The National Credit Union Administration reported an increase in asset, loans, and shares at federally-insured credit unions during the second quarter.
Assets at credit unions increased by 1 percent during the second quarter to $1.35 trillion as of June 2017.
Loans increased at a double digit year-over-year (Y-o-Y) rate at the end of the second quarter of 2017. Year-over-year loan growth was 10.9 percent.
However, the pace of loan growth accelerated during the second quarter. Total loans increased by almost $28.5 billion or 3.2 percent during the second quarter to $913 billion. All major loan categories grew in second quarter.
Indirect loans grew by almost 5 percent during the quarter to $181.1 billion. As of June 2017, indirect loans accounted for 19.83 percent of loans.
Total shares and deposits rose by 0.7 percent during the second quarter to approximately $1.146 trillion dollars.
Because loan growth outpaced share growth, the loan to share (deposit) ratio increased from 77.73 percent at the end of the first quarter of 2017 to 79.70 percent as of June 2017.
Net Income on Annual Pace to Top $10 Billion
Net income for federally-insured credit unions was almost $5.1 billion for the first six months of 2017.
The industry's return on average assets (ROA) was 0.77 percent as of June 2017 -- up 6 basis points from March 2017. The median return on average assets across all federally insured credit unions was 36 basis points.
Factors positively impacting ROA during the quarter were net interest margin and fees and other income, while those factors that negatively affected ROA were operating expenses and provisions for loan and lease losses.
Net Worth Increased by 2 Percent During the Second Quarter
During the second quarter of 2017, the industry's net worth increased by $2.8 billion to $145.9 billion.
While the industry's net worth ratio fell by 5 basis points from a year ago, it was up 11 basis points to 10.80 percent compared to the first quarter.
As of June 2017, 97.51 percent of credit unions had a net worth ratio of at least 7 percent -- the minimum requirement for being well capitalized. However, 6 credit unions were critically undercapitalized with a net worth ratio below 2 percent. In comparison, no credit union was critically undercapitalized at the end of the first quarter.
Delinquency Rate Rose, Net Charge-off Rate Virtually Unchanged
Delinquent loans increased 12.3 percent during the second quarter of 2017 to $6.84 billion. The delinquency rate rose 6 basis points during the second quarter to 0.75 percent.
As of mid-year, credit unions reported $2.5 billion in net charge-offs. The net charge-off rate was 0.57 percent -- virtually unchanged from the the first quarter.
Federally-insured credit unions reported a 2.5 percent increase in their allowance for loan and lease losses (ALLL). As of June 2017, the industry reported ALLL of $8.15 billion.
As of June 2017, the industry's coverage ratio (ALLL to delinquent loans) was 119.08 percent.
Large Credit Unions Prospered, While Smaller Credit Unions Struggled
The National Credit Union Administration reported that credit unions with assets of at least $1 billion reported the strongest growth in loans, membership and net worth over the year ending in the second quarter of 2017. On the other hand, credit unions with less than $50 million in assets reported declines in loans, membership and net worth over the year.
Read the financial trends report.
Read the press release.
Wednesday, September 6, 2017
NCUSIF Equity Ratio of 1.30 Percent Is Not Normal
The National Credit Union Administration (NCUA) Board is proposing to increase the normal operating level of the National Credit Union Share Insurance Fund (NCUSIF) to 1.39 percent from its current level of 1.30 percent.
The Board will pay for the increase in the normal operating level to 1.39 percent by closing the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) in 2017, prior to its scheduled closing date in June 2021, and distributing all assets, property, and funds of TCCUSF to the NCUSIF.
By law, the normal operating level must be set by the NCUA Board between 1.20 percent and 1.50 percent of insured shares.
However, this proposal has been greeted by most of the credit union community like a skunk at the church picnic.
The Credit Union National Association (CUNA) believes a normal operating level of 1.39 percent is too high. But CUNA stated it is willing to accept a temporary 4 basis point increase in the equity ratio to insulate the NCUSIF from legacy asset volatility.
Joining the chorus, the National Association of Federally-Insured Credit Unions believes the current normal operating level for the NCUSIF is appropriate and a dramatic increase in the NCUSIF equity ratio to 1.39 percent in unnecessary.
Some credit unions commented that a normal operating level of 1.30 percent was sufficient to weather the recession and financial crisis.
However, this viewpoint that a normal operating level of 1.30 percent was sufficient to weather the financial crisis is not supported by the evidence.
The TCCUSF was created by Congress in 2009, because credit unions were looking at a 91 basis point hit to the NCUSIF in 2009. This means that credit unions would have been required to immediately expense a portion of their one percent NCUSIF capitalization deposit, as well as pay a premium assessment.
According to a September 2013 White Paper on the NCUSIF, the agency staff concluded that going forward a 1.3 percent equity ratio for the NCUSIF cannot be viewed as normal. The White Paper stated that "the NCUSIF needs an equity ratio of at least 2 percent to provide an asset base that would better enable the NCUSIF to withstand the types of pressure that arose during the recent financial crisis and recession." The agency estimated that the NCUSIF equity ratio needed to be at 2.17 percent of insured shares to prevent any depletion of a credit union's one percent NCUSIF capitalization deposit during the recent financial crisis and recession.
Moreover, there will be inevitable comparison between the NCUSIF to the Federal Deposit Insurance Corporation's Deposit Insurance Fund (DIF). The Federal Deposit Insurance Corporation has stated that a designated reserve ratio of at least 2 percent is an integral part of its comprehensive, long-range management plan for the DIF.
While credit unions will oppose any increase in the NCUSIF normal operating level, there will be political pressure on NCUA to increase the normal operating level.
As a first step, the NCUA Board should raise the normal operating level to its maximum level permitted by law of 1.50 percent, instead of the proposed 1.39 percent.
A second step would require legislation removing the statutory cap on the NCUSIF normal operating level.
Removing the statutory cap on the normal operating level would provide the NCUA Board with greater flexibility to manage the NCUSIF normal operating level. An equity ratio of 2 percent for the NCUSIF would provide an asset base, which could withstand losses that arose during the financial crisis and the Great Recession. It would also ensure parity between the NCUSIF and the DIF.
The Board will pay for the increase in the normal operating level to 1.39 percent by closing the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) in 2017, prior to its scheduled closing date in June 2021, and distributing all assets, property, and funds of TCCUSF to the NCUSIF.
By law, the normal operating level must be set by the NCUA Board between 1.20 percent and 1.50 percent of insured shares.
However, this proposal has been greeted by most of the credit union community like a skunk at the church picnic.
The Credit Union National Association (CUNA) believes a normal operating level of 1.39 percent is too high. But CUNA stated it is willing to accept a temporary 4 basis point increase in the equity ratio to insulate the NCUSIF from legacy asset volatility.
Joining the chorus, the National Association of Federally-Insured Credit Unions believes the current normal operating level for the NCUSIF is appropriate and a dramatic increase in the NCUSIF equity ratio to 1.39 percent in unnecessary.
Some credit unions commented that a normal operating level of 1.30 percent was sufficient to weather the recession and financial crisis.
However, this viewpoint that a normal operating level of 1.30 percent was sufficient to weather the financial crisis is not supported by the evidence.
The TCCUSF was created by Congress in 2009, because credit unions were looking at a 91 basis point hit to the NCUSIF in 2009. This means that credit unions would have been required to immediately expense a portion of their one percent NCUSIF capitalization deposit, as well as pay a premium assessment.
According to a September 2013 White Paper on the NCUSIF, the agency staff concluded that going forward a 1.3 percent equity ratio for the NCUSIF cannot be viewed as normal. The White Paper stated that "the NCUSIF needs an equity ratio of at least 2 percent to provide an asset base that would better enable the NCUSIF to withstand the types of pressure that arose during the recent financial crisis and recession." The agency estimated that the NCUSIF equity ratio needed to be at 2.17 percent of insured shares to prevent any depletion of a credit union's one percent NCUSIF capitalization deposit during the recent financial crisis and recession.
Moreover, there will be inevitable comparison between the NCUSIF to the Federal Deposit Insurance Corporation's Deposit Insurance Fund (DIF). The Federal Deposit Insurance Corporation has stated that a designated reserve ratio of at least 2 percent is an integral part of its comprehensive, long-range management plan for the DIF.
While credit unions will oppose any increase in the NCUSIF normal operating level, there will be political pressure on NCUA to increase the normal operating level.
As a first step, the NCUA Board should raise the normal operating level to its maximum level permitted by law of 1.50 percent, instead of the proposed 1.39 percent.
A second step would require legislation removing the statutory cap on the NCUSIF normal operating level.
Removing the statutory cap on the normal operating level would provide the NCUA Board with greater flexibility to manage the NCUSIF normal operating level. An equity ratio of 2 percent for the NCUSIF would provide an asset base, which could withstand losses that arose during the financial crisis and the Great Recession. It would also ensure parity between the NCUSIF and the DIF.
Tuesday, September 5, 2017
OMB Stays EEOC Revised Data Collection Requirement
The Office of Management and Budget (OMB) on August 29 stayed an Equal Employment Opportunity Commission (EEOC) rule that would have required the collection data on wages and hour worked by race/ethnicity and gender, while the OMB conducts a review to determine whether the revised form meets the standards of the Paperwork Reduction Act.
The stay on this data collection requirement will provide needed regulatory relief for banks and credit unions that are required to file the EEO-1 form.
The old EEO-1 required federal contractors and any company with more than 100 employees to submit data about their workforces — including breakdowns by race, ethnicity, gender and job category.
The new EEO-1 form would have lead to a 20-fold increase in data points to be collected to 3,660 data items per report.
The new data collection requirements were scheduled to go into effect on March 2018.
In announcing the stay, OMB expressed concerns that the revised data collection "lack practical utility, are unnecessarily burdensome, and do not adequately address privacy and confidentiality issues."
Credit unions and banks will be required to complete the old EEO-1 form for fiscal year 2017.
Read the stay memorandum.
The stay on this data collection requirement will provide needed regulatory relief for banks and credit unions that are required to file the EEO-1 form.
The old EEO-1 required federal contractors and any company with more than 100 employees to submit data about their workforces — including breakdowns by race, ethnicity, gender and job category.
The new EEO-1 form would have lead to a 20-fold increase in data points to be collected to 3,660 data items per report.
The new data collection requirements were scheduled to go into effect on March 2018.
In announcing the stay, OMB expressed concerns that the revised data collection "lack practical utility, are unnecessarily burdensome, and do not adequately address privacy and confidentiality issues."
Credit unions and banks will be required to complete the old EEO-1 form for fiscal year 2017.
Read the stay memorandum.
Sunday, September 3, 2017
Federal Court Overturns Obama Administration Overtime Rule
A federal judge in Texas on August 31 overturned the Obama administration’s final rule doubling the salary level used to determine whether employees are classified as exempt from overtime under the Fair Labor Standards Act (FLSA).
The rule -- which would more than double the salary level for exemptions from $23,660 to $47,476, regardless of whether the employee would qualify for exemption under the test of “executive, administrative or professional” duties -- has been prevented from taking effect for nearly nine months pending litigation.
District Judge Amos Mazzant has now granted summary judgment for the plaintiffs in a lawsuit brought by 21 states and several business groups, invalidating the final overtime rule. It remains to be seen whether the Department of Labor will appeal the ruling; under the Trump administration, Labor Secretary Alex Acosta was expected to revisit the overtime rule and is currently seeking public comments on its projected impact.
Judge Mazzant ruled that in doubling the salary test, the Obama administration’s interpretation of the FLSA was not “reasonable” and therefore not warranting the “deference” otherwise shown by courts to regulatory actions under the Chevron precedent. “The Department has exceeded its authority and gone too far with the Final Rule,” he ruled. “Nothing in [FLSA] Section 213(a)(1) allows the Department to make salary rather than an employee’s duties determinative of whether a ‘bona fide executive, administrative, or professional capacity’ employee should be exempt from overtime pay.”
Read the order.
The rule -- which would more than double the salary level for exemptions from $23,660 to $47,476, regardless of whether the employee would qualify for exemption under the test of “executive, administrative or professional” duties -- has been prevented from taking effect for nearly nine months pending litigation.
District Judge Amos Mazzant has now granted summary judgment for the plaintiffs in a lawsuit brought by 21 states and several business groups, invalidating the final overtime rule. It remains to be seen whether the Department of Labor will appeal the ruling; under the Trump administration, Labor Secretary Alex Acosta was expected to revisit the overtime rule and is currently seeking public comments on its projected impact.
Judge Mazzant ruled that in doubling the salary test, the Obama administration’s interpretation of the FLSA was not “reasonable” and therefore not warranting the “deference” otherwise shown by courts to regulatory actions under the Chevron precedent. “The Department has exceeded its authority and gone too far with the Final Rule,” he ruled. “Nothing in [FLSA] Section 213(a)(1) allows the Department to make salary rather than an employee’s duties determinative of whether a ‘bona fide executive, administrative, or professional capacity’ employee should be exempt from overtime pay.”
Read the order.
Saturday, September 2, 2017
Advia CU Completes Acquisition of Peoples Bank
Advia Credit Union (Parchment, MI) completed its acquisition of Peoples Bank (Elkhorn, WI).
People’s Bank had $230 million in assets and had four Wisconsin locations.
Advia Credit Union has $1.5 billion in assets and 28 branch locations.
Read the story.
People’s Bank had $230 million in assets and had four Wisconsin locations.
Advia Credit Union has $1.5 billion in assets and 28 branch locations.
Read the story.
Friday, September 1, 2017
Alabama CU Regulator Issues Cease and Desist Order to Craig Credit Union
The Alabama Credit Union Administration issued a cease and desist order against Craig Credit Union (Selma, AL).
The cease and desist order found that the $12.8 million credit union and one or more of its institution-affiliated parties have engaged in unsafe or unsound practices, violation of law, rule, and regulations, and have violated the conditions set forth in an April 24, 2017 Letter of Understanding and Agreement (LUA).
Among the items enumerated by the cease and desist order are the following:
The credit union is expected to retained qualified management.
The enforcement order further mandates a 50 percent reduction in delinquent loans by December 31, 2017 from December 31, 2016 levels.
Read the order.
The cease and desist order found that the $12.8 million credit union and one or more of its institution-affiliated parties have engaged in unsafe or unsound practices, violation of law, rule, and regulations, and have violated the conditions set forth in an April 24, 2017 Letter of Understanding and Agreement (LUA).
Among the items enumerated by the cease and desist order are the following:
- The board of directors failed to adequately supervise and direct credit union's management.
- The credit union had inadequate management.
- The credit union failed to address material deficiencies and comply with terms and conditions specified in the LUA.
- The credit union operated with a net loss or insufficient income to support net worth growth.
- The credit union had declining net worth.
- The credit union had ineffective loan and collection policies and practices.
- The credit union failed to reduce delinquencies by 25 percent as specified in the LUA.
The credit union is expected to retained qualified management.
The enforcement order further mandates a 50 percent reduction in delinquent loans by December 31, 2017 from December 31, 2016 levels.
Read the order.
Progressive CU CEO Familant Compensation Topped $10 Million in 2015
Taxi medallion lender Progressive Credit Union (New York, NY) reported that its chief executive officer/treasurer, Robert Familant, had a total compensation package of approximately $10.6 million in 2015.
Progressive Credit Union had total assets of $646 million at the end of 2015.
According to Progressive Credit Union's 2015 Form 990, Familant had base compensation of $1,977,204 and other reportable compensation of $8,569,406, which included $7,940,990 from the disbursement of funds from two 457(F) deferred compensation plans and a payment of $628,416 to cover his 2014 tax liability associated with imputed income from the transfer of ownership of non-cash keyman life insurance.
In 2014, Familant's total compensation was $5.9 million with a base pay of $999,727 and bonus and incentive compensation of $4,778,416.
Progressive Credit Union had total assets of $646 million at the end of 2015.
According to Progressive Credit Union's 2015 Form 990, Familant had base compensation of $1,977,204 and other reportable compensation of $8,569,406, which included $7,940,990 from the disbursement of funds from two 457(F) deferred compensation plans and a payment of $628,416 to cover his 2014 tax liability associated with imputed income from the transfer of ownership of non-cash keyman life insurance.
In 2014, Familant's total compensation was $5.9 million with a base pay of $999,727 and bonus and incentive compensation of $4,778,416.
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