reported $297.7 billion up from 278.3 billion at the end of 2009.
Credit Unions Post $1.1 Billion Profit
The credit union industry reported a profit of $1.1 billion in the first quarter, with a return on average assets ratio of 0.48 percent. In comparison, federally-insured credit unions earned slightly less than $1.6 billion for all of 2009 and reported a return on average assets of 0.18 percent.
Net interest income was up 21.9 percent from a year ago to $5.4 billion, as interest expense at credit unions fell more rapidly than interest income. Non-interest income was up 15 percent from a year ago to $2.67 billion, while non-interest expenses grew at a slower pace of 2.8 percent.
Net Worth Ratio Slipped 3 Basis Points
Credit unions continue to build capital during the first quarter. Total equity at credit unions increased 1.5 percent to almost $88 billion. However, the net worth ratio for credit unions edged lower to 3 basis points during the quarter to 9.87 percent as of March 31, 2010.
Delinquency and Charge-Off Rates Edged Lower
During the first quarter of 2010, delinquent loans (loans 60 days or more past due) fell by 5 percent to $9.94 billion; however, delinquent loans were still 20.6 percent above what was reported for a comparable period last year. The percentage of loans that were delinquent fell by 7 basis points to 1.76 percent.
Net charge-offs were almost $1.69 billion, as of the end of the first quarter of 2010 – up almost 8.2 percent from year ago levels. However, the net charge-off rate slipped by 2 basis points during the quarter from 1.21 percent of average loans to 1.19 percent.
Credit unions reported almost $8.5 billion in modified outstanding loans, of which nearly $6.8 billion were real estate loans and $1.6 billion were consumer loans. Modified business loans were $1.3 billion, of which an overwhelming majority was real estate loans. As of the end of the first quarter, 22.32 percent of all modified real estate loans were two months or more past due with modified commercial real estate loans reporting a higher delinquency rate of 29.49 percent.
Credit unions set aside $1.85 billion for loan losses during the first quarter. This was 12 percent below the provisioning for loan losses from a comparable period a year earlier. During the first quarter, credit unions reported that allowances for loan and lease losses increased by approximately $180 million to almost $9 billion.
Foreclosed and repossessed assets increased by 37.5 percent over the last year to $1.6 billion at the end of March 2010.
Commenting on credit union performance during the first quarter, NCUA Chairman Debbie Matz said: “Some of the short-term numbers are moving in the right direction. However, credit unions still have a long way to go before overcoming all of the residual issues from the economic downturn of the past two years.”
Shares Post Strong Growth, Loans Fell
Federally-insured credit unions reported assets increased at a rate of 1.5 percent during the quarter to $897.6 billion, while deposits grew by 2.7 percent to $773.2 billion. However, loans fell by 1.2 percent to almost $566 billion. As a result, credit unions’ loan-to-share ratio continues to recede, down to 73.16 percent as of March 31, 2010, from 76.06 percent at year-end 2009.
With the exception of 1st mortgages and other lines of credit, all other loan categories fell during the first quarter:
• Credit card loans were down 2.9 percent;
• Other unsecured credit contracted by 2.7 percent;
• New vehicle loans fell by 5.7 percent;
• Used vehicle loans declined by 0.3 percent;
• Other real estate loans slipped by 1.8 percent; and
• Lease receivables by 5.4 percent.
Additionally, faltering loan demand caused cash, cash equivalents and investments at credit unions to increase during the first quarter. At the end of the first quarter, credit unions reported $297.7 billion up from 278.3 billion at the end of 2009.
Credit Unions Post $1.1 Billion Profit
The credit union industry reported a profit of $1.1 billion in the first quarter, with a return on average assets ratio of 0.48 percent. In comparison, federally-insured credit unions earned slightly less than $1.6 billion for all of 2009 and reported a return on average assets of 0.18 percent.
Net interest income was up 21.9 percent from a year ago to $5.4 billion, as interest expense at credit unions fell more rapidly than interest income. Non-interest income was up 15 percent from a year ago to $2.67 billion, while non-interest expenses grew at a slower pace of 2.8 percent.
Net Worth Ratio Slipped 3 Basis Points
Credit unions continue to build capital during the first quarter. Total equity at credit unions increased 1.5 percent to almost $88 billion. However, the net worth ratio for credit unions edged lower to 3 basis points during the quarter to 9.87 percent as of March 31, 2010.
Delinquency and Charge-Off Rates Edged Lower
During the first quarter of 2010, delinquent loans (loans 60 days or more past due) fell by 5 percent to $9.94 billion; however, delinquent loans were still 20.6 percent above what was reported for a comparable period last year. The percentage of loans that were delinquent fell by 7 basis points to 1.76 percent.
Net charge-offs were almost $1.69 billion, as of the end of the first quarter of 2010 – up almost 8.2 percent from year ago levels. However, the net charge-off rate slipped by 2 basis points during the quarter from 1.21 percent of average loans to 1.19 percent.
Credit unions reported almost $8.5 billion in modified outstanding loans, of which nearly $6.8 billion were real estate loans and $1.6 billion were consumer loans. Modified business loans were $1.3 billion, of which an overwhelming majority was real estate loans. As of the end of the first quarter, 22.32 percent of all modified real estate loans were two months or more past due with modified commercial real estate loans reporting a higher delinquency rate of 29.49 percent.
Credit unions set aside $1.85 billion for loan losses during the first quarter. This was 12 percent below the provisioning for loan losses from a comparable period a year earlier. During the first quarter, credit unions reported that allowances for loan and lease losses increased by approximately $180 million to almost $9 billion.
Foreclosed and repossessed assets increased by 37.5 percent over the last year to $1.6 billion at the end of March 2010.
Wednesday, June 2, 2010
Another Mega-Merger Announced
Kinecta Federal Credit Union and NuVision Federal Credit Union announced that the Boards of each organization have signed a letter of intent to merge the two credit unions. Earlier this year, I reported that First Tech CU and Addison Avenue FCU had announced their intent to merge creating a $5 billion credit union.
The proposed merger would create a $4.7 billion credit union with 40 branches primarily throughout Los Angeles and Orange Counties in California.
This announcement should not come as a total surprise. Kinecta FCU was in the middle of a CEO search and had been hard hit by the recession reporting losses of $44.3 million in 2008 and $71.3 million in 2009. As of March 2010, Kinecta reported $136.2 million in delinquent loans, which equaled 58.25 percent of the credit union's net worth.
We should expect more of these mega-merger announcements in the coming months, as financially crippled credit unions seek merger partners. As of the end of April, NCUA is reporting that there were 14 credit unions with $1 billion or more in assets that were rated a CAMEL 4 or 5 and 16 billion-dollar plus credit unions with a CAMEL rating of 3.
The proposed merger would create a $4.7 billion credit union with 40 branches primarily throughout Los Angeles and Orange Counties in California.
This announcement should not come as a total surprise. Kinecta FCU was in the middle of a CEO search and had been hard hit by the recession reporting losses of $44.3 million in 2008 and $71.3 million in 2009. As of March 2010, Kinecta reported $136.2 million in delinquent loans, which equaled 58.25 percent of the credit union's net worth.
We should expect more of these mega-merger announcements in the coming months, as financially crippled credit unions seek merger partners. As of the end of April, NCUA is reporting that there were 14 credit unions with $1 billion or more in assets that were rated a CAMEL 4 or 5 and 16 billion-dollar plus credit unions with a CAMEL rating of 3.
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