S&P Global: Lake Michigan CU Top Performing CU in 2019

S&P Global Market Intelligence released its annual rankings for the top performing credit unions in 2019.

S&P Global Market Intelligence ranked the nation's credit unions using five core financial performance metrics: member growth, market growth, operating expense as a percentage of operating revenue, net charge-offs as a percentage of average loans, and delinquent loans as a percentage of total loans. To be eligible for the ranking, a credit union had to report more than $500 million in total assets and a net worth ratio of at least 7.0% as of Dec. 31, 2019.

This year's top performing credit union was Lake Michigan Credit Union (Byron Center, MI). The credit union outperformed the industry median in all five ranking metrics allowing it to surpass its 2018 second place ranking.

MidFlorida Credit Union (Lakeland, FL) was the second ranked credit union. S&P Global Market Intelligence cited that the credit union benefits from its merger and acquisition activity in 2019, including the acquisition of the Florida assets of First American Bank (Fort Dodge, IA) and Community Bank and Trust of Florida.

Rounding out the top 5 were Stanford Federal Credit Union (Palo Alto, CA), Idaho Central Credit Union (Chubbuck, ID), and Eastman Credit Union (Kingsport, TN).

Read more.

Aspiring Low-Income or Complex CUs

The National Credit Union Administration (NCUA) Board is proposing to allow aspiring low-income credit unions (LICU) and non-LICU complex credit unions to issue subordinated debt.

Currently, the Federal Credit Union Act only allows LICUs to issue secondary capital.

An aspiring LICU or non-LICU complex credit union is defined as a credit union that anticipates being designated as a LICU or Nnn-LICU Complex Credit Union within 24 months following their planned issuance of the subordinated debt.

For example, there are 40 credit unions with total assets between $450 and $500 million of which 21 are non-LICUs. NCUA expects this number of credit unions may increase over time. This means more non-LICUs could be designated as aspiring complex credit unions.

However, these aspiring LICUs and non-LICU complex credit unions would not be allowed to count this subordinated debt as regulatory capital for prompt corrective action purposes until they become either an LICU or non-LICU complex credit union.

But allowing these aspiring credit unions to issue subordinated debt will fuel rapid growth. This will allow these credit unions to achieve the complex credit union threshold -- permitting these credit unions to count this subordinated debt as regulatory capital.

This proposal would subvert the purpose of prompt corrective action, which is meant to curb aggressive growth.

Moreover, this proposal regarding aspiring credit unions is troubling. The Federal Credit Union Act only discusses low-income credit unions and complex credit unions. It does not mention aspiring LICUs or non-LICU complex credit unions.

This is another case of this agency engaging in regulatory fiat.

Agencies Encourage Banks and CUs to Engage in Responsible Small-Dollar Lending

The federal financial regulators on March 26 issued a joint statement urging financial institutions to offer “responsible small-dollar loans to both consumers and small businesses.” Such offerings should be made in accordance with safe and sound banking practices, and should ensure fair treatment of consumers and comply with applicable statutes and regulations, including consumer protection laws, the agencies said.

“The current regulatory framework allows financial institutions to make responsible small-dollar loans. Such loans can be offered through a variety of loan structures that may include, for example, open-end lines of credit, closed-end installment loans, or appropriately structured single payment loans,” the agencies said. “For borrowers who experience unexpected circumstances and cannot repay a loan as structured, financial institutions are encouraged to consider workout strategies designed to help enable the borrower to repay the principal of the loan while mitigating the need to re-borrow.”

The agencies also signaled that they plan to issue additional guidance on small-dollar loans to help banks and credit unions continue to meet the needs of customers who may be facing extreme financial hardships.

Read the letter.

Enforcement Actions Issued in 2019 by NCUA

The National Credit Union Administration stated that the number of preliminary warning letters (PWLs) and unpublished Letters of Understanding and Agreement (LUAs) fell in 2019 compared to 2018, but the number of Cease and Desist Orders (CDOs) increased in 2019.

The following chart shows the number of PWLS, LUAs, and CDOs from 2013 to 2019.

The information on the number of PWLS, LUAs, and CDOs was obtained from a Freedom of Information Act request to the agency.

The two credit unions that were issued Orders to Cease and Desist were Defense Logistics Federal Credit Union (Dover, NJ) and Phi Beta Sigma Federal Credit Union (Washington, D.C.).

Coronavirus and Liquidity Planning

The Texas Credit Union Department in its March Newsletter is encouraging credit unions to review their liquidity outlook, asset liability management practices and Liquidity Contingency Funding Plan to ensure that they have adequate liquidity to meet member loan demand and share withdrawal requests.

The regulator wrote that "[a] number of your members will likely need lending assistance or will be making savings withdrawals to get thru these challenging times."

As part of the credit union's Contingent Funding Plan, each credit union should address:

• its policies to manage a range of stress environments, identification of some possible stress events, and identification of likely liquidity responses to such events;
• its lines of responsibility within the credit union to respond to liquidity events;
• its management processes that include clear implementation and escalation procedures for liquidity events;
• its outside sources of liquidity for contingency needs; and
• the frequency the credit union will test and update the plan.

GOP Lawmakers Ask FinCEN for Extension in Filing CTRs

A group of House Republican lawmakers on March 23 asked Financial Crimes Enforcement Network (FinCEN) Director Ken Blanco for an extension for institutions filing currency transaction reports (CTRs) until at least after the coronavirus national emergency has concluded.‌

The lawmakers wrote that the regulatory compliance teams at small to mid-size institutions "are stretched thin with trying to stay on top of all of the demands associated with the pandemic."

The lawmakers noted that CTRs represent a major regulatory compliance burden for small community banks and credit unions and that such an extension “would help banks and credit unions focus on their most urgent and important priorities during this public health emergency, which are serving consumers and keeping credit flowing to the economy.”

CUs in 22 States and DC Had Negative Median Membership Growth in 2019

At least half of the federally-insured credit unions in 22 states and the District of Columbia reported a decline in membership for 2019, according to the National Credit Union Administration.

At the median, credit union membership declined the most in Pennsylvania at minus 1.2 percent for 2019, followed by credit unions in Arkansas at negative 1 percent.

The data show that there is a positive relationship between median state membership growth and median state deposit (share) growth in 2019. The R-squared is 0.4793. This indicates that almost half of the observed variation in median state share growth can be explained by median state membership growth. (click on image to enlarge)

Nationally, year-over-year membership growth at the median credit union was unchanged for 2019.

Most credit unions that reported a year-over-year decline in membership tend to be small with over 70 percent of the credit unions reporting a decline in membership have less than $50 million in assets.

Read more.