NCUA reported that credit union earnings were up 18.1 percent to slightly more than $4.2 billion through the first two quarters of 2012.
During the second quarter, net income for federally-insured credit unions grew by 2.9 percent to almost $2.14 billion during the second quarter of 2012. NCUA stated that "increases in fee income and other operating income, accompanied by declines in expenses for interest and loan losses, produced a higher quarterly net income."
Compared to June 2011, provisions for loan and lease losses were down 23.2 percent to $1.825 billion a the end of the second quarter. Interest expenses were down 16.4 percent from a year ago, while non-interest income was up almost 15.9 percent.
The industry’s return on average assets ratio was 86 basis points for the second quarter -- up one basis point from the first quarter.
NCUA noted that the strong increase in earnings caused credit union net worth to increase by $2.1 billion during the quarter to $102.4 billion as of June 30, 2012. As a result, the industry's net worth ratio improved by 15 basis points to 10.16 percent during the quarter.
NCUA reported that outstanding loans expanded by 1.7 percent to $581.7 billion as of June 2012 from $572.0 billion as of March 2012. Total loans on the books of credit unions increased for the fifth consecutive quarter. All loan categories, except for one, posted an increase during the quarter.
During the second quarter, member business lending increased by 1.2 percent to $40.2 billion from $39.7 billion.
Investments held by federally insured credit unions increased by $6.9 billion during the second quarter to almost $282.7 billion.
In addition NCUA reported that total assets increased 0.6 percent to $1,007.6 billion from $1,001.8 billion during the quarter and deposits (shares) rose 0.3 percent to $868.8 billion from $866.0 billion.
The strong growth in loans relative to deposits caused the loan to share ratio to increase by 91 basis points to 66.96 percent during the quarter.
The industry saw a significant improvement is asset quality. Delinquent loans fell from almost $8.3 billion as of March 2012 to just below $7 billion as of June 2012. The delinquent loan ratio fell by 24 basis points to 1.20 percent. NCUA cited that the improvement was due to the agency's new rule regarding troubled debt restructurings.
Credit unions reported net charge-offs of $2.17 billion for the first two quarters of 2012. This is down almost 19 percent from June 2011 levels.
Read the press release.
Friday, August 31, 2012
Wednesday, August 29, 2012
Illinois CU Regulator Suspends CU Operations for 60 Days
The Director for the Division for Financial Institutions of the Department of Financial and Professional Regulation suspended for 60 days the operations of Bagumbayan CU, located in Chicago, Illinois.
The state credit union regulator found that the tiny Chicago-based credit union was in substantial non-compliance with the state’s credit union statute and was operated in the an unsafe and unsound manner.
According to the suspension order, the credit union had reported a loss in each of the last five years and its net worth had fallen by 36 percent over that time period.
The order also notes that the credit union failed to file annual report with the Department and failed to produce financial records during examinations.
The regulator found that the credit union failed to maintain a valid field of membership and added five individuals as members in May 2012, who were not part of its field of membership.
This is the third credit union to have its operations temporarily suspended by the Illinois CU regulator this year. The other two credit unions were USA One National Credit Union, which was closed by the regulator on May 31, and Branch 825 N.A.L.C. Credit Union, which was acquired by Corporate America Family Credit Union.
Read the suspension order.
The state credit union regulator found that the tiny Chicago-based credit union was in substantial non-compliance with the state’s credit union statute and was operated in the an unsafe and unsound manner.
According to the suspension order, the credit union had reported a loss in each of the last five years and its net worth had fallen by 36 percent over that time period.
The order also notes that the credit union failed to file annual report with the Department and failed to produce financial records during examinations.
The regulator found that the credit union failed to maintain a valid field of membership and added five individuals as members in May 2012, who were not part of its field of membership.
This is the third credit union to have its operations temporarily suspended by the Illinois CU regulator this year. The other two credit unions were USA One National Credit Union, which was closed by the regulator on May 31, and Branch 825 N.A.L.C. Credit Union, which was acquired by Corporate America Family Credit Union.
Read the suspension order.
Tuesday, August 28, 2012
Fact Checking NCUA Video
Last week, NCUA's Chief Economist John Worth released a video comparing anticipated future Temporary Corporate Credit Union Stabilization Fund (TCCUSF) assessments for credit unions to anticipated Deposit Insurance Fund (DIF) assessments by the Federal Deposit Insurance Corporation (FDIC).
According to Worth, federally-insured credit unions can expect to pay less in assessments than federally insured banks during the next decade.
However, there are several problems with this NCUA video.
First, the video only compares future assessments for the TCCUSF versus the DIF. The video does not include any projected future assessments to the National Credit Union Share Insurance Fund (NCUSIF). To do a true apples to apples comparison, Worth should have included any NCUSIF assessments along with TCCUSF assessments to determine future assessments paid by credit unions.
Perhaps Worth is assuming future assessments by the NCUSIF will be zero. If so, he should make this assumption explicitly clear.
To form your own expectations about future NCUSIF assessments, there were 399 federally-insured credit unions on the problem credit union list at the end of the second quarter 2012. These credit unions held approximately $30 billion in assets.
Second, it is unclear whether Worth's analysis about future assessments include $5.7 billion in assets set aside to pay claims under the FDIC’s Temporary Liquidity Guaranty Program, which expires at the end of this year. It is expected that these assets, while be transferred to the DIF at the end of this year. If the analysis did not include this transfer, then the amount of future DIF assessments will be lower.
Third, Worth correctly points out that the minimum reserve ratio for the DIF is 1.35 percent of insured deposits. The Dodd-Frank Act raised the minimum reserve ratio for the DIF from 1.15 percent to 1.35 percent. However, the Dodd-Frank Act stated that in setting the assessments necessary to meet the new minimum reserve ratio requirement, the FDIC shall offset the effect raising the minimum reserve ratio from 1.15 percent to 1.35 percent on insured depository institutions with total consolidated assets of less than $10 billion. Once again, did Worth's analysis take into account this offset in determining the amount of assessments paid?
Fourth, FDIC assessment rates are risk-based, while NCUA assesses a flat rate to all federally-insured credit unions. The video does not make it clear as to what FDIC assessment rate is being applied in its analysis. Therefore, NCUA may be overstating the amount of DIF assessments a credit union might pay.
These concerns should caste doubts about the video's conclusion that future assessments will be less for federally-insured credit unions compared FDIC-insured banks.
According to Worth, federally-insured credit unions can expect to pay less in assessments than federally insured banks during the next decade.
However, there are several problems with this NCUA video.
First, the video only compares future assessments for the TCCUSF versus the DIF. The video does not include any projected future assessments to the National Credit Union Share Insurance Fund (NCUSIF). To do a true apples to apples comparison, Worth should have included any NCUSIF assessments along with TCCUSF assessments to determine future assessments paid by credit unions.
Perhaps Worth is assuming future assessments by the NCUSIF will be zero. If so, he should make this assumption explicitly clear.
To form your own expectations about future NCUSIF assessments, there were 399 federally-insured credit unions on the problem credit union list at the end of the second quarter 2012. These credit unions held approximately $30 billion in assets.
Second, it is unclear whether Worth's analysis about future assessments include $5.7 billion in assets set aside to pay claims under the FDIC’s Temporary Liquidity Guaranty Program, which expires at the end of this year. It is expected that these assets, while be transferred to the DIF at the end of this year. If the analysis did not include this transfer, then the amount of future DIF assessments will be lower.
Third, Worth correctly points out that the minimum reserve ratio for the DIF is 1.35 percent of insured deposits. The Dodd-Frank Act raised the minimum reserve ratio for the DIF from 1.15 percent to 1.35 percent. However, the Dodd-Frank Act stated that in setting the assessments necessary to meet the new minimum reserve ratio requirement, the FDIC shall offset the effect raising the minimum reserve ratio from 1.15 percent to 1.35 percent on insured depository institutions with total consolidated assets of less than $10 billion. Once again, did Worth's analysis take into account this offset in determining the amount of assessments paid?
Fourth, FDIC assessment rates are risk-based, while NCUA assesses a flat rate to all federally-insured credit unions. The video does not make it clear as to what FDIC assessment rate is being applied in its analysis. Therefore, NCUA may be overstating the amount of DIF assessments a credit union might pay.
These concerns should caste doubts about the video's conclusion that future assessments will be less for federally-insured credit unions compared FDIC-insured banks.
Friday, August 24, 2012
Chetco Update
Eleven months have elapsed, since NCUA placed Chetco Federal Credit Union of Harbor, Oregon into conservatorship on September 23, 2011.
However, the following two slides show that the financial picture at Chetco continued to deteriorate after being conserved by NCUA.
For the third consecutive quarter, Chetco FCU reported a negative net worth position and it has been critically undercapitalized for four consecutive quarters.
In addition, Chetco reported that over $68 million of its loans or 25.6 percent of its loan portfolio was 60 days or more past due at the end of the second quarter. Almost half of its loans ($33.5 million) were 12 months or more past due, as of June 2012.
Given it financial picture, it is highly unlikely that Chetco will be restored to viability. The time has come for NCUA to end its regulatory forbearance and to close Chetco.
However, the following two slides show that the financial picture at Chetco continued to deteriorate after being conserved by NCUA.
For the third consecutive quarter, Chetco FCU reported a negative net worth position and it has been critically undercapitalized for four consecutive quarters.
In addition, Chetco reported that over $68 million of its loans or 25.6 percent of its loan portfolio was 60 days or more past due at the end of the second quarter. Almost half of its loans ($33.5 million) were 12 months or more past due, as of June 2012.
Given it financial picture, it is highly unlikely that Chetco will be restored to viability. The time has come for NCUA to end its regulatory forbearance and to close Chetco.
Wednesday, August 22, 2012
Equity or Venture Capital Funding CUSOs
The Michigan Commissioner of Financial and Insurance Regulation has issued an order that will expand the ability of state-chartered credit unions to serve Michigan small businesses.
The order will permit state-chartered credit unions to invest in a credit union service organization (CUSO) that provides investment administration and other services related to small business equity or venture capital funding.
The Office of Financial and Insurance Regulation concluded that allowing state-chartered credit unions to invest in CUSOs that offer these services will better enable state-chartered credit unions to compete with Michigan chartered banks and savings banks.
In addition while federal credit unions cannot exercise this power, the Commissioner noted that Iowa chartered credit unions have this authority.
The state regulator did impose limitations on the amount a state chartered credit union may invest in a CUSO offering small business or venture capital funding. No more than 10 percent of a credit union’s net worth can be invested in a CUSO providing this service and the aggregate investment in any entity or group of related entities cannot exceed 25 percent of the credit union's net worth.
The order has other limitations, including officers and directors of a state-chartered credit union with an ownership interest or investment in the CUSO shall not hold an equity position in a small business financed by the CUSO.
Read the order.
The order will permit state-chartered credit unions to invest in a credit union service organization (CUSO) that provides investment administration and other services related to small business equity or venture capital funding.
The Office of Financial and Insurance Regulation concluded that allowing state-chartered credit unions to invest in CUSOs that offer these services will better enable state-chartered credit unions to compete with Michigan chartered banks and savings banks.
In addition while federal credit unions cannot exercise this power, the Commissioner noted that Iowa chartered credit unions have this authority.
The state regulator did impose limitations on the amount a state chartered credit union may invest in a CUSO offering small business or venture capital funding. No more than 10 percent of a credit union’s net worth can be invested in a CUSO providing this service and the aggregate investment in any entity or group of related entities cannot exceed 25 percent of the credit union's net worth.
The order has other limitations, including officers and directors of a state-chartered credit union with an ownership interest or investment in the CUSO shall not hold an equity position in a small business financed by the CUSO.
Read the order.
Tuesday, August 21, 2012
CUNA's Outlandish Business Loan Recommendations
The Credit Union National Association (CUNA) made some outlandish member business loan (MBL) recommendations in an August 3 letter to the National Credit Union Administration (NCUA).
First, CUNA requested:
In other words, CUNA wants NCUA to re-establish its regulatory flexibility program, which the agency recently abolished.
Moreover, credit unions were probably well-served by these limits. For example, loan limits on construction and development loans probably insulated the National Credit Union Share Insurance Fund from severe losses by keeping credit unions from becoming over-exposed to construction and land development loans, which had high default rates after the collapse of the real estate bubble.
In addition, CUNA urged NCUA to revisit the history of primarily making business loan exemption. In 1998, Congress exempted credit unions that had a history of primarily making member business loans from the aggregate member business loan cap.
CUNA claims that NCUA should use a more contemporaneous time period for determining whether a credit union has a history of primarily making business loans. If MBLs are currently among the highest of a credit union's loan categories, then CUNA reasons that the credit union has a history of making business loans.
However, this provision was meant to grandfather those credit unions that had a history of primarily making member business loans from the aggregate business loan cap, when the Credit Union Membership Access Act became law in 1998. Once the aggregate MBL cap became effective, a non-exempt credit union should never make enough MBLs so as be engaged in primarily making member business loans.
First, CUNA requested:
"All the regulatory requirements for MBLs that are not specifically stated in the FCU Act, such as the requirement for the personal guarantee of the borrower(s), loan-to-value ratios, construction and development loan limits, appraisal requirements, and others should be eliminated for well-managed, well-capitalized credit unions that operate successful MBL programs."CUNA proposed that NCUA should "let well-run, well-capitalized credit unions determine what those limits and ratios should be, consistent with agency guidance and reasonable industry standards."
In other words, CUNA wants NCUA to re-establish its regulatory flexibility program, which the agency recently abolished.
Moreover, credit unions were probably well-served by these limits. For example, loan limits on construction and development loans probably insulated the National Credit Union Share Insurance Fund from severe losses by keeping credit unions from becoming over-exposed to construction and land development loans, which had high default rates after the collapse of the real estate bubble.
In addition, CUNA urged NCUA to revisit the history of primarily making business loan exemption. In 1998, Congress exempted credit unions that had a history of primarily making member business loans from the aggregate member business loan cap.
CUNA claims that NCUA should use a more contemporaneous time period for determining whether a credit union has a history of primarily making business loans. If MBLs are currently among the highest of a credit union's loan categories, then CUNA reasons that the credit union has a history of making business loans.
However, this provision was meant to grandfather those credit unions that had a history of primarily making member business loans from the aggregate business loan cap, when the Credit Union Membership Access Act became law in 1998. Once the aggregate MBL cap became effective, a non-exempt credit union should never make enough MBLs so as be engaged in primarily making member business loans.
Friday, August 17, 2012
FCUs Eligible to Opt-in to Low-Income Designation
ABA obtained through a Freedom of Information Act request the list of federal credit unions that were sent a letter by NCUA stating that they are eligible for low-income designation. The NCUA’s action was included in a White House package of drought-relief measures announced last week.
Credit unions receiving a low-income designation are not subject to the member business loan cap, can accept nonmember deposits, and can receive secondary capital.
The following states did not have any federal credit unions eligible to opt-in as a low-income credit union -- Alaska, Delaware, Hawaii, Iowa, Vermont, and Wisconsin.
As of March 2012, there were 16 credit unions with more than $1 billion in assets, which could opt-in to the low-income designation. In addition, 151 of these credit unions were between $100 million and $1 billion in assets.
The largest credit unions was Security Service FCU in San Antonio, Texas with $6.7 billion as of March 2012. The next largest was Police & Fire FCU in Philadelphia, Pennsylvania with $4 billion in assets.
Three federal credit unions were above the 12.25 percent member business loan cap, while another seven federal credit unions had a member business loan to asset ratio between 9.80 percent and 12.25 percent.
To review the full list click here.
Credit unions receiving a low-income designation are not subject to the member business loan cap, can accept nonmember deposits, and can receive secondary capital.
The following states did not have any federal credit unions eligible to opt-in as a low-income credit union -- Alaska, Delaware, Hawaii, Iowa, Vermont, and Wisconsin.
As of March 2012, there were 16 credit unions with more than $1 billion in assets, which could opt-in to the low-income designation. In addition, 151 of these credit unions were between $100 million and $1 billion in assets.
The largest credit unions was Security Service FCU in San Antonio, Texas with $6.7 billion as of March 2012. The next largest was Police & Fire FCU in Philadelphia, Pennsylvania with $4 billion in assets.
Three federal credit unions were above the 12.25 percent member business loan cap, while another seven federal credit unions had a member business loan to asset ratio between 9.80 percent and 12.25 percent.
To review the full list click here.
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