Summit FCU's Edgy Anti-Bank Ad Brings Unwanted Scrutiny

Social media experts are saying that an edgy bank bashing ad by Summit Federal Credit Union of Rochester, N.Y. missed the mark.

The story appearing on the American Banker website (no relationship to the American Bankers Association) compared Summit's ad to a negative political campaign ad and noted that Summit did not offer any details on how it is different.

"One reason that Summit may have shied away from direct comparisons is that the credit union itself levies a wide range of the sorts of service charges that customers loathe —from fees for inactivity to those for monthly account maintenance, paper statements and early account closures.

Nor did efforts to contact the credit union indicate that it is particularly responsive to callers. American Banker spent many minutes on hold on Summit’s customer service line trying to reach a representative. Its call was then transferred to a voice mail recording. Ultimately, a Summit representative responded to a request for feedback about its video in an email message stating that it declined to comment."

Section 208 Bait and Switch

When NCUA finalized its rule allowing Section 208 assistance counting as net worth, the agency wrote: "there is nothing in the statutory change that states that section 208 assistance can only be counted as net worth when a merger is involved."

However, the hearing transcript record paints a different picture. In her oral statement, NCUA Chairman Matz stated the following regarding Section 208 assistance:

"The first amendment would strengthen the ability of NCUA to complete emergency mergers. A recent change in merger accounting would dilute the net worth of the recipient credit union, thus discouraging the merger. Often, as a result, the troubled credit union has to be liquidated. We are requesting that NCUA assistance
to the failing credit union be counted as capital by the surviving credit union, as in the past. This would reduce the costs to the Insurance Fund and provide members of troubled credit unions with continued services from healthy credit unions."

No where in her testimony did she say that Section 208 assistance would be used to keep open a failing credit union by injecting it with capital from the share insurance fund. It is clear from her testimony this assistance was meant to make it easier for NCUA to complete emergency mergers by preventing the dilution of the net worth ratio of healthy credit unions.

Once Burned, Twice Shy

What has been the willingness of large credit unions to recapitalize the corporate credit union system after the corporate credit union debacle?

The data suggests that large credit unions are less likely to invest in a corporate credit union and if they invest, they will not hold as large of an exposure to corporate credit unions.

Our analysis compares the capital holdings (membership and paid-in capital) of large natural person credit unions as of December 2007 (defined as pre-crisis) and September 2011 (post-crisis). A large natural person credit union is defined as a credit union with at least $100 million in assets as of September 2011.

As of September 2011, there were 1,429 credit unions with at least $100 million in assets that were also in existence on December 2007.

Two privately insured credit unions were removed from the analysis due to missing data on their equity holdings in corporate credit unions at the end of 2007. Also, 54 credit unions never owned any capital in a corporate credit union on the two dates and were removed from the analysis. This left 1373 credit unions.

Out of this 1373 credit unions, 1,352 credit unions had an equity position in a corporate credit union at the end of 2007 with an aggregate investment of $2.62 billion. By September 2011, the number of credit unions holding capital in corporate credit unions had fallen to 932 -- a decline of almost 31 percent -- with an aggregate capital investment of $965 million.

In addition, 1,099 credit unions reported reducing the amount of capital they held in corporate credit unions between December 2007 and September 2011, while 233 large credit unions increased their capital investments in the corporate credit union system. Forty-one credit unions did not change the size of their capital investments in corporate credit unions.

There also appears to be an inverse relationship between the size of the credit union and its willingness to invest in a corporate credit union. Only 59 percent of credit unions with assets in excess of $1 billion had a capital investment in a corporate credit union as of September 2011, while 69 percent of credit unions with between $100 million and $500 million in assets were member-owners of a corporate credit union.

Comment on NCUA's Reg Relief Rule

The National Credit Union Administration Board (the Board) proposed a rule extending regulatory relief to all federal credit unions (FCUs) to engage in activities that were previously only granted to FCUs that had received Regulatory Flexibility (RegFlex) designation – FCUs that are well-capitalized and are not supervisory concerns. As a consequence, this proposed rule will extend certain regulatory authorities to undercapitalized and weak FCUs.

While the American Bankers Association (ABA)is supportive of efforts to lower regulatory burdens, ABA believes that it is inappropriate to extend such regulatory relief to FCUs that are undercapitalized or represent supervisory concerns. Specifically, ABA believes the Board should not expand the authorities of undercapitalized FCUs by allowing them to invest in undeveloped land or accept nonmember deposits. Such an expansion could jeopardize the viability of an undercapitalized FCU and pose a risk to the National Credit Union Share Insurance Fund (NCUSIF). Additionally, ABA believes the Board should retain its charitable contribution and donation rule, which it is proposing to eliminate.

Read the letter.

NCUA's 2011 Section 208 Assistance Already Partially Impaired

The National Credit Union Administration (NCUA) last week released its 2011 audited financial report for the National Credit Union Share Insurance Fund (NCUSIF).

Footnote 5 shows that the Section 208 net worth assistance of $80 million that NCUA provided two credit unions (A.E.A. FCU of Yuma, AZ and Texans CU of Richardson, TX) is already partially impaired. According to Footnote 5,

"As of December 31, 2011, the NCUSIF had two outstanding capital notes due from insured credit unions. The capital note receivables totaled $80.0 million and the related allowance for loss was $10.0 million, for a net capital note receivable of $70.0 million as of December 31, 2011."

Additional impairment charges are likely with this $80 million in NCUSIF capital notes.

This should make the 2012 audited financials a must read.

Audited Financial Statements.

People for People CDCU Liquidated

The National Credit Union Administration (NCUA) announced the liquidation of People for People Community Development Credit Union (CDCU) of Philadelphia. TruMark Financial Credit Union of Philadelphia immediately purchased and assumed People for People CDCU’s members and loans.

People for People CDCU was placed into conservatorship on January 6 of this year,

NCUA made the decision to liquidate People for People CDCU and discontinue its operations after determining the credit union was insolvent and has no prospect for restoring viable operations on its own. As of December 2011, the credit union had a delinquent loan to net worth ratio of 175.02 percent.

People for People CDCU is the second credit union to be liquidated in 2012.

Read the press release.

NCUA Seizes A M Community CU

The National Credit Union Administration (NCUA) assumed control of service and operations at A M Community Credit Union headquartered in Kenosha, Wis.

A M Community Credit Union is a state-chartered, federally insured credit union that serves anyone who lives or works in Wisconsin’s Kenosha and Racine counties, as well as any employee of Chrysler Corporation. The credit union has assets of $125 million.

The credit union reported a loss of $8.2 million for 2011. At the end of 2011, the credit union was significantly undercapitalized with a net worth ratio of 2.78 percent.

The credit union reported that 11.74 percent of its loans were 60 days or more past due.

Read the press release.