BECU To Pay Stipends To Directors, Audit Committee

SEATTLE (11/12/13)--The nation's fourth-largest credit union announced it plans to compensate its directors and Audit Committee members beginning in 2014.

Seattle-based BECU, which has more than 825,000 members and more than $11.5 billion in assets, informed members of the plans Nov. 5 on its News Center website. It noted that effective this past July 28, state law allows state-chartered credit unions such as BECU to reasonably compensate directors and Audit Committee members.

"Officials of all types of financial institutions have growing fiduciary and regulatory responsibilities that demand more time and work," said Todd Pietzsch, BECU manager of public relations. "The payment of stipends will help ensure that BECU continues to retain and attract individuals with board-level strategic and thought leadership.

"It was determined that it is in the best interest of BECU members, as well as consistent with our cooperative nature, to pay a modest stipend to officials that is lower than the median paid by other financial institutions of similar size."

BECU officials will be paid between $14,000 and $25,000 per year, effective Jan. 1, depending on each official's role on the board or committee, the credit union said. It conducted a market review with a third-party consultant to determine the level of the stipends. It also referred website visitors to a board nominations page. Elections will be held at its April annual meeting.

BECU Board Chairman Mike Sweeney, who has been on the board for nearly 10 years, told the Northwest Credit Union Association (Anthem Recap Nov. 8) that the credit union industry "is becoming more and more complex, requiring a very broad set of skills at the director level.

"Generally, our directors are expected to understand and assess this increasingly complex financial, business, legal and regulatory environment. We expect them to have executive-level business experience with a strong sense of community, previous nonprofit board experience and a passion for the credit union movement." He noted his community involvement, business experience and law background support his role on the board.

"This stipend is in recognition of the considerable time and effort our officials give in service to BECU," he said. "Payment of a modest amount to our officials also enhances our ability to attract and retain well-qualified individuals. Being on the BECU board carries with it an incredible fiduciary responsibility, not only to safeguard our members' assets, but also to ensure the future strategic direction of the credit union. Payment of a stipend is a small gesture in comparison."

The Credit Union National Association says that credit unions in nine states can currently pay at least one member of their board and 12 states allow for more comprehensive board compensation (News Now June 3).

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CUNA Sets Record Straight On CU vs. Bank Exec Compensation

WASHINGTON (11/18/13)--The Credit National Association is setting the record straight on the issue of credit union CEO vs. bank CEO compensation after theAmerican Banker cited a statistic that is "misleading," said CUNA.
 
Among like-sized institutions, credit union CEO compensation is in line with that of banks CEOs. But when bank CEOs' opportunities to gain bank stock grants or stock options are taken into account, credit union executives' compensation is much lower, according to CUNA's 2011-2012 CEO Total Compensation Survey.
 
CUNA economists estimate that the CEO of a bank with more than $100 million in assets earns 42% more total compensation than the CEO of a similar-sized credit union, when stock grants and stock options--adjusted for asset size differences--are considered.
 
A Nov. 13 item in the Banker titled "Banks Trail Credit Unions In Exec Pay, Loan Growth, Political Clout" cited an Enetrix study that claimed the median base salary of credit union CEOs is higher than that of bank CEOs. The Banker failed to note the study's fine print on page 14:  that payout from bonuses and stock options, which are far more valuable than base salary, are not available to credit union CEOs, since they are member-owned cooperatives.
 
The claim is "very misleading," said Paul Gentile, CUNA's executive vice president of strategic communications and engagement.  He noted the comparisons in the section of the study include only base salary--not long-term incentives provided to bank CEOs such as yearly bonuses, stock grants and stock options.
 
"When credit union CEOs end their careers, they have nothing to cash in because the members own the whole credit union," said CUNA's compensation study.  It pointed out that with the increased scrutiny given to CEO salaries, banks have moved more toward other forms of raising compensation levels rather than base salary.
 
The typical credit union is smaller than the typical bank, and credit union CEOs are thus paid substantially less than bank CEOs, said CUNA's study.  The median-sized credit union has $20 million in total assets. The typical banking institution is roughly 10 times larger, with $200 million in total assets.
 
In today's complex financial environment, compensation for CEOs must be sufficient to attract talent needed to manage financial institutions that in many cases offer a complete menu of financial services and act as stewards for their member savings, CUNA's study said.

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HarborOne Becomes a Bank

June 28, 2013 - When the business day begins on Monday morning, July 1, the $1.8 billion HarborOne Credit Union in Brockton, Mass., one of the oldest credit unions in the country, will open as HarborOne Bank.

James Blake, HarborOne president/CEO, said he has received the new charter documents from the Massachusetts Secretary of State. On Thursday, he said, he also received final approval to be insured by the FDIC.

“This (charter) change (from a credit union to a mutual co-operative bank) is to make sure we have the flexibility to be here 20 years from today,” Blake said.

“The financial services industry is changing dramatically, and we can’t sit on an island and pretend it doesn’t affect credit unions,” Blake said. “We need to have greater flexibility going forward and this provides us with that flexibility to continue to compete.”

By flexibility, Blake means the new bank will be able to provide more loans. He noted that over the last two years, HarborOne CU had to turn down well over $100 million in loan business over the last two years. What’s more, the credit union charter did not allow HarborOne to open a branch in the city of Boston, which was an issue for many of its members that work in the city.

“Credit unions are the only financial institutions in the country that have no access to capital. If Europe goes into a Great Recession and if China continues to slow down, and if our economy goes back into a deep recession, what happens to credit unions in terms of their ability to raise capital? So many credit unions have disappeared over the years. Perhaps access to secondary capital could have helped them,” Blake said.

“All of our competitors have access to capital, so as they grow more rapidly in the market, it allows them to compete on a basis that is different from where we are because we don’t have that flexibility. All of these issues combined caused us to feel that we were in a box in not having the ability to ensure the long-term sustainability of the organization,” he said. (Credit Union Times)

 

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HarborOne Members Approve Landmark Switch To Bank

CU Journal - March 18, 2013 - By: Ed Roberts

BROCKTON, Mass. – Members of HarborOne CU have approved the $1.9 billion credit union’s conversion to bank, the biggest credit union charter switch ever.

The credit union announced this morning that 62% of the 22,433 members who voted during the 30-day ballot for the conversion to state chartered mutual savings bank approved the switch to bank. The conversion required approval from a simple majority of voting members.

Those who voted amounted to 17% of the credit union’s 132,877 eligible voters.

HarborOne used Colbent Corp. of Massachusetts to collect and tally the ballots, which were cast by mail, at the credit union’s 14 branches or at the March 11 shareholders meeting.

The credit union, the second biggest in Massachusetts, must now have the vote certified by NCUA, which has 30 days to do so, and by the Massachusetts Department of Banking. 

HarborOne was chartered in 1917 to serve employees of the local shoe manufacturing industry and now serves four surrounding counties of Bristol, Norfolk, Plymouth and Barnstable.

If completed, HarborOne will be the biggest credit union ever to switch to a bank, far exceeding Minnesota's Think FCU, a former IBM employees credit union, and Community CU of Texas, both of which had $1.3 billion in assets when they converted

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Proposed FASB Standard Would Significantly Increase ALL Funding

CU Times - BY HEATHER ANDERSON - January 15, 2013

A Federal Accounting Standards Board proposal could require credit unions to put more money aside into loan loss allowances.

Issued Dec. 20, the proposed model would require an “expected credit loss” measurement, replacing the current model that requires a loss to be actually incurred before recognized.

Credit union accounting consultant Mike Sacher told Credit Union Times the proposal is “a hot topic” in his business, and said if the standard becomes final, it would have a significant impact on credit union financials.
He will lead a webinar Wednesday on the proposal in partnership with Callahan and Associates.

He said in a Callahan opinion piece posted on the firm’s website that credit unions would have to evaluate not only past and current events, but also make “reasonable and supportable” forecasts to gauge future collectability when measuring ALL. The increased ALL balances will put a strain on net worth, he added.

FASB Chairman Leslie F. Seidman said in a release the proposal intends to provide “more timely recognition of expected credit losses and more transparent information about the reasons for any changes in those estimates.”

The accounting board is accepting comments on the proposal through April 30.

 

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Revenue Needs Help Make Credit Union Exemption Possible Target

Vigilance Is Watchword on Taxation 

CU Times - BY HEATHER ANDERSON - January 9, 2013


According to industry veteran John McKechnie, who was working on Capitol Hill back in 1986, the last time credit union tax exemption was on the Congressional chopping block, a “volatile” environment on Capitol Hill means credit unions should be vigilant when it comes to protecting their tax-exempt status in 2013.
Tax expenditures are receiving a lot of scrutiny as Congress looks for ways to increase revenues and cut the deficit, he said.

Credit unions were shocked Nov. 14 when it was revealed that H.R. 6474 included the elimination of the credit union tax exemption among seven immediate tax reforms recommended by the National Commission on Fiscal Responsibility and Reform. However, the author of the bill, U.S. Rep. Dennis Ross (R-Fla.), quickly removed the provision, saying it was a mistake.

“We regret that the credit union exemption was unintentionally included in the ‘phase-out’ section of H.R. 6474. It was intended it to be included in the ‘maintained’ section of the bill,” said Ross spokesman Anthony Foti.

The Simpson-Bowles commission was a bi-partisan panel created by President Obama in 2010 to study and propose ways to improve the nation’s fiscal health. Although it didn’t name credit unions specifically, the commission did recommend eliminating all $1.1 trillion in tax expenditures. Simpson-Bowles will serve as a starting point on Capitol Hill, McKechnie said, because it has credibility. But, because it lacks details, Congress will fill in the blanks with expenditures that could include credit unions.

The banking lobby has been pushing for credit union taxation for years and is expected to jump on the opportunity to include credit unions in tax reforms.

Although credit unions are not-for-profit cooperatives, other countries have taxed credit union profits, some for years. Canadian credit unions have been taxed since the 1970s; Australian credit unions also pay taxes. Costa Rica’s credit unions fought an unsuccessful battle over taxation in 2008, and now pay taxes on interest income.

Although the tax expense would be tough for credit unions to absorb, particularly small credit unions that haul in profits smaller than likely tax rates, it wouldn’t come without some benefits. If credit unions were taxed, they would likely lose restrictions to member business lending and be permitted to put supplemental capital on their books.

Congress may also consider taxing only large credit unions that compete with banks, leaving small credit unions tax-exempt.

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Another Congress, No Action on CU Business Lending Bill

THURSDAY, JANUARY 3, 2013

Another Congress, No Action on CU Business Lending Bill

The 112th Congress has left town without taken any action on the credit union business lending bill.

This is the fifth consecutive Congress, where the credit union lobby has sought expanded business lending authority for credit unions and came up empty.

I suspect that legislation to expand the business lending authority for credit unions will be re-introduced, when the 113th Congress convenes.

But I don't know why credit unions should believe that the outcome will be any different this time around. As Albert Einstein once said, "[t]he definition of insanity is doing the same thing over and over again and expecting different results."

POSTED BY KEITH LEGGETT on his Blog 

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Start Planning In 2013 For Loss of CU Tax Exemption

CU Times - BY RAY BIRCH - JANUARY 7, 2013

TALLAHASSEE, Fla.-As an industry, CUs in 2013 need to begin planning for how they will do business in an era in which their tax exemption is taken away.

Mansel Guerry, president and CEO of Credit Union 24, believes with all the pressure on the federal government to find new revenue streams that CUs will lose their tax-exempt status within the next three to five years. He urged credit unions to begin working to develop uniform national branding that will separate them from banks and be easily recognized by consumers. He also insisted that credit unions get much better at educating people on the CU difference.

"Unfortunately, I don't see credit unions preserving the CU tax exemption forever. It is inevitable that at some point that status goes by the wayside," said Guerry. "Even if credit unions lose their tax-exempt status, I still think the industry is best served to maintain its not-for-profit status because it provides a clear focus on the mission of the institution. Forgoing their not-for-profit status would be a mistake, further blurring the lines between themselves and banks."

What CUs need to do now, said Guerry, is further capitalize on Bank Transfer Day momentum and "re-energize the credit union brand. We need to have some form of common brand. I said 20 years ago we needed to adopt common signage for credit unions to help consumers see, and better understand, the credit union difference. It's an opportunity we have not seized, and now is the time. So the challenge in the next three-to-five years is for credit unions to really think about their brand and create a common message, as well as a common image, that clearly communicate to consumers what credit unions are all about."

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NCUA Approves More Low-Income CUs

Credit Union Journal Daily Briefing | Thursday, January 3, 2013

ALEXANDRIA, Va. – NCUA said it approved more than two dozen additional credit unions for low-income status in the final weeks of the year, making 811 credit unions qualified in 2012 for the designation, which exempts credit unions from the member business loan cap and allows them to accept non-member deposits and to raise supplementary capital.

Among those approved on the final days of the year are some of the nation’s biggest credit unions, including billion-dollar credit unions Jeanne D’Arc CU in Massachusetts, Max FCU in Alabama, Florida Commerce FCU, and Goldenwest FCU in Utah.

NCUA has designated a total of 1,912 credit unions as low-income, meaning a majority of their field of membership earns below the median family income.

NCUA also is working with state regulators to come up with state charters that are eligible for their state’s own low-income classification.

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GFA FCU Completes Purchase of New Hampshire Bank

CU Times - BY PETER STROZNIAK - December 28, 2012  


GFA Federal Credit Union President/CEO Tina Sbrega said the $6.4 million cash acquisition of the $83 million Monadnock Community Bank in Peterborough, N.H., will be finalized at the end of business Friday, marking the first purchase of a stock savings bank by a credit union in the United States.

Last December, the $1.3 billion United Federal Credit Union in Michigan bought Griffiths Savings Bank in Indiana for about $80 million, the first time a federally chartered credit union purchased the assets of a state-chartered, FDIC-insured mutual savings bank.

The $353 million GFA FCU in Gardner, Mass., which agreed to purchase the New Hampshire community bank in March, recently secured all of the required regulatory approvals.

“We will be gaining 4,000 new members (from Monadnock),” Sbrega said Friday. “From all indications the (new) members are very excited to have a credit union closer to their market. They have an appreciation for the cooperative model, so we are very confident we will retain a majority of the (Monadnock) members and grow.”

Monadnock Community Bank’s Peterborough branch will remain open, giving GFA its second New Hampshire location. Six years ago, the credit union opened a branch in Rindge.

GFA also operates Massachusetts branch locations in Ashburnham, Fitchburg, Gardner, Hubbardston, Rutland and Winchendon.

All but four of Monadnock’s employees will continue working at GFA, said Sbrega.

“We are absolutely thrilled to be in the Peterborough market,” said Sbrega. “All along there was tremendous synergies between the two institutions in terms of member service and community service. We are going to keep delivering those services and bring the expanded products and services and more branches to the customers of Monadnock.”

As part of this new phase for GFA and its members, the credit union announced in November that it has developed a new marketing look and rebranding messages to communicate the advantages of belonging to GFA.

“We want our members to feel good about banking with us,” Sbrega said. “Our ‘Feel Better at GFA’ rebranding will focus on inviting people to learn more about the value of belonging to a credit union and banking with us. As a credit union, we are able to offer lower fees and better rates because of our cooperative structure as member-owned.”

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One Country's View On What 'Credit Union' Means

Credit Union Journal | Monday, December 17, 2012

By Frank Diekmann

Imagine this actually happening here. The country's largest savings banks and largest credit unions come together and agree to henceforth be known as "mutual banks." Both swear off ever using those two-word identifiers-savings bank and credit union-ever again. They even sign on with the same trade group.

It's a long shot to ever happen in this country, but it has already taken place in a country, in this case Australia. Since September of 2011 five of Australia's largest credit unions and one of its largest building societies began rebranding themselves as "mutual banks." Two more credit unions have since adopted the common bank branding, and according to one person at least 10 large credit unions are considering doing the same.

Something else you're not likely to see north of the equator: all of those institutions, in addition to mutual building societies, mutual banks and friendly societies, have come together in Australia as part of Abacus Australian Mutuals, which is the industry trade association. There are some 120 in all, totaling (A)$83 billion in assets and 5.5 million members in a country of 22 million. Four major banks, however, hold major marketshare.

All of it has come about as part of a discussion that echoes some of what is commonly discussed among U.S. credit unions, while other factors are unique Down Under.

The 'Key' Word

"In our regulatory setting, banks, building societies and credit unions are all treated the same way," explained Louise Petschler, CEO of Abacus. "Having a harmonized regulator does make the adoption of bank branding easier."

The second factor is that mutuals were already in an alliance, explained Petschler in remarks recently in Las Vegas. Abacus was formed in 2005 to represent mutuals across five different-but-not-so-different industries. "Mutuality is the key, not 'type' of deposit institution. Abacus (members) see themselves as 'mutuals,' not credit unions or building societies."

The third factor driving the decision to brand as "banks" was the economic downturn, which was actually quite brief in Australia, where the export of natural resources has been booming. "The government actually urged people to move their money into one of the big four (banks)," said Petschler. "But the government has opted to 'build a new pillar' in the banking system by supporting the mutual sector."

The common trade group and branding also stemmed from Australian's perceptions about mutuals, including that they care about consumers, offer low fees, are community based, and are ethical. The perception negatives, said Petschler, include perceived lack of access points and, frustratingly, being seen as not good at managing money.

That's not all that will sound familiar to American CU leaders. "Most people don't know what a credit union is," offered Petschler. "That's the shocking and surprising thing we who work in credit unions always have to remember...Some of the credit unions that have adopted mutual bank branding say they did so to make it easer to say we offer banking services and to make it clearer who could join...

"Rules limt the transition to 'mutual bank' to only the largest institutions. The same rules also make it harder to demutualize and become a commercial bank. Two recent efforts were voted down."

'What's In A Name?'

"What's in a name?," Petschler asks of the words "credit union." "If there is no change to the mutual model, if members remain in control, if the institution is consistent with International Operating Principles, if it's already part of a common 'mutual' group, and if there are no new demutualization opportunities, does it matter? The Abacus board has concluded that no, it doesn't."

Petschler doesn't expect the Aussie model will be exported to U.S. anytime soon.

"In the U.S., I don't think there will ever be a day when two competing groups, enemies really, will ever come together because you do not have shared DNA," she said.

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Tax Fight Looms In Next Congress

Credit Union Journal Daily Briefing | Monday, December 17, 2012 

WASHINGTON – As the fight over taxes and tax reform carries into the next Congress, credit union lobbyists are broadly expecting the credit union tax exemption to be part of the debate.

“You can count on it,” said John Magill, the chief lobbyist for CUNA, who worked on Capitol Hill as a senior staffer for one of the tax-writing House Ways and Means Committee’s leading Republicans before going to work for CUNA.

The starting punches have already been thrown, with one lawmaker proposing a bill that would eliminate a wide number of tax breaks—including the credit union tax exemption—and more recently a non-partisan group called the Tax Foundation issuing a study suggesting repeal of the credit union exemption could raise as much as $3 billion a year in new revenues for the federal government.

While the credit union lobby succeeded in getting the repeal removed from the proposed tax reform bill, the credit union tax is clearly on the table for the next Congress. “I think it’s fair to say everything’s on the table,” NAFCU President Fred Becker told the Credit Union Journal on Friday. “The credit union tax exemption has been brought into consideration any time there’s been a discussion of tax reform, and there’s going to be a discussion of tax reform.”

The debate on the credit union exemption will be driven by several catalysts. The biggest is the end to narrow the huge federal budget deficit. That means that any potential for big revenue gains will be weighed and the growing size and income of credit unions makes for an obvious target. 

While the Tax Foundation’s estimate of $3.1 billion a year is probably too big, the credit unions’ own estimate of $1.5 billion is probably too small. The American Bankers Association, which has been lobbying for repeal of the tax exemption, estimates a credit union tax could produce somewhere around $2 billion a year. That’s based on several factors, including the soaring credit union net for both last year and this year. Through the first three quarters of 2012 credit unions earned a record $6.2 billion, even with the $900 million they paid to NCUA for the corporate bailout assessment. That puts them on track for a net of close to $9 billion for the year, without the NCUA charge. An average corporate tax rate of 30% could produce $3 billion in taxes. That, of course, doesn’t take into consideration the tax avoidance or tax reduction activities credit unions would undertake to reduce their taxes.

The most persuasive argument against repeal may be the ultimate effect it would have on the credit union movement at a time when it is thriving as never before. A tax on earnings would cut directly into the only way credit unions have of building capital—by retained earnings, he noted. “In my view, if you tax credit unions there’s not going to be any credit unions left,” said Becker.

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Why Some Young Professionals Aren't Joining Credit Unions


Credit Union Journal | Monday, November 19, 2012

By Frank Diekmann

Las VEGAS-The challenge in recruiting young people in the coveted Generation X and Y were on full display during a live focus group here last.

The panel of four people, three women and one man all in their twenties and at the front-end of their respective careers, expressed generally positive feelings about their current bank relationships and little knowledge about credit unions beyond that which they have learned while preparing for the focus group.

The four participants were drawn from a larger focus group conducted earlier in California and Nevada and fielded questions from moderator Neil Goldman and the audience, providing some unvarnished insights into what drives their behavior. The focus group participants said they became bank customers for reasons ranging from the bank being the place where parents had accounts to being paid up to $125 to move their business. All are customers of large banks, including Bank of America and Wells Fargo.

Only one of the four has joined a credit union, and that person has maintained his bank relationship. Getting the others to move won't be easy. "I haven't fully looked into moving," said one person. "I would like to if I needed to switch, but I don't really have a real reason to do it."

Aware, Easy To Join, But…

One focus group member who works in a building with a CU branch, has seen the CU's signage, has had coworkers recommend that she join the CU and who knows the name of employees in the branch, said she still doesn't plan to, as opening another savings account seems like a "hassle."

One young woman said of her relationship with Wells Fargo, a relationship chosen because a branch is three blocks from her home, "They are nice and friendly. They know my name. It's nice to have a personal connection there." But she also conceded that she has sensed a nervousness among branch staff over losing their jobs, and the response is often an over-the-top environment with "balloons" and other giveaways.

One of the focus group members said she found the words "join" and "member" to be a negative, implying a "monthly fee like a gym membership." The other three said the terms are not a hurdle, with one saying "it implies that you get benefits."

Little Knowledge Of 'CU Difference'

All participants indicated little knowledge of what makes credit unions different or individual CU brands, although each could name at least one CU. Goldman noted that 50% of those in the California and Nevada focus groups were not sure whether they could join. Several of the focus group participants identified perceived hassles around moving billpay as a reason for not leaving their bank, even when they know fees are high.

Three of the four made clear that mobile banking is a must-have service for them.

The fourth person said she never uses mobile banking, but has used her bank's online service. "I like going to a branch because it's just more personable," she said. "I like to see who's handling my money."
That comment led Goldman to note that "There is a cautionary tale here about stereotyping, that all "young people just want technology and not branches. That's why I believe in psychographics, not demographics."


One other note out of the focus group: When asked what effect Bank Transfer Day had had on them, all four said they were unfamiliar with it.
 

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CU Tax Fight Lurks

Credit Union Journal Daily Briefing | Wednesday, May 16, 2012 | By Ed Roberts 

WASHINGTON – The credit union lobby went on defense this morning against banks and told a Congressional panel reviewing tax exempt organizations that lost revenues from tax exempt Subchapter S banks now exceeds all potential revenues from the credit union tax exemption.

The new defense on the bank exemption-coming in response to new complaints by the bankers--is high-risk strategy for credit unions because it could invite Congress to bring both tax exemptions under greater scrutiny, according to one Capitol Hill lobbyist. “This could backfire if both sides persist,” said the lobbyist this morning.

In correspondence to the House’s tax-writing Ways and Means Committee, NAFCU said a major exemption for closely held Subchapter S banks now exceeds the size of the exemption for all credit union. “There are a total of 2,377 Subchapter S banks that avoid federal income taxes today and that number is expected to grow with Congress recently loosening Subchapter S requirements,” NAFCU’s chief lobbyist Dan Berger said in a letter to Congressional leaders. The lost tax revenues for those 2,377 banks amounts to about $2 billion, far exceeding the estimated $1.3 billion value of the credit union exemption, according to the credit union lobbyist.

“Perhaps the real issue should be the unfair advantage over credit unions that our nation’s banks get with their Subchapter S tax breaks and multiple bailouts,” said NAFCU’s Berger.

But the bankers have a much bigger estimate for the credit union tax exemption, as much as $31 billion over ten years, or $3 billion a year, according to the Independent Community Bankers of America. “The credit union tax exemption comes at a significant cost to taxpayers,” said ICBA President Camden Fine in his own letter to Congressional leaders.

The latent tax fight comes as the community bankers are leading the fight against the credit union business loan hike, which would come at their expense. ICBA’s Fine noted in his letter the increase in the MBL limit “would displace lending currently done by taxpaying community banks, it would significantly reduce tax revenues and widen the budget deficit."
 

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Tax-Exempt Organizations Subject of House Ways & Means Hearing

CU Times - By  - May 10, 2012 
 
Rep. Charles W. Boustany (R-La.), chairman of the Subcommittee on Oversight of the Committee on Ways and Means, announced Thursday that the panel will hold a hearing examining operations and oversight of tax-exempt organizations.

The hearing has the potential to reignite the debate over the tax-exempt status of credit unions, which banks claim give the cooperatives an unfair advantage. However, representatives from both CUNA and NAFCU say credit unions are not a direct target.

The hearing will be the first in a series by the subcommittee on the tax-exempt sector and IRS oversight of tax-exempt activities.  It will take place at 10 a.m. on Wednesday, May 16 in Room 1100 of the Longworth House Office Building. 

In his announcement, Boustany said, “Oversight of the tax-exempt sector is an important priority for the subcommittee, and it has been an area that both Republicans and Democrats agree needs greater attention.” 

In a letter last October, Boustany asked the IRS about recent efforts to address certain concerns that have been raised regarding the operation of tax-exempt organizations, including corporate governance issues and mishandling of funds by officers.  

“It is now time for the subcommittee to hear from members of the tax-exempt community for a more complete picture of the current state of affairs,” he said. “This review allows us to examine the state of the tax-exempt sector, as it currently exists today and consider this information as we continue the committee’s efforts toward comprehensive tax reform. 

“In both cases the goal is the same – to ensure that the tax-exempt sector is operating in an efficient manner and that the laws governing tax-exempt organizations are being applied fairly and evenly.”

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Focus Group Finds Consumers Uncertain, At Best, Over CUs

Credit Union Journal Daily Briefing | Wednesday, May 2, 2012


BOCA RATON, Fla. – Video of a focus group of consumers made for some awkward and uncomfortable moments for credit unions, as the participants expressed views ranging from broad misunderstandings to negative assessments of credit unions.


The focus group was conducted by researcher Neil Goldman among residents of Palm Beach County, Fla., and shown during CO-OP Financial Services’ THINK 12 Conference here.


In the same focus group consumers expressed numerous negative views of banks, but as Goldman noted in his comments, it takes a great deal of misery to get someone to move an account, with the additional challenge being people do not know what options they have. While the answer might be obvious to credit unions, as the focus group showed, it is less than obvious to consumers. Among the comments made by the people in the focus group: “I’m paying too much in gas right now to drive to Timbuktu to go to a credit union”; “In my brain it’s always been a private establishment, almost like a snobby thing”; “It’s not clear what you have to do to be a part of one, but I think it’s like through a spouse’s work or a company”; and, “I can only think of one credit union in the county that I’ve driven by.”


“When we see results we are not thrilled with, it’s either an operational issue, or it’s a marketing/perception issue,” said Goldman. “That’s where we are. We are competitive, but the consumer just doesn’t know it.”


Goldman is leading a live focus group of consumers at THINK today.
 

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Wall Street Rating Agency Warns On MBL Hike

Credit Union Journal Daily Briefing | Monday, April 16, 2012

WALL STREET – Fitch Ratings yesterday issued an unusual caution on congressional efforts aimed at lifting the cap on member business loans.

“Fitch Ratings believes credit unions could face significant challenges should they be allowed to make more small business loans,” the company said. “We believe few credit unions might successfully compete with those banks already heavily involved in the small business loan space. Limited experience could increase risk, and while increased business lending exposure might behoove credit unions in the long term, we believe it would ultimately have a measured impact on revenue.”

The unusual warning by Fitch, which rarely weighs in on legislative matters, comes as credit unions are increasing their decade-old efforts to raise the MBL cap from the current 12.25% of assets to 27.5%.

In its warning, Fitch disputes assertions by the credit union lobby that credit unions would fill a void by banks who are not lending to small businesses. “We believe that in the current environment credit-worthy businesses should experience little to no difficulty securing loans in the banking sector,” said Fitch.

“We feel it would be difficult for credit unions to build up viable business lending activities for several reasons,” said the Wall Street agency. “At the onset, addressing infrastructure and capability would be challenging. As part of business lending, a bank must have and relies upon adequately trained staff (which includes a business credit approval and monitoring infrastructure) and be able to provide competent business cash management services and other ancillary products. We believe smaller credit unions with limited resources might find it difficult to successfully compete in a larger business loan environment.”
 

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Regulators Seize California CU Giant Weighed Down By MBLs

Credit Union Journal Daily Briefing | Friday, March 23, 2012 - By Ed Roberts

CHATSWORTH, Calif. -- The California Department of Financial Institutions took over Telesis Community CU, the one-time $625 million credit union with one of the biggest member business loan portfolios in the country, Friday night and appointed NCUA as conservator.

The takeover is bound to cause problems for credit unions on Capitol Hill where Congress is contemplating doubling the MBLs limit and bankers are arguing that it could invite new financial difficulties because credit unions are not sophisticated enough to increase business lending. In fact, Telesis Community is one of 120 credit unions specializing in business lending with a special exemption from NCUA allowing them to exceed the current 12.27% of assets limit on member business loans.

Telesis Community has lost money for five straight years—a total of more than $50 million—and had its net worth decline to 5.4% at year-end 2011. The now $318 million credit union reported $5.7 million in MBL charge-offs and $4.2 million in loan participation charge-offs for 2011.

The credit union has been involved in several large MBL bankruptcies across the country in the past few years; of a California resort project; a Memphis historic development; an Orlando, Fla., shopping mall; and a downtown Portland redevelopment, among others.

Telesis Community is the second credit union giant seized by regulators because of big MBL problems, with NCUA running Texans CU, a former $2.2 billion Texas credit union, under conservatorship for the past year.

Telesis Community was chartered in 1965 and serves, among others, various employer groups and individuals in the San Fernando and Santa Clarita valleys or in Ventura County.

Earlier Friday night NCUA also liquidated Saguache County CU of Moffat, Colo., a one-time $25 million credit union, and assigned its remnants, the year’s third credit union failure, to Aventa CU, a $135 million Colorado Springs, credit union. Saguache County CU has been run under conservatorship by NCUA since last July.

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MBL Cap Hits CUs on Several Levels, NAFCU Finds

CU Times - By Michelle A. Samaad - March 16, 2012
 

According to a NAFCU survey, the member business lending cap is having an impact on loan approval, loan participation activity and hiring.


With the past 12 months, 10.3% of participants responding to NAFCU’s March Economic & CU Issues Monitor said they had to turn down loans due to the 12.25% of assets MBL cap restriction.


Nearly 14% said they had to turn to a loan participation in order to stay under the cap, NAFCU reported.


The lending limit has also discouraged hiring in a direct way with 3.6% of respondents saying they were prevented from hiring staff dedicated to business lending in the past 12 months due to the cap.

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Conversion Considered, Apple FCU to Leave CUNA

The CU's Board Made the Decision After Concluding the Trade Group was no Longer an Effective Advocate
 

CU Times - By David Morrison February 26, 2012


The 144,000-member, $1.6 billion Apple Federal Credit Union, Fairfax, Va., has become the first large credit union to leave CUNA this year. Three other large CUs, two from New Mexico and one from Texas, left the trade group last year.

At press time, CUNA had not commented on the departure, but Apple CEO Larry Kelly said the CU's board had made the decision after concluding the trade group was no longer a very effective advocate.

“Can you tell me one major thing that CUNA has done for credit unions in the last 12 years?” Kelly asked.

He cited the steadily tightening regulatory burden that credit unions face under the NCUA' s current leadership as a reason his board started to question whether its members would continue to be best served by a credit union charter.

“My board has voted to ask me to assess that question, and we are in the midst of currently evaluating it,” Kelly said.

 

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Another Large CU Leaves CUNA

Board Also Sought to Study Charter Option


CU Times - By David Morrison - February 22, 2012


The 144,000-member, $1.6 billion Apple Federal Credit Union, headquartered in Fairfax, Va., has become the first large credit union to leave CUNA this year. Three other large credit unions, two from New Mexico and one from Texas, left the trade group last year.

CUNA has not yet commented on the departure, but Apple CEO Larry Kelly said the CU's board had made the decision after concluding the trade group was no longer a very effective advocate for credit unions.

“Can you tell me one major thing that CUNA has done for credit unions in the last 12 years?” Kelly asked.

He cited the steadily tightening regulatory burden that credit unions face under NCUA's current leadership as a reason his credit union board had started to question whether its members would continue to be best served by a credit union charter.

“My board has voted to ask me to assess that question and we are in the midst of currently evaluating it,” Kelly said.

Kelly acknowledged that NCUA's regulatory stance was more relaxed under former NCUA Board Chairman Dennis Dollar, but he credited Dollar's background with credit unions more for that than any CUNA advocacy or lobbying at the time. He also suggested it was poor NCUA enforcement of existing rules, rather than a lack of regulations, that led to the collapse of corporate credit unions and other scandals.

Kelly recounted a trip he made to a Florida county last year, where the NCUA now owns over 2,000 homes from troubled credit unions, and said he had been stunned by what he saw. “What could they have been thinking in making these investments,” Kelly asked, “and how could NCUA have not questioned them?”

Likewise, he pointed out that Apple had left the now-failed WesCorp Corporate Credit Union a full three years before it failed because the CU had been terrified of some of the corporate's investments and questioned why, if Apple could see the risk, couldn't an NCUA employee on site?

When asked how CUNA could become a better credit union advocate, Kelly suggested a leadership change at the top would be a place to start. “How can an organization represent credit unions when its president is being sued by the regulator,” Kelly asked. “I just don't get it.”

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HarborOne CU Considers Bank Conversion

CU Times - By Donald Shoultz - February 16, 2012

HarborOne Credit Union said it is considering a charter conversion to a mutual savings bank.

The $1.8 billion credit union, based in Brockton, Mass., placed the announcement from the board of directors to members on its website.

“A mutual co-operative bank is owned by and operated for the benefit of its depositors in a manner similar to the way a credit union is owned by and operated for the benefit of its members,” the notice said.

“If, after reviewing comments received by members, the board of directors votes to proceed with the conversion, you will receive a notice and information statement that provides greater detail on the reasons and consequences of the conversion,” it added.

The credit union said among the reasons to convert were the flexibility to expand HarborOne’s customer base, increase its lending authority and gain access to additional capital.

The board said, “We believe that with increased lending capacity, HarborOne would be able to generate greater revenues, which would help sustain our attractive deposit and loan rates and fees and add additional branches. Of special import given the current economic climate, enhanced commercial loan authority would allow us to further expand our small business lending program.”

The announcement went on to say, “The board of directors believes having the flexibility to access capital options is a strategic necessity. At this time the board does not have any intention to convert to a stock form.

“However, the board of directors believes that establishing the flexibility to access capital options through a conversion to stock form is prudent, and in any event, Massachusetts law would prohibit a stock conversion for a one-year period after the conversion. Additional capital may be required in the future for any number of reasons, including to support increased lending to members, to build new branches, or to enhance products or services.”

The board invited written comments from members. Comments are due before March 16. The board will consider the comments and consider the conversion plan on March 21.

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Supplemental Capital: Not Without Taxation, Says ABA's Leggett

CU Times - By Claude R. Marx - February 10, 2012

ABA’s Leggett Says No Supplemental Capital Without Taxation


If credit unions want to be allowed to accept supplemental capital, they should agree to pay federal taxes, said Keith Leggett, ABA vice president and senior economist.


“It’s another attempt by credit unions to be more like banks. And if they want to do that they should pay taxes, it’s a fair tradeoff,’’ he said. Leggett said a bill introduced Thursday allowing non low-income credit unions to accept supplemental capital in certain cases also raises safety and soundness concerns.


“Allowing a credit union to issue supplemental capital eliminates the prompt corrective action tripwire aimed at slowing down rapid growth and extensive risk taking,’’ he told Credit Union Times.


The bill, introduced by Reps. Peter King (R-N.Y.) and Brad Sherman (D-Calif.) gives the NCUA the power to determine if a credit union is well managed and capitalized enough to accept supplemental capital. These non-share capital accounts would be subordinate to all other claims against the credit union, including the claims of creditors, shareholders, and the NCUSIF.


Credit unions and their trade associations have been pushing for the ability to do this for several years.

“There is a pressing need for access to affordable financial services. This bill will allow us to expand service and lending to members in our community,’’ said Bethpage FCU President/CEO Kirk Kordeleski.


Kordeleski’s credit union and others, including Boeing Employees CU, have formed the Coalition for Credit Union Access to supplement the lobbying efforts of the trade associations on this access. Bethpage FCU, based in Bethpage, N.Y., has assets of $4.2 billion. Boeing Employees CU, based in Tukwila, Wash., has assets of $8.6 billion.


The King-Sherman bill has four cosponsors so far: Reps. Bob Filner(D-Calif.), Larry Kisssell (D-N.C.), Greg Meeks (D-N.Y.) and Ron Paul (R-Texas).

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Supplemental Capital Measure Was Years in Coming

CU Timers - By Claude R. Marx - February 9, 2012

 
The patience and endurance finally paid off.


The three big credit union trade associations have been working for years to find a way to allow supplemental capital for non-low income credit unions. And they are praising Thursday’s introduction of a bill by Reps. Peter King (R-N.Y.) and Brad Sherman (D-Calif.) as a significant step toward achieving their goal.


"For NASCUS and state regulators, access to supplemental capital for credit unions has always been a matter of safety and soundness. This critical reform gives credit unions the necessary capital flexibility to respond to economic conditions, both in good times and bad,’’ NASCUS President/CEO Mary Martha Fortney said in a statement.


CUNA President/CEO Bill Cheney wrote lawmakers that the measure “would provide credit unions with appropriate ability to raise capital from sources other than retained earnings without putting in jeopardy the ‘one member, one vote’ principle that is the bedrock of the credit union ownership structure.’’


NAFCU President/CEO Fred Becker wrote lawmakers that allowing supplemental capital would “further minimize the probability of credit union insolvency, ensure they continue to serve the nearly 94 million Americans who rely on credit unions as a vital source of financial services, and allow them to grow to meet the needs of members.’’


In the past, CUNA has expressed concern that the NCUA would place too many regulatory constraints on credit unions that want to seek secondary capital. NAFCU expressed concern about letting supplemental capital from outside the credit union system.


In April 2010, a report by an NCUA task force chaired by Board Member Gigi Hyland said any capital must adhere to three principles: preservation of the cooperative credit union model, robust investor safeguards and increased prudential safety and soundness safeguards.

The report noted that the agency's supervisory experience with the 41 low-income credit unions (out of 1,102) that receive secondary capital has been "mixed." It criticized some of those credit unions for poor due diligence and "premature and excessively ambitious concentrations of uninsured secondary capital to support unproven or poorly performing programs."


CU Financial Services Editors Note: A 1998 Federal law (H.R.-1151) provided credit unions a path to raising capital by first converting to a mutual savings bank, In another section the legislation imposed new capital requirements and business lending restrictions on credit unions. Congress, therefore, reasoned that by allowing a conversion to a mutual savings bank a credit union could excape these restraints, raise capital and expand business lending programs and position itself in a way to better serve its community.

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CUNA Mutual's CMIS now a mutual insurance holding company

MADISON, Wis. (2/2/12)--CUNA Mutual Insurance Society (CMIS) is now a mutual insurance holding company. The reorganization of its structure was effective Wednesday. As a mutual holding company (MHC), CMIS is changing its legal name to CMFG Life Insurance Co.

Although the name changes, there is no change in control of the company, which will continue to be mutually owned with the same policyholders having full ownership of the new parent mutual holding company (MHC) entity. The company and its subsidiaries will continue to use the trade name "CUNA Mutual Group."

CUNA Mutual Group received approval in October from the Iowa Insurance Commissioner for its plan for the new ownership structure, which was approved by more than 90% of policyholders in September.

"The conversion to a mutual holding company structure maintains policyholders' rights and significantly enhances our ability to compete and serve," said Jeff Post, president/CEO of CUNA Mutual Group. "This is a natural and positive step in our continuing commitment to credit unions and to the successful and proven strategy we have been pursuing in recent years."

Insurance policies and annuity contracts remain the same, and policyholder benefits and rights will not be reduced or altered, said the company, which added that premiums will not increase as a result of the MHC corporation. (CUNA News Now)

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Texans CU Plunges Deep Into Red Ink Amid Huge MBL Charges

Credit Union Journal Daily Briefing | Tuesday, January 31, 2012

RICHARDSON, Texas – Texans CU, a one-time $2-billion credit union being run under conservatorship by NCUA, followed up 2010’s $39.4 million loss with a loss of $88.7 million for 2011, one of the biggest ever for a credit union, NCUA reported yesterday.

The 2011 losses left the former credit union for Texas Instruments insolvent to the tune of negative $46.5 million in net worth. The credit union is only still in business because of a $60 million emergency loan provided by the National CU Share Insurance Fund under 208 assistance.

The main cause of the huge loss was $47.7 million in non-operating charges, as the credit union continues to navigate through various civil lawsuits over its vast member business lending operations.

NCUA took over the 58-year-old credit union last April amid growing losses related to its MBL CUSO, Credit Union Liquidity Services. The MBL losses caused Texans to report red ink of $44.4 million for 2008, $51.6 million for 2009 and $39.4 million for 2010. Last year’s $88.7 million has erased all remaining capital and makes a total of $224 million in losses for the past four years.

Troubled MBLs made by Texans’ CUSO including a $36-million loan financing a troubled real estate development in San Antonio, a $45-million MBL to an ill-fated mall redevelopment outside of Chicago, and a $30-million MBL financing a troubled mixed-used development in Rockwall, Texas. The credit union also lost a multi-million dollar lawsuit over its firing of the head of its insurance CUSO, Texans Insurance.

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AEA FCU Receives $20 Million Subordinated Note

January 27, 2012 - CU Times - By Michelle A. Samaad


According to its latest NCUA Call Report data, AEA Federal Credit Union has received a $20 million subordinated note.

The liability, shares and equity page of the report dated Jan. 27, showed the note was deposited in December 2011 and includes unsecured secondary capital. Subtracting the note from AEA’s balance sheet appears to push its net worth to negative 6.6%.

The NCUA placed the $230 million, 42,000-member AEA in conservatorship in December 2010 due to inadequate capital, insufficient earnings and a financially troubled loan portfolio, the agency said at the time.

William Liddle, a former lending vice president at the credit union in Yuma, Ariz., is currently on trial to face charges on an alleged $1 million business loan kickback scheme.

Liddle worked at AEA from November 2004 to December 2009 and approved more than $25 million in business loans during his tenure there.

As of August 2011, AEA had posted a year to date net income of $2.2 million, according to the NCUA. The regulator touted a number of improvements including streamlined operations, improved facility management practices, and positive progress in business loan delinquency.

 

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Silver State Schools Cuts Losses, Gets New Cash Infusion From Insurer

January 27, 2012 - CU Times - By Marc Rapport


Silver State Schools Credit Union continued to lose money in the fourth quarter, posting a net loss of $2.8 million, and finishing the year with a net loss of $8.4 million, the Las Vegas credit union said.

The $2.8 million loss mirrored the third quarter results. However, that compared with a net loss of $21.4 million in 2010, and the credit union’s private insurer, American Share Insurance, gave Silver State Schools, another $4.4 million capital boost in December “after consideration of the steady progress made by the credit union over the past 12-18 months,” the credit union said in a statement.

“We look forward to continued improvement in 2012,” said Silver State Schools CEO Andy Hunter, the retired Patelco CU CEO who took over earlier this past summer.

ASI had previously given Silver State Schools $22 million in capital assistance note in February 2010.

The struggling Silver State Schools lost its spot as Nevada’s largest credit union during the year, and said provision for loan losses continued to have a significant impact on earnings. Silver State Schools also formerly operated 21 branches from Las Vegas to Reno but has since shrunk that number to nine.

Loan loss allowances increased to $32 million on Dec. 31, compared with $30.2 million at the end of the third quarter and $24.8 million at the end of last year.

Once a billion-dollar credit union, Silver State Schools ended the year with deposits of $623 million, total assets of $653 million, and loans of $542 million, adding in its statement that liquidity continues to remains strong and regulatory net worth stands at $27.3 million.

"Although building reserves for loan losses has been a priority, we also continue to report a strong 3.72% net interest margin and our operating expenses decreased from $32.4 million in 2010 to $26.0 million in 2011. These numbers are signs of progress that should not be overlooked,” Hunter said.

 

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Dual Examinations in N.C. Prompt Special League Meeting

January 27, 2012 - CU Times - By Jim Rubenstein


The North Carolina Credit Union League said it plans to have a special meeting next week to discuss how to “protect our credit unions” after the NCUA’s decision to require dual exams following State Employees’ Credit Union’s disclosure of its CAMEL score.

The president/CEO of the trade group, John Radebaugh, said the meeting will be next Wednesday at its Raleigh headquarters.

Meanwhile, Radebaugh said, the league continues “on a daily basis” to gather information from the North Carolina Credit Union Division, which authorized the CAMEL disclosure, and the NCUA.

The NCUA said the dual exams are necessary to protect the NCUSIF and the credit union system.

League officials said state-chartered, federally insured credit unions are “clearly frustrated at having to undergo dual examinations” that will simply “add to the already unprecedented regulatory burden” borne by North Carolina CUs.

SECU CEO Jim Blaine said the score was disclosed in a gesture of transparency to members and that he regrets the NCUA’s decision. SECU also has pointed to approval from state regulators and North Carolina Attorney General's office in making the disclosure.

Radebaugh, the league head, said the dual exam costs now faced by state charters “is made worse by the fact that our credit unions are enduring this burden despite being safe, sound and well capitalized.”

He said the meeting next week will be “to allow credit unions to ask questions and share their perspectives – as well as their needs and concerns.”

The league “is committed to supporting our state chartered credit unions as they cope with dual examinations, and a key way we can do this is by listening,” the league president said.

An NCUA spokesman said its position on the topic is contained in a Jan. 12 letter from NCUA Region III Director Herbert Yolles to all North Carolina state-chartered, federally insured CUs that publishing the CAMEL rating was “an unacceptable release of exempt records of NCUA rules and regulations.”

Meanwhile in New Jersey, in a separate meeting devoted to CEO exasperation over NCUA exam policies, the New Jersey Credit Union League said it is starting a separate program, called “NJ READ” devoted to helping CUs cope with exam practices.

The league said its members continue to find “an overabundance of inconsistencies and potential overzealousness” by examiners. A series of roundtable meetings began this week, the NJCUL said.

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Large Credit Union's CEO Response to Chip Filson Article

A January 5, 2012 article by Callahan's Chip Filson entitled:

"NCUA’s Seizure Of $50B In Corporate Assets Still Unaccounted For

A new audit shows the NCUA Corporate Resolution Plan cost credit unions almost $1.5 billion more than previously reported."

Brought the following comment from the CEO of a multi-billion dollar credit union:

Chip, we all know that this is going to cost the industry far more than "current" loss estimates. While there are presentation dynamics being used to help people avoid being blamed, the current estimate are also wrong because no one can know the ulimatel cost.

There are 4 million mortgages in some form of serious delinquency and/or foreclosure right now. These losses have not yet occurred yet. And once these foreclosure move through the system real estate prices will continue to fall and that will cause more losses because thereby creating a feedback loop that will spiral for a while. Taking view of the entire housing problem today in the U.S., there are 300 thousand homes per month being foreclosured while there are only 100 thousand homes being liquidated per month. This means that the REO stock will grow for the next couple of years and prices will continue to adjust to clear the market.

NCUA's conserved credit union's investment hold this type of collateral and so the current estimates very likely do not capture this dynamic, non-linear future described above.

So like most people with their pants on fire, they will do everything the can to make it look like the fire is under control and that the loss estimates are correct. But they can't know until it arrives and the losses that they are estimating have not arrived yet.

Thanks for calling this to our attention. I expect you will have ample opportunity to report on this for the next several years as NCUA comes to realize that the problem they inherited by a bubble in the housing sector is much larger than they could have ever imagined.
 

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Report Criticizes Handling of Credit Unions' Failures

From the Wall Street Journal - January 5, 2012

A government report on Wednesday criticized how a federal regulator handled the failure of five corporate credit unions and urged faster action to identify and prevent future problems.

The rebuke from the Government Accountability Office, the investigative arm of Congress, highlights the distrust between the regulator—the National Credit Union Administration—and many of its members, who say they worry the final cleanup tally will be higher than they have been led to believe.

The GAO said a lack of documentation opened the regulator to "questions about its ability to effectively estimate the total costs of the failures and determine whether the credit unions will be able to pay for these losses."

The GAO study underscores concerns some credit unions have voiced about their regulator. Although recent regulator estimates for the cost of the bailout are lower than previous estimates, the range of $5.2 billion to $9.5 billion is still wide enough to cause some observers to question their validity.

Because the estimates have changed from year to year and not much insight has been provided into the performance of the troubled assets, said Charles Jones, a finance professor at Columbia University, "credit unions are operating a little bit in the dark."

Concerned that the regulator has been slow to release crucial information that would help them tally losses on mortgage-backed securities that caused the corporate failures, credit unions have, in public commentary and letters to Congress, demanded better oversight. They say higher loss rates will come out of members' pockets in the form of lower interest on deposits and higher loan rates.

 

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Congress Lays Tax Exemption On The Table Next To MBL Cap

CU Journal - Friday, November 18, 2011

WASHINGTON – The moment the credit union lobby dreaded came Wednesday when one long-time lawmaker during a congressional hearing said if credit unions want to increase their member business loan limits they should have to accept some kind of diminution of their federal tax exemption.


“I want all those present and watching to know that I remain committed to requiring credit unions to be subject to federal taxation if they want to increase their commercial lending limit,” said Ruben Hinojosa, an eight-term Democrat from Texas, during a hearing on a regulatory relief bill for banks to which credit unions want to attach measure to increase the MBL limit.


Hinojosa’s position was no surprise to credit unions, as he alluded to the tax exemption in a less direct way during last month’s hearing on a bill to raise the MBL limit from its current 12.25% of assets to 27%.
 

But Wednesday’s direct attack lays bare the risks credit unions are running as they seek to expand powers in certain areas long dominated by local banks, that is, putting the tax exemption on the table. In fact, during last month’s hearing at least two other members of the House Financial Services Committee also expressed doubts to the credit union bid, an unusual public expression of opposition to the MBL bill at a hearing reserved for the credit union priority.


In fact, several banking lobbyists insisted last month the tax exemption should be discussed in exchange for an increase in the MBL limit. “If credit unions would like to have the discussion about exchanging their tax status for increased business lending privileges, we will be the first one at the table,” said Rose Oswald Poels, president of the Wisconsin Bankers Association, in conjunction with the hearing.

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Maryland CU Gets Member Clearance To Convert To Bank

Credit Union Journal Daily Briefing | Tuesday, October 11, 2011

BEL AIR, Md. – Members of Har-CO FCU voted to approve the conversion of the $200 million credit union to a mutual savings bank, the first credit union conversion in more than two years.

The count was 58% to 42% of the 5,000 voting members of 17,000 total members, which must now be certified by NCUA. Applications for a mutual bank charter and deposit insurance are currently pending with the Office of the Comptroller of the Currency and the FDIC.

Har-Co is one of several credit unions moving towards a bank charter, with California giant Tech CU, with $1.5 billion in assets, announcing last week it is seeking to convert charters to a mutual savings bank.

 

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Ireland Plans $1.3 Billion Bailout Of CUs

Credit Union Journal Daily Briefing | Monday, October 10, 2011

DUBLIN, Ireland – The Finance Ministry is predicting as many as a fourth of the country’s 407 credit union could be merged or liquidated under a government bailout that will pump more than $1.3 billion into the troubled lenders.

The credit union assistance is to come from unused funds form the country’s bank bailout.

"I seriously intend sorting out the credit unions and some of them we'll have to do immediately but we won't do it in one big bang," Ireland's finance minister Michael Noonan told Dublin's upper parliament on Thursday.

"My advice already is that it will cost between half a billion and a billion because the major sorting out is recapitalization. We recapitalized the banks for less than we expected so we have the resources, we won't have to go back to exchequer for it,” he said.

Credit unions are a major part of Ireland’s financial landscape and serve an estimated two-thirds of the nation’s 4.5 million people. The country’s Central Bank, which regulates credit unions, estimated 79 credit unions to be at risk of insolvency.

 

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Technology CU Bank Conversion to Set Calif. Precedent

October 5, 2011 •  By David Morrison


If the $1.5 billion Technology Credit Union decides to move forward in its effort to convert to a mutual bank, it is sure to break new ground for California state regulators.

A spokesman for the Department of Financial Institutions confirmed that a California state-chartered credit union has never attempted to convert to a bank before and that the state's credit union regulations are silent on the topic.

California's financial code explicitly provides for state chartered credit unions to convert to federally chartered credit unions and regulations are provided for that process. Likewise, it provides for federally chartered CUs to adopt the state charter. But it is silent on state-chartered credit union conversions to mutual banks.

Technology CU, in its letter to members introducing the idea, listed a desire to make more commercial loans as a reason for the conversion. Credit unions are under a legislatively mandated cap of 12.25% of assets on member business loans. According to the most recent report to NCUA, the CU has booked 144 member business loans worth just over $81.3 million, representing just over 5% of the credit union's assets. To reach the cap at their current asset level, the credit union would have book over $184 million in member business loans.

According to CU Financial Services, a Portland, Maine consultancy that helps credit unions change to bank charters, if Technology Credit Union succeeds in moving to a bank it will become the 37th credit union to change charters since 1995.

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Central Bank Tells Irish CUs to Limit Lending

September 13, 2011 •  By Michelle A. Samaad * CU Times


The Credit Union Managers’ Association said it is receiving letters from credit unions saying the Central Bank of Ireland has told them to restrict their lending.

The bank’s new rules caps some credit unions at a maximum monthly lending limit of 100,000 Euros or approximately $127,650 in U.S. dollars.

Nearly 300 CUs have been told to restrict their lending, according to CUMA. The trade group said it has contacted the Central Bank about its concerns with the new rules.

CUMA representative Selina Gilleece said while credit unions have been affected by Ireland’s recession, “they have weathered the worst of it so far.”

James O’Brien, Central Bank’s registrar of credit unions, told attendees at the bank’s annual Credit Union Regulatory Forums this year the regulator has grown concerned with the number of credit unions experiencing investment losses in their portfolios.

“Falling income, a static cost base and downward pressure on dividends are all indicators that the sector remains under significant stress. An increasing number of credit unions have migrated into the high-risk category and are on our supervisory watch list,” O’Brien said.

One of Ireland’s newspapers reported that Jimmy Johnstone, president of the Irish League of Credit Unions, sent a letter to the Central Bank criticizing the new limits. The league is a member of the World Council of Credit Unions.

“The league board, like its member credit unions, is exasperated by the imposition of far-reaching regulatory restrictions which are directly responsible for credit unions not being able to lend to long-standing members,” Johnstone wrote.

 

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NCUA Not Creating Contingency Plan for Increased Exits from the NCUSIF

CU Times - September 12, 2011- By Claude R. Marx


Because conversions to private insurance and mutual savings banks are “relatively rare,’’ the NCUA isn’t developing a contingency plan for helping credit unions that stay in the system deal with any additional costs from more departures, according to a letter from NCUA General Counsel Michael McKenna to NASCUS President/CEO Mary Martha Fortney.

He wrote that all five credit unions with conversion applications (three to mutual savings banks and two to private insurance] will pay this year’s assessment to the Temporary Corporate Credit Union Stabilization Fund and some will have to pay next year’s assessment. The fund was set up by Congress in 2009 to pay for the rescue of several troubled corporate credit unions.

He added that while the agency doesn’t need a contingency plan, it is “closely monitoring the situation and can take quick action, if necessary.’’

McKenna, who was responding to a letter that Fortney wrote NCUA Chairman Debbie Matz last month, wrote that the agency’s monthly management report will from now on list the amount of insured shares held by each credit union with a charter or insurance conversion application and the percentage of total insured shares that represented by each converting credit union.

According to the NCUA, three credit unions with a total of $3 billion in insured shares are in some stage of the process of converting to mutual savings banks. Two credit unions, with total insured shares of $124.7 million, have applied to convert to deposit insurance.

McKenna noted that insured shares decreased by $695.9 million from conversions since the TCCUSF was signed into law in May 2009, but the total insured shared increased more than $69 billion during that period.

In response to questions asked by Fortney, McKenna said if the agency made a single assessment for the remainder of the TCCUSF’s expenses, it would reduce overall net worth by 56 basis points and cause 4,500 insured credit unions to have negative earnings.

He also said the agency predicts that 250 credit unions would see their net worth drop below 7% net worth and five more credit unions would fail and cost the NCUSIF up to $300.

In August, the agency announced a 25-basis point assessment for this year’s portion of the repayment of the Treasury Department loan to pay for the corporate credit union rescue. Currently, the agency has set up a system to spread out the payments over the next seven years.

 

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Tax Debate With Bankers Heats Up in Wisconsin

Dueling Press Releases Follow WBA Appeal to Dump CU Tax Exemption
 

By Jim Rubenstein * CU Times August 17, 2011


Wisconsin, fast becoming the nation’s battleground for credit union-bank clashes over the tax exemption and CU to bank conversions, erupted anew last week with dueling press releases following a fresh appeal from the banking lobby to Congress tied to the debt crisis.

In fiery language, the Wisconsin Credit Union League accused large banks of contributing to the nation’s economic woes and “failing to pay their fair share of income taxes” while earning huge profits off the back of consumers through extra fees.

The Wisconsin Bankers Association, which in a July 15 letter to the state’s Congressional delegation claimed the “time is now” to remove the credit union exemption, shot back with an anti-CU attack of its own, arguing that in light of the urgency by federal and state agencies to find new revenue, the CU tax exemption has outlived its purpose.

“The truth is the credit union tax exemption is among the top 15 costliest corporate tax expenditures in our nation according to the U.S. Office of Management and Budget at the rate of $34.5 million annually in Wisconsin and $7.92 billion nationally,” said the WBA.

Moreover, “now is not the time to doggedly protect sacred cows but rather to identify areas in which exemptions are no longer necessary to support an industry which is quite capable of supporting itself.”

The league suffered a setback two months ago when Gov. Scott Walker let stand a WBA-supported statute in a state budget that removes a series of structural barriers permitting CUs to convert directly to banks.

The league, calling the easing “radical” and harmful to CU members, maintained the new law wrongly bypasses the mutual structure and drastically streamlines the process on member voting, sharply reducing disclosure and communication rules.

Regarding the tax exemption fusillade from the bankers, Brett Thompson, president/CEO of the league, charged that “many banks behaved irresponsibly, playing a starring role in causing the collapse of our economy.”

Moreover, “the WBA’s outrageous tax increase plea is based on a hypocritical concern for taxpayers, their never-ending desire to legislate their competition out of business and fuzzy math,” said Thompson.

In its press release, the league identified individual Wisconsin banks that it said skirted paying income taxes. It named Associated Bank of Green Bay as one “which paid no state income tax from 2000-2009 in spite of booking $2.6 million in profits.” M&I of Milwaukee also “paid less than 1% on its significant profits during those same year” and recently laid off 400 employees, the release said.

Thompson said the WBA’s July 15 letter to lawmakers amounts to a “sloppy effort to distract the public’s attention from banks’ lead role in the economic downturn."

 

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Assessment Fears Widen to State-Chartered CUs

NASCUS, Some CEOs Wonder if NCUA Move Would Follow NCUSIF Departures

By Claude R. Marx * CU Times * August 18, 2011
 

If more credit unions leave the NCUSIF, can the NCUA take steps to minimize the impact on those that remain?

That’s a question raised by NASCUS and some credit union executives.

NASCUS President/CEO Mary Martha Fortney said the state regulators and leaders of the state-chartered credit unions that are on her association’s advisory council fear that state-chartered federally insured credit unions might face financial burdens that could negatively affect their safety and soundness if their assessments go up even more than anticipated.

“While charter choice is one of the most important principles for credit unions, it is important that everyone understand the possible implications of what could happen to credit unions. We are in the exploratory phase and trying to find what the NCUA is able to do and if it needs to have additional powers,” Fortney said in an interview.

Boeing Employees Credit Union Senior Vice President Parker Cann, who chairs NASCUS’ credit union advisory council, said he “doesn’t anticipate a rash of departures, but we are getting our ducks in a row. Human nature being what it is, some credit unions will want to look at leaving because they don’t like the NCUA and are frustrated with the costs of the corporate credit union rescue.” Cann’s Seattle-based credit union has assets of $9.6 billion.

The uncertainty facing credit unions, including the possibility that Congress may vote to tax them as part of a bigger deficit-reduction package, could cause more anxiety for credit unions. If credit unions lose their tax advantage, they might decide that they have more freedom if they have a bank charter.

Since 2009, when several large corporate credit unions began having problems, only three natural person credit unions have switched from the NCUSIF to private insurance provided by Ohio-based American Share Insurance. Dennis Adams, the firm’s CEO, said it is currently talking to “two or three” credit unions about switching.

“The three credit unions that have converted have had total assets of less than $500 million, which is small in the grand scheme of things. The bigger threat to the NCUSIF would come from liquidations than from private insurance,” Adams said.

Since 2009, there has only been one credit that has converted to a bank, the $300 million Cranston, R.I.-based Coastway Credit Union. But Har-Co FCU, a $184 million Bel Air, Md.-based financial institution has begun the process of considering whether to convert and recently ended the period for its members to comment on whether to become a mutual savings bank.

In an Aug. 9 letter to NCUA Chairman Debbie Matz, Fortney requested that the agency explain whether it has the power to assess all the costs in one premium and how would the agency calculate the total cost of the program since the total cost isn’t currently known.

Fortney also asked if the NCUA can assess more than one premium a year to pay for the corporate credit union rescue. And she asked if the agency can assess an individual credit union’s its share of the costs if that credit union pursues conversion or private insurance.

The agency has previously said that it can collect the entire premium up front as long as it does so for all credit unions. However, its attorneys have also said that it lacks the statutory authority to require an individual credit union that leaves the NCUSIF, either through conversion to private insurance or to a bank, to pay its full share of the costs of rescuing the corporate credit unions before leaving the NCUSIF.
 

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Celent Study Finds Small CUs 'Overwhelmed'

CU Times - July 18, 2011 - By By Jim Rubenstein

A new study issued this week by Celent, the Boston financial research and consulting firm, is finding small credit unions “overwhelmed” by the complexity of technology and competition.

The study, “Tipping Scale: Credit Union Consolidation”, is based on NCUA data from 2010 and found CUs under $50 million “are disappearing”, though the industry as a whole appears to be adjusting to the new environment.

“What is driving this change?” asked the report co-author, Bart Narter, senior vice president. “Competition driven by demand for mobile banking, consumer and business remote deposit capture and branch capture.”

The study found that smaller CUs “don’t have the scale to create these offerings and even the larger credit unions dwarfed by the size of their bank competitors are finding it difficult to keep up.”

In the past, “credit unions simply required a branch or two, a core banking system and ATM but in the past 10 years “Internet banking, bill pay, know your customers and office of foreign assets control compliance” have all become “table stakes,” Narter said.

In reporting on the CU diminishment, the study noted that the number of CUs in the U.S. “is declining rapidly from 10,316 at the end of 2,000 to 7,330 at the end of 2010.”

The vast majority of this consolidation “is taking place in the smaller credit union with assets under $50 million. However, CUs over $500 million “are vastly outgrowing any other category relative to their tier,” the Celent report said.

Celent, which has done most of its work on the banking sector, said this is the third recent report on credit unions, with the previous two covering core data processing at both large and small CUs.

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Wisconsin Governor Rejects CUs’ Pleas, Eases Conversions To Banks

Credit Union Journal Daily Briefing | Monday, June 27, 2011

MADISON, Wis. – Despite pleas by the credit union lobby, Gov. Scott Walker signed a state budget bill yesterday with a measure making it easier for credit unions to convert to banks.

Brett Thompson, president of the Wisconsin CU League, which lobbied against the conversion measure, expressed disappointment. “Controversial and complex financial institution chartering policy clearly does not belong in a bill related to the state’s finances,” said Thompson.

The measure, supported by the Wisconsin Bankers Association, will require the majority of a special meeting called to vote on the conversion – instead of the current requirement of a majority of all members – to complete a conversion from a credit union to a bank. It also will allow credit unions to convert directly to stock-owned banks, bypassing the current intermediate step of converting to mutual savings banks.

The Governor did agree to use his line-item veto power and excise 50 provisions from the 1,500-page, $66-billion budget package, but declined to veto the credit union measure.

A similar provision was included in the 2009-2010 budget but was vetoed by then-Gov. Jim Doyle.

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NCUA Said To Be Lowballing Cost Of Corporate Stabilization Effort

Credit Union Journal Daily Briefing  |  Thursday, June 23, 2011

ALEXANDRIA, Va. – In keeping to its nine-month-old projections of the cost of the corporate credit union stabilization program at $7 billion to $9 billion, some experts are wondering if the agency is vastly underestimating the costs for political reasons.

“I would say that’s rather optimistic,” said Charles Felker, a former NCUA corporate examiner and now vice president of credit union bond house First Empire Securities, who puts the final tab for the corporate bailout nearer $25 billion.

“They’re presenting it in the best light possible,” said Felker, who actually chartered the forerunner to Members United Corporate FCU (Empire Corporate FCU) and went on to become the leading expert on credit union investments while at NCUA. Felker was the first person to publicly predict the failure of the five corporates.

NCUA’s low figure comes as the agency is trying to convince credit unions to voluntarily prepay corporate assessments in the hopes of reducing the long-term costs of the program, and while Congress is assessing NCUA’s culpability in the corporate meltdown via a study by the Government Accountability Office. Many credit unions are supportive of the proposal but are distrustful of NCUA and this week repeated calls for the agency to open up its books on the corporate stabilization program.

NCUA has refused to share comprehensive information on the program with the public or the credit union lobby. But several numbers give a guidepost to the costs eventually to be paid by credit unions.

First, NCUA says even before it took over the five corporates – U.S. Central FCU, WesCorp FCU, Members United, Southwest Corporate and Constitution Corporate FCU – all $5.6 billion of their capital owned by credit unions was erased. As much as $1 billion of capital also was erased from the surviving corporates that had been invested in toxic MBS. That makes $6.6 billion.

In addition, credit unions already have made a $1.1 billion down payment on the stabilization program over the last two years, making a total of $7.7 billion.

Here’s where it gets trickier. NCUA took MBS that the five corporates had valued at $50 billion and sold $10 billion last fall at a steep discount, creating other losses of as much as $2 billion. The agency securitized the remaining $40 billion and sold it in 13 offerings of NCUA Guaranteed Notes for $28.3 billion – suggesting a loss of $21.7 billion on the securitized MBS.

Taken another way, NCUA claimed in the suits it filed against JP Morgan and RBS Securities this week that MBS the two Wall Street banks sold to four of the corporates had 50% of their mortgages go bad, suggesting a loss of 50% on the $50 billion of MBS held by the five corporates.

“My sense is that the final tab is going to be somewhere between $20 to $25 billion,” said Felker, who noted the uncertainty in the figures. “What I do know for sure is that NCUA has consistently underestimated the losses. Consistently.”


 

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Sizing Up the Corporates’ Losses

CU Times - May 31, 2011 • By Robert McGarvey


Buried on page 16 of a recent report from the NCUA’s Inspector General – innocuously titled "Semi-Annual Report to Congress, October 1, 2010 - March 31, 2011" – is this bombshell: “NCUA determined that the Constitution, Members United and Southwest Corporate credit unions’ portfolios were reasonably likely to sustain credit losses amounting to approximately $145 million, $400 million and $980 million, respectively.”

The same report, which sources indicated simply appeared with no notice or fanfare on an NCUA Web page, indicated that losses for U.S. Central and WesCorp are expected to be much higher still.

For now, however, in regard to U.S. Central the NCUA report noted: “We determined U.S. Central’s management and Board failed to recognize the substantial risk they undertook with significant investments in complex mortgage-backed securities collateralized by subprime assets. We also determined management allowed the investments in mortgage-backed products to represent a significant concentration compared to net worth and failed to impose prudent limits in these securities.”

NCUA itself came in for criticism here: “We believe NCUA staff should have recognized the risk exposure that U.S. Central’s significant concentration in mortgage backed securities represented earlier than 2007 and 2008.”

As for WesCorp, the report said: “WesCorp management’s actions contributed directly to conditions that resulted in NCUA placing the corporate under federal conservatorship on March 20, 2009 and an expected loss to the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund) of $5.59 billion.”

Credit union consultant Marvin Umholtz, in reviewing these numbers, noted: “The Constitution loss was higher than anticipated. The Members United seemed lower than expected. The losses taken together are sizable.”

He added: “I don’t think that many people have seen these numbers. They may be surprised when they do see them.”

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CU to become first mutual bank in Australia

BRISBANE, Australia (5/19/11)--Queensland Teachers' CU (QTCU), in Brisbane, Australia, has applied to become the first mutual bank in Australia, according to The Courier-Mail (May 18).

The credit union, which has 70,000 members, applied to the Australian Prudential Regulation Authority (APRA) to change to QT Mutual Bank Ltd. It will need 70% of members to vote on the name change at a special general meeting in Brisbane June 21.

CEO Mike Murphy told the publication that the opportunity to become a mutual bank was created by the federal government's "fifth pillar" reforms to develop a more competitive and sustainable banking system. The credit union is one of the few credit unions meeting APRA's guidelines to use the term "bank," he said.

He said the current name was not resonating with or attracting new members and the credit union could access cheaper wholesale funding once it is rated as a bank. (CUNA News Now)

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Credit Unions Call for NCUA Oversight

GREENBELT, Md. (CU Times - May 10, 2011) — Saying that the NCUA and other regulators are marching toward “regulatory extremism,” the leader of a movement aimed at pressuring Congress to make changes to the NCUA last night outlined the extent of his frustrations with the status quo.
 
“We are pleading with members of the [congressional] committees to place curbs on unregulated regulators who issue unreasonable regulations,” said Alcoa Tenn FCU President/CEO David Proffitt, the coordinator of the Committee on the Declaration of Grievances, during a speech at the Metropolitan Area Credit Union Management Association.
 
“Credit unions are being regulated into mediocrity, or regulated into mergers, or regulated out of existence,” Proffitt said. “We need regulators who have a business sense, who are member-oriented and understand marketing.”
 
Proffitt said the major purpose of the effort is to get lawmakers to provide greater oversight of and direction to the NCUA. He said the agency, and the regulators who promulgate rules such as the Bank Secrecy Act, need to be subject to greater checks and balances.

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Analyst Predicts 11% Capital Minimum Coming

Credit Union Journal  |  Monday, May 9, 2011 By Ray Birch

LAKE BLUFF, Ill.-In the near future credit unions will need to meet an 11% capital minimum to be considered well-capitalized, which could mean job reductions in excess of 50,000 and the end of the independent share insurance fund, according to one analyst.

But not everyone believes the situation will be so dire, although several analysts have withheld expressing an opinion of their own, and CUNA has indicated some sort of increased capital requirements may be in the offing.

Mike Moebs, CEO and economist of Moebs $ervices, told Credit Union Journal that credit union concerns over the Durbin Amendment are small when compared to a looming issue CUs face over the next two years-a need to produce an additional $5.4 billion in annual earnings overall to be considered well capitalized. Moebs said the best way to accomplish the task, with earnings down due largely to corporate assessments, is to cut expenses, including jobs.

Moebs asserted that an 11% capital requirement will be placed on credit unions and makes the bold prediction that the National Credit Union Share Insurance Fund will be rolled into the FDIC.

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Survey Finds Consumer CU Confusion Still Big Obstacle

 
Even after several years of recession which saw widespread consumer rage directed at banks, a third of credit union leaders responding to a recent survey reported that consumer confusion over CU benefits was their biggest challenge in attracting new members.

The survey, sponsored by the Credit Union 24 ATM and POS network, found that roughly 66% of CU leaders surveyed reported that “consumer misunderstanding of credit union benefits over banks” as the leading factor their CUs had to overcome. This is down from the 77% who cited that challenge in 2010 and roughly the same number that cited the challenge in 2009, the network reported.

“Results of our survey show that credit union leaders are feeling similarly to how they did in 2009; however, it also illustrates that credit unions are continuing to face the same challenges that have plagued our industry for many years,” said Jim Park, CEO of Credit Union 24, a Florida-based ATM and debit POS processing CUSO. (CU Times May 2, 2011)

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226 CUs Disappeared in 2010

BY CU Journal - May 2, 2011

Data released recently by CUNA Mutual shows the credit union community has lost 228 CUs over the past year, and 35 so far in 2011. A data revision also found some 226 CUs disappeared in 2010, which was 19 higher than previous estimates. As of the end of Q1, the U.S. had 7,570 credit unions, down from the 24,000 of the 1970s.

The data support what any CFO or ALM committee already knows too well, that savings remain strong and is 4.2% over the past year, including a 1.7% surge in February, while at the same time lending has now declined for six straight months and is down 1.1% over the past year. "Weak member demand for short-term credit and CUs not wanting to hold 30-year fixed-rate assets, are key factors driving this trend," CUNA Mutual said in its analysis.

Total assets are getting closer to the $1-trillion threshold at $948 billion, up 4.0% since February 2010. All those deposits helped push the capital-to-asset ratio down just a bit to 9.9%, while the loan-to-share ratio declined to 70.4%.

As Credit Union Journal reported March 14, membership has actually declined. CUNA Mutual said the number of members was revised lower by 323,000 in 2010, and at the end of February 2011 the number of people who are helping other people was at at 92.7 million. "Annual gains will remain well below trend for the foreseeable future as the importance of relationship pricing increases," said the company in its Trends report.

There is some good news: delinquencies are down a bit across the CU community to 1.681%.

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NCUA Wants to Avoid another S&L Like Crises

LAS VEGAS (CU Times 4-28-2011) — Tackling the current CUSO environment from a number of fronts, the NCUA said Wednesday it wants to do all it can to keep an S&L-like crisis from occurring within the credit union industry.

One measure will be working more closely with state regulators to see get an "overall picture of systemic risk" with CUSOs, NCUA Board Member Gigi Hyland said at the National Association of Credit Union Service Organizations' annual meeting in Las Vegas.

She said state regulators tend to oversee only the areas they have authority over. The NCUA would like to talk to these agencies to get a better handle on what CUSOs are doing, she added.

One concern raised from an attendee was whether regulatory burdens will arise as multiple agencies could potentially have an overlap of authorities. "We don't want to become a mini SEC," Hyland said. "Vendor authority seems like a win-win because we can go in, identify problems and fix them. We don't want to conserve credit unions. We're not in the business to do that."

Gary Kohn, NCUA senior policy advisor, also told NACUSO conference attendees that the S&L crisis is an strong example of what may happen if problems are not identified early on and addressed.

"The question is if we had vendor authority [over some of the recent financially troubled credit unions], would it have prevented some of the losses," Kohn said.

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Repeal of Tax Exemption A Death Knell?

Some Say Credit Unions Would Die, Others Say They Could Still Thrive.

A death sentence for credit unions?  An impetus to change the business model?

Those are among the scenarios offered as possible outcomes if credit unions lose their tax-exempt status.

Congress will be looking at a range of tax expenditures as part of its effort to cut the federal budget deficit. While the amount that could be raised by taxing credit unions would be small–as high as $3 billion per year according to one report–it could cause many credit unions to stop functioning in their current form, argues NAFCU President/CEO Fred Becker.

"They couldn’t continue to exist. They have no means to raise capital and the corporate tax rate is arduous. And taxing revenue that has been put aside as capital raises safety and soundness concerns," he said.

Former NCUA Chairman Dennis Dollar said the change will cause a "wholesale abandonment of the credit union charter" because the bank charter will be "considerably more appealing." (CU Times April 27, 2011)

Editors note: Even if taxation is inevitable, you can bet the NCUA and credit union trades will be fighting to prevent what Dollar called the “wholesale abandonment of the credit union charter." There’s a mountain of evidence for how they have conspired to slow conversions since 2004. Their self-interest is manifold and overwhelmingly transparent.

Hence, as part of a “taxation compromise” with legislators, it’s likely the option to convert charters will be ended or made too costly to consider. The NCUA and credit union trades will rationalize the deal by boasting that “the consumer was rescued” and the potential “ruin” of the NCUSIF prevented.

The American Bankers Association was recently quoted as saying it will drop its objections to alternative capital and business lending for credit unions, seemingly a “compromising” victory in exchange for taxation. Meanwhile, idealistic credit union conversion critics will continue to argue that, with the new powers obtained by the “taxation compromise,” any future conversions can only be motivated by greed.

However, alternative capital structures for credit unions are untested; the jury is still out regarding NCUA's ability to properly supervise business lending; the risks related to the interdependency of the NCUSIF remain as high as the assessments; and poor consumer awareness persists; all combining to hamper the competitiveness of progressive credit unions. It could take a lifetime to work through these and other charter handicaps.

Who will argue to protect the conversion option?

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Callahan’s Chip Filson Wants Credit Unions to Have FDIC Option

In an April 18, 2011 article posted on his web site, Chip Filson, President, Callahan & Associates proposes separating NCUA from the NCUSIF and allowing credit unions to convert to FDIC insurance of accounts. He joins many state chartered credit unions and NASCUS which have raised the issue of separating NCUA from NCUSIF because NCUA hits the NCUSIF for a disproportionate share of the fund revenues for its (growing) budget.

Filson joins many credit union executives who are starting to lobby Congress independent of the trade associations. A credit union group from NC spent $600,000 last year – $1 million the year before. Boeing is leading a group which paid over $200,000 to the Gates law firm to lobby presumably for alternative capital. Other groups are making noise - asking Congress for more oversight of NCUA.

Meanwhile, CUNA is appealing for credit unions to stick together and using its influence to discredit the opposition.  Nevertheless, even the Missouri Credit Union League, a CUNA affiliate, is doing something unusual by hiring its own DC Lobbyist, the former PR person from NCUA.

Not to be outdone, in an effort to protect its regulatory turf, NCUA is equipping itself to fight Filson’s plan and defend itself before Congress. It hired former Congressman Kanjorski’s chief banking committee legislative assistant as its PR guy and political liaison.  (CU Financial Services)
 

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Regulators confirm Har-Co applies for bank charter

BEL AIR, Md. (4/22/11)--The $188 million-asset Har-Co Maryland FCU, of Bel Air, has submitted applications to federal banking regulators to convert to a mutual savings bank, the regulators confirmed to News Now.

Har-Co Maryland FCU submitted an application to the Office of Thrift Supervision for a savings bank charter on March 25. On March 28, it applied to the Federal Deposit Insurance Corp. for deposit insurance.

On Feb. 14, the credit union published a notice to members of its consideration to convert from a federal credit union charter to that of a federal mutual savings bank. On March 16, its board voted to pursue conversion.

At that time, Jennifer M. Simmons, interim CEO/chief membership officer at the Maryland & District of Columbia Credit Union Association, said that while the association's board "firmly believes that the credit union charter provides the best vehicle for serving the financial needs of consumers, we do support the right of member/owners to exercise democratic control of their credit union."

She added, "The association encourages credit unions considering conversion to make their decisions based solely on the best interest of the members and that the credit union provides full, plain language and timely disclosures to the membership so that an informed decision can be made by the member/owners."

Founded in 1955, the credit union serves more than 27,849 members of primarily educational groups. Its notice said it intends "to increase membership and economies of scale" to better serve members and "to preserve its tradition of competitive pricing, plus make it easier to cost-justify adding branches." It also noted a conversion would provide "additional business flexibility" (News Now Feb. 17).

Thirty-one credit unions have converted to banks since 1995. No credit unions converted in 2010 and only one converted in each of 2009 and 2008, according to a News Now analysis (Jan. 14).

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Tennessee CEOs Claim Traction in Protest ‘Declaration’

CU Times - 3-30-2011

A group of credit union CEOs and top managers, mostly from Tennessee and North Carolina, claimed progress Tuesday in winning support from Congress and the industry in a grassroots bid to halt what they said are damaging policies of NCUA and regulatory agencies as they also pursue rescinding the Durbin interchange amendment.

"We do understand that Congress is busy and we want to give each member of the Senate Banking and House Financial Services Committee time they need but we do expect a full read of our Declaration of Grievances," explained David Proffitt, coordinator of the fledgling ‘Declaration’ protest group and president/CEO of the $166 million Alcoa Tenn FCU.

Proffitt maintained that the 32-member "Committee on Declaration of Grievances," which drafted and circulated a sevenpage letter of complaints to lawmakers earlier this month, received its latest evidence of support in emails and phone calls from U.S. Sen. Bob Corker, a Republican.

A spokesperson for the senator acknowledged that the Washington office "has been in touch with them regarding their concerns," noting also that the Tennessee senator had indeed opposed the Dodd-Frank bill. On that score, the spokeswoman said that the senator is actually "sponsoring legislation to stop implementation of the Durbin amendment."

On a broader scale, the Proffitt group, which stresses it is not trying to undermine formal lobbying by CUNA or NAFCU but believes its grievance manifesto demands immediate attention, said also it has received an untold number of phone calls, emails and blog commentary from CEOs across the country supporting its cause.

Meanwhile, CUNA officials have emphasized that they sympathize with goals of the Tennessee group and are anxious to continue a "dialogue" with the committee "so we can work together."

The Alcoa CEO, however, has said that his group, representing many small CUs in the Knoxville area and in North Carolina and Ohio, seeks to pursue an "independent" course because its members feel so strongly about the industry’s current condition.

"We feel our declaration which we took weeks to write sends a powerful message for regulatory change to the Congressional committees as they review this debacle that has taken place over the last two to three years imposed by regulators on our member taxpayers and something that will continue at least another 10 years," forecast Proffitt.

"Our committee recognizes that Congress is the only body which can change what we have described in our declaration, not the trade groups and certainly not the NCUA and other federal agencies," said Proffitt. "Our goal is not to be just a news story representing a group of complainers. These are real and substantive issues that have to be addressed and changed for the financial welfare of our member taxpayers."

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Maryland’s Har-CO FCU Plans Conversion To Bank

Credit Union Journal Daily Briefing  |  Wednesday, February 16, 2011
 
BEL AIR, Md. – Har CO FCU has notified members and NCUA it plans to convert to a mutual savings bank, the first conversion in more than two years.

The $190 million credit union, chartered in 1955 to serve school employees in the Baltimore suburbs of Harford County, told its members it hopes the conversion will increase membership and economies of scale to better meet the current and future needs of our members. Existing and future branch locations would, as bank branches, be permitted to serve and attract almost twice as many citizens as they can now as credit union branches, the credit union said in a notice to members.

The Board has considered that a conversion to a federal mutual savings bank will end Harco’s tax exemption, said the notice. Based upon our analysis and  meetings with consultants, the Board of Directors believes that the  tax impact should be more than offset by the enhanced earnings capacity under the federal mutual savings bank charter and the ability to more effectively serve Har-co’s current and future members. 

The credit union has kept in the black the last few years–but just barely-in the face of the nationwide recession and the growing NCUA charges, reporting a mere $27,000 net for 2008, and just $4,700 in net income for 2009, before a $300,538 net for 2010.

Officials at the credit union were not immediately available for comment.

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For CEOs, 2010 Ended Like It Began – Down in The Dumps

Credit Union Journal Daily Briefing  |  Tuesday, January 4, 2011

PLANO, Texas – CEO confidence at the nation’s largest credit unions hovered in the depths at the end of the year – just as it did in the beginning, according to the Southwest Corporate CEO Confidence Survey.

The overall confidence index held at just 11.21 for the fourth quarter, up slightly from the 10.97 of the third quarter, and the record low of just 7.90 for the first quarter of 2009. In comparison, the confidence index was above 40 in 2005 and 2006.

CEOs continue to express significant concerns about both their members’ and their credit unions’ financial condition, both now and in the future, according to the quarterly survey. In addition, their projections for loan demand fell to zero, a new low, while predictions for share growth continued to surge.

The survey found CEOs in the largest credit unions, those with more than $500 million in assets, were the most pessimistic, a negative 8.33; CEOs in credit unions $100 million to $500 million were the next most pessimistic, negative 6.25; while CEOs in smaller credit unions were more positive. Those in $50 million to $100 million were positive .61; those $10 million to $50 million positive 4.07 and those $2 million to $10 million were at zero.

CEOs in the West and the Northwest showed the lowest confidence, a negative 15; while CEOs in the mid-Atlantic region are very confident of short-term prospects, positive 25. The Southeast showed a positive 1.11; in the Midwest a positive 14.29 and in the Southwest a positive 2.01.

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Aussie CUs seek to add 'bank' terms to regs

CANBERRA, Australia (12/30/10)--Small credit unions in Australia are lobbying for changes in terminology that would include the words "banking," "bank" or "banker" in regulations so they could compete with big banks.

Financial institutions' regulator, the Australian Prudential Regulation Authority (APRA), has called for comments on using the term "bank," according to The Advertiser (Dec. 29). APRA's approval is required for financial businesses to use the terms.

Abacus-Australian Mutuals, a credit union and building society association that is a member of the World Council of Credit Unions, is advocating the change. Abacus CEO Louise Petschler said "banking" should become part of the regulatory language.

The organization supports regulated financial institutions being allowed to market themselves as "mutual banks."
Credit societies, similar to savings and loans, may use "banking" to describe their business. However, only institutions with at least $50 million in special capital can use the term "bank" or "banker" in their business names. (CUNA News Now)

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Desjardins buys Alberta company to expand nationwide

MONTREAL, Que. (12/30/10)--Quebec-based Desjardins Group, Canada's largest credit union, has taken steps to expand nationally throughout Canada with its $443 million acquisition of Western Financial, a bank and insurance company based in southern Alberta.

Desjardins CEO Monique Leroux said the deal, announced Dec. 24, will kick-start its growth in Western Canada. So far, the $175 billion asset Desjardins' operations are located mostly in Quebec and southern Ontario, with a smaller number of branches in New Brunswick and Manitoba (The Globe and Mail Dec. 26).

Western Financial, which began as a collection of insurance brokers in 1996, has 121 offices stretching from British Columbia to Manitoba, and 550,000 banking and investment customers. Its assets will allow Desjardins access to operations across most of Canada. Western Financial will keep its headquarters in High River, Alberta.

The deal was approved by Western Financial's board of directors and is subject to approval of its shareholders. It is expected to be completed in second quarter of 2011. The acquisition includes a $10-million break fee and the assumption of $56 million in debt. (CUNA News Now)

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CUNA Joins in Criticizing CUSO's "No Confidence" NCUA Petition

12/22/2010  -  By Jim Rubenstein
 
CUNA joined the Michigan Credit Union League Wednesday in sharply criticizing an ad hoc petition circulating online this week calling for what were described as a series of “radical” steps to overhaul NCUA operations.

The petition, advanced by the president/CEO of a Grand Rapids, Mich. CUSO and circulated across the U.S. to CEOs and CUSO leaders, calls for Congressional oversight of the NCUA Board and splitting NCUSIF from the agency among other ideas.

In distributing the five-point petition, Randy Karnes, head of the 90-member CU*Answers, called “real debate" and said, "unless we push for real change, nothing will truly evolve.”

In his petition campaign, Karnes also clashed with the president/CEO of the Michigan League, David Adams, who earlier this week sent out his own letter to Michigan CUs calling Karnes' approach “well meaning” but out of line in bypassing the CUNA/league structure.

A CUNA spokesman said “we fully support Dave Adams and the Michigan League on this issue.” 

Adams, in stressing that grassroots lobbying requires a coordinated strategy involving CUSOs and CUs, warned that Karnes' activism might result in “unintended consequences” with lawmakers. If his proposal came to fruition, “we might have two regulatory agencies instead of one and unneeded Congressional scrutiny,” Adams told Credit Union Times. “I applaud Randy Karnes trying to encourage the debate but these proposals are too extreme,” he said.    

Expressing anger at Adams' letter and followup communication, Karnes said he and others in CUs and CUSOs across the country are both dumbfounded and upset at the approach of leagues and CUNA in tackling the corporate crisis. “I believe the industry should have mechanisms that turn anger into resolve,” he said.

“Our associations should be able to do more with the energy of the angry.  They should see it as a signal to change heat-of-the-moment disappointment in the NCUA into changes that will avoid our being disappointed again in the future,” 

He added that CUs “are disappointed in the fact that there is no real hope that the solutions of the future will yield anything other than disappointment should our voices go on unheard.”

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CUs, Small Banks Beat Big Banks in Satisfaction

12/14/2010  CU Times - By Myriam DiGiovanni
 
While customer satisfaction with credit unions has dipped they still fare better overall than big banks.

According to a recent report by the American Customer Satisfaction Index, customer satisfaction with credit unions has dropped down 5% to 80, which puts them in line with smaller banks.  In addition, customer satisfaction with checking, savings and personal loans rose slightly, up 1.3% to 76.
 
The report, which covers customer satisfaction with banks, credit unions, health insurance, life insurance and property and casualty insurance, also found that rapid growth, higher fees and reduced customer service contributed to the lower credit union satisfaction rating.

Among the big banks, Wells Fargo stood out with 73, followed by Citigroup, up 2% to 69, and Bank of America, up 2% to 68.  JPMorgan Chase rounded out the industry, down 2% to 67 and showing a decline for the fourth straight year.

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Deficit Reduction Panel Report Calls for Elimination of CU Tax Exemption

CU Times - 12/1/2010 - By Claude R. Marx

A report that is likely to be voted on this week by a presidentially appointed commission on deficit reduction recommends eliminating business tax expenditures including the tax exemption for credit unions. 

The panel doesn’t mention the credit union tax exemption by name but the report released today describes these expenditures as “another name for spending through the tax code.” 

The report concludes that the changes to tax and fiscal policy are needed because the country is “on an unsustainable fiscal path. Spending is rising and revenues are falling short, requiring the government to borrow huge sums each year to make up the difference. We face staggering deficits.”

When the Treasury Department did an analysis in 2005, it estimated the annual revenue from taxing credit unions would be $1.39 billion while Congress’ Joint Committee on Taxation estimated $1.30 billion. The Tax Foundation, in a study funded by the Independent Community Bankers of America, concluded during that same year that the annual revenues from such a tax could be as high as $3 billion. 

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NCUA Jacks Up Spending For New Round Of Examiner Hires

 
Credit Union Journal Daily Briefing  |  Thursday, November 18, 2010

ALEXANDRIA, Va. — The NCUA Board this morning approved a 12% increase in spending for next year, with most of the increased costs dedicated to additional examiner hires to cope with growing losses among credit unions.

NCUA also estimated growing losses among corporate and natural person credit unions are likely to require credit unions to pay dual assessments of about 25 basis points, or as much as $2 billion next year, about the same as this year. The agency said the dual costs of the corporate bailout and National CU Share Insurance Fund premium are projected to be between 20 bps and 35 bps, with a mid-range of the 26 bps credit unions paid this year.

The spending increase will go to hire an additional 75 examiners, mostly to implement the agency's annual examination scheduling, and comes after NCUA hired about 80 new examiners this year. It will also go to pay average pay raises of 5% for NCUA's 1,200 personnel, with some employees due to earn a smuch as 8% raises. The budget for next year is $225.4 million, up $24.5 million from this year's.

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Ambac Bankruptcy Unwraps More Corporate Losses

Credit Union Journal Daily Briefing  |  Monday, November 15, 2010

NEW YORK – Last week’s Chapter 11 filing by Ambac Assurance, which provides insurance on billions of dollars of mortgage-backed securities held by corporate credit unions, is likely to add to the price tag of the corporate bailout, just as NCUA is trying to get its hands around a loss estimate for the failure of the five corporates.

For the growing woes of Ambac–one of a half dozen troubled bond insurers–means that the insurance coverage, known as a wrap, won’t be available as a growing number of MBS held by the corporates go into default, increasing the losses on those bonds.

“What this means is the loss estimates they (Ambac) used to write these insurance policies were obviously way off the mark and they’re not going to be able to cover the losses,” said Charles Felker, managing director for credit union bond house First Empire Securities and a former corporate examiner at NCUA.

The Ambac bankruptcy comes as NCUA is depositing some $50 billion of bonds held by the five failed corporates–U.S. Central FCU, WesCorp FCU, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU–into trusts then using the cash flows on those bonds to create new securities–known as NCUA Guaranteed Notes. But the financial woes at Ambac and the other major bond insurers, like MBIA, Syncora Guarantee, Financial Security Assurance and Financial Guaranty Insurance Co., means that there will be little or no insurance coverage even after the bonds have defaulted, according to Felker. In fact, Syncora and FGIC stopped paying all claims last year. In its bankruptcy filing, Ambac listed just $1.6 billion in assets and $7 billion in liabilities making it very unlikely there will be funds to pay out the corporates’ claims.

NCUA said last week it still has no firm estimates on losses in the corporate system–projected as recently as Sept. 24 at $16.2 billion–even as it proceeds with the liquidation of U.S. Central, WesCorp, Members United and Southwest Corporate. Several people who have read the prospectuses on the NCUA Guaranteed Bonds suggested that the NCUA loss projections continue to be optimistic and much greater losses are probable.

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Nixing CU Tax Exemption Among Options in Deficit Panel Draft

11/10/2010  By Claude R. Marx CU Times
 
A draft proposal of a report by a presidentially appointed deficit reduction panel includes an option that would eliminate many tax exemptions, including the one for credit unions.

The report doesn’t cite credit unions by name but suggests eliminating “all $1.1 trillion in tax expenditures.’’

It does, however, cite other tax deductions that should be eliminated, including one for mortgage interest.

The Congressional Budget Office estimates that taxing credit unions would generate about $8 billion per year.

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FDIC: Under $10 Billion Banks to pay only 5-9 Basis Points in Deposit Premiums

The FDIC board of directors today voted to impose parity in the deposit-insurance system by basing the assessment base on total assets minus tangible capital instead of domestic deposits.  Reforming the deposit-insurance system will bolster the FDIC Deposit Insurance Fund and lower premiums for community banks.

Most small community banks, under $10 billion, will only pay pre-tax 5-9 basis points (3.25 to 5.85 basis points after tax) in deposit premiums, instead of the current base rate schedule of 12-16 basis points.

Under the current system, banks with less than $10 billion in assets pay approximately 30 percent of total FDIC premiums, even though they only hold 20 percent of total bank assets.  Updating the system will lower assessments for 98 percent of these banks, saving community banks roughly $4.5 billion over the next three years.

Editors Note: As of 11-18-2010 credit unions are expected to pay 20 to 35 basis point vs. the banks 3.25 to 5.85 basis points estimate.

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CU Times: "Qualified Board Members Should Be Paid"

All the responsibilities put on a credit union board necessitates that regulations should allow for credit unions to have the option to pay their board members. For their work, qualified board members should have the option to be paid.

The word qualified is important. I’m not saying credit unions should just start paying their board members. Credit unions need the right board members, who may very well be existing board members, and then they should pay them. That would go a long way to attracting knowledgeable and effective board members.
 
The credit union philosophy is not for profit, not for charity, but for service. Credit union board members take on a lot of work and responsibility and it is completely justified that they should be compensated for that. 

CU Times - October 28, 2010
 

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FDIC Takes the Long View in New Rate Plan

American Banker  |  Wednesday, October 20, 2010 | By Joe Adler 

WASHINGTON — The Federal Deposit Insurance Corp. assessment plan released Tuesday was a mixed bag for bankers as the agency canceled a planned 2011 premium increase but proposed a record high target for federal reserves.

In light of the beating the Deposit Insurance Fund took during the financial crisis, the agency plans to raise its target ratio of reserves to insured deposits to 2%, 65 basis points above the statutory minimum. The move was designed to ensure that the fund does not go broke again if another banking crisis arises.

But on the flip side, FDIC officials sounded willing to take their time in building the fund to such a level, rather than charging dramatically high premiums in the short term. They said the fund would not reach the 2% threshold until 2027, at the earliest, based on projected assessment rates.

The FDIC also scrapped its plan to raise premiums by 3 basis points next year, noting that Congress had allowed it more time to rebuild the battered fund and that projected losses from bank failures had dropped.

FDIC officials said they will seek to reduce premiums — most banks now pay 12 to 16 basis points — over time and settle at a small, steady premium.

 "I am pleased that we are able to provide some assessment rate relief now in light of our lower loss projections," Bair said in a press release.

Industry representatives hailed the news. "Simply put, the FDIC's decision to forgo the premium increase means that banks will have $2.5 billion every year that can now be used for loans in their communities," said James Chessen, the chief economist of the American Bankers Association.

Under the proposal, the FDIC would start lowering rates when the fund reached 1.15%. The range of rates for most banks, now 12 to 16 basis points, would fall to between 8 and 12 points. After the fund reached 2%, the FDIC said the base assessment rate should drop by 2 cents, to between 6 and 10 basis points. If the fund reaches 2.5%, the FDIC called on premiums to fall another 2 basis points, to between 4 and 8 cents per $100 of domestic deposits.

The agency must also complete other rulemakings that will affect assessments, including a plan to ensure that the increase of the mandatory minimum to 1.35% does not burden community banks.

The FDIC also is expected to issue a rule this year that would charge assessments based on an institution's total liabilities, instead of just its deposits. It said the effect of that rulemaking would probably change the amount banks pay in coming years.

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NCUA Board Tightens Exemptions For Well-Capitalized CUs

October 22, 2010 - CU Times -  By Claude R. Marx
 
ALEXANDRIA, Va. -- Well-capitalized CAMEL 1 and 2 federal credit unions will have stricter rules on fixed assets, stress testing and member business loans, as a result of the NCUA Board’s decision today to change regulatory flexibility in several areas. 

On a 2 to 1 vote, the board voted to eliminate the exemption from the rule banning FCUs from investing more than 5% of their shared and retained earnings in fixed assets; eliminate the exemption from the rule requiring FCUs to obtain the liability and guarantee of the borrower’s principals when making a member business loan; eliminate the exemption from the rule requiring stress tests to determine the impact of a 3% increase or decrease in interest rates; and eliminate the exemption from the existing rule which limits the delegation of discretionary control to third parties over the purchase and sale of investments of up to 100% of net capital.

NCUA CFO Mary Ann Woodson told the board that the NCUSIF made $6.2 million in September but has lost $563.7 million this year. The agency had projected a $54.7 million loss for September and a $491.4 million loss for the first nine months of 2010.

Because of the growing number of troubled credit unions, the agency’s insurance loss expense has been $643.1 million this year, compared with a $562.5 million projection. 

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Complete Accounting Demanded Of U.S. Central Failure

Credit Union Journal Daily Briefing  |  Friday, October 22, 2010

WASHINGTON – NAFCU said yesterday it was unsatisfied with a 28-page report detailing the failure of U.S. Central FCU and demanded a complete accounting of why the one-time $52 billion corporate failed, costing credit unions as much as $7 billion.

NAFCU President Fred Becker expressed continued frustration and renewed the call for complete and total accountability on behalf of natural person credit unions for why U.S. Central failed and why the NCUA itself – despite having examiners onsite – did not foresee problems and respond sooner to avert the largest collapse in credit union history. “Given the nature and extent of these losses, virtually unlimited resources should have been provided to the Office of Inspector General to determine the cause of this loss,” said Becker, referring to the Material Loss review released yesterday. “Unfortunately, the 28-page report issued today reveals very little new information and frankly does not provide much guidance for fixing what went wrong.”

The report blamed NCUA examiners, as well as the U.S. Central management and board, but makes no recommendations for disciplinary actions and mentions no names. To date no one has been disciplined or fired by NCUA over the biggest credit union failure ever.

CUNA, which controlled the board of U.S. Central, with two of its nine seats, including one reserved for CUNA President Dan Mica and one for CUNA’s state league affiliates, did not comment on the report yesterday.

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Problems Over? No, Says One Analyst

Credit Union Journal  |  Monday, October 4, 2010 | By Ray Birch, Reporter

Special Report: Corporate Rule

LAKE BLUFF, Ill.-The economist who accurately predicted the cost of the corporate rescue continues to believe NCUA's corporate assessment plan will not work, and that the corporate credit union system will not be around in the next three to five years.

In fact, that same analyst is predicting the Federal Reserve will eventually have to step in to help credit unions.

In an interview with Credit Union Journal that appeared in the July 19 issue, Mike Moebs, CEO/economist of Moebs $ervices, projected the price of the corporate bailout would be $17 billion-more than twice NCUA estimates at the time and less than $1 billion off the total recently announced by the regulator. Moebs made the prediction after his firm combed for months through data, including examining the PIMCO assessments, call report data from hundreds of CUs and banks that have gone under, and by working with private equity firms to gain a firm handle on the true state of the housing market.

Moebs based his latest observation that the NCUA's assessment plan will fail and the Fed will step in, eliminating the role of the corporates in the process, based on the price tag for the corporate relief. Despite natural-person CU payments being stretched out, the cost will be too great for credit unions to bear.

"These assessments will kill the credit union system," Moebs told Credit Union Journal. "The Fed will step in when they see too many credit unions, especially smaller ones, go under."

Moebs believes the Fed will take over the service role of corporates, and should turn to private equity, not taxpayers, to cover the cost of the legacy assets, likely an additional $10 to $15 billion.

"I don't think the corporates are viable anymore, just as I do not believe Fannie Mae and Freddie Mac are viable anymore," asserted Moebs. "The Fed has to step in and stabilize the corporate problems and eventually bring in the private sector, in the form of private equity, to assist in effectively getting past this problem. Then Fed needs to take over the role of securitization."

Moebs said securitization needs to be redefined, in the context that there will be guaranteed securitization (the Fed) and non-guaranteed securitization (private sector). Private sector securitization will come with a higher charge. "That's where all this is going," said Moebs. "Do this, and this mess gets cleaned up in five years, maybe as little as three years."

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NCUA Launches Campaign To Quell Consumer Concerns About CUs

Credit Union Journal Daily Briefing  |  Wednesday, October 6, 2010

ALEXANDRIA, Va. – NCUA Chairman Debbie Matz on Tuesday began a nationwide radio campaign to alert consumers of the full faith and credit of the federal government insuring their credit union deposits, part of a comprehensive effort by NCUA to tamp down worries about the nation’s credit unions.

Matz’s radio spots, part of the agency’s "Keep your money NCUA-safe" campaign, coincides with the launch of NCUA TV commercials, featuring nationally known consumer financial expert Suze Orman, and comes as the credit union system is being besieged by negative publicity related to the growing costs of the corporate credit union bailout.
 
The unprecedented NCUA public relations initiative comes amid headlines across the nation proclaiming credit union bailouts and intensified concerns among credit union members of the growing costs of the corporate bailout and of efforts to replenish losses by the National CU Share Insurance Fund.

NCUA and the credit union system hope the growing crisis does not cause a panic among credit union members and the general public. CUNA reported this week that $5.6 billion in deposits flowed out of credit unions in August after $3.7 billion in deposits flowed out in July – a total of $9.3 billion over two months.

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Secondary Capital Not a "Magic Pill"

Credit Union Journal Daily Briefing  |  Friday, October 1, 2010

SAN ANTONIO – Secondary, or supplementary, capital for credit unions has been a longtime goal of the National Association of State Credit Union Supervisors, but its likelihood seemingly has been a long way off. But now the group feels it’s closer than ever to becoming reality.

“We still have to work with Congress, Treasury and the NCUA,” said NASCUS President Mary Martha Fortney. “But CUNA and NAFCU are on board.”

NASCUS Chairman Tom Candon, who is Vermont’s state regulator, noted House Banking Committee Chairman Barney Frank has indicated an interest in the issue, and asked where NCUA stood on it. NCUA has supplied a letter to Frank indicating its support. Separately, NCUA board member Gigi Hyland recently oversaw a working group’s white paper on the topic, as well.

“We keep trying to educate on this issue,” said Fortney. “It is not for every credit union and it’s not a magic pill. And even if we got supplemental capital today it would be another year and a half before it was available to be put in place.”

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CUs Urged To Rethink NCUSIF, 1% Deposit

Credit Union Journal Daily Briefing  |  Friday, October 1, 2010

SAN ANTONIO – A provocative challenge has been made to credit unions when it comes to their deposit insurance fund.

John Annaloro, president of the Washington CU League, said many of the rules NCUA has in place for the National Credit Union Share Insurance Fund, along with PCA, helped contribute to the losses the fund has seen as the result of both the corporate meltdown and the failure of hundreds of natural-person credit unions. “The NCUSIF withstands systemic shocks very, very poorly,” said Annaloro. “Someone keeps changing the definition of what deposit insurance means. There’s mission creep here. It has gone from protecting deposits to protecting reputational risk. There is insufficient elasticity in the safety net.”

Annaloro called for a fresh start that would include looking at how other countries structure their deposit insurance coverage, and that credit unions consider a “switch away” from the 1% on deposit model CUs currently use to fund the NCUSIF in favor of the FDIC model. “(The 1% deposit) was OK in the day when all CUs were basically savings clubs that didn’t do much. But now they are more sophisticated, with downstream operations, and there is an unfair imposition of loss exposure.”

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CUNA white paper: CU alternative capital a top priority

WASHINGTON (9/29/10)--The Credit Union National Association (CUNA) has developed a comprehensive white paper on capital reform for credit unions, a topic whose importance has only increased by the nation's recent years of economic upheaval and the current focus on Basel III proposed international capital standards.

"Reduced capital ratios at credit unions, strong headwinds against net income, and an interest by policymakers in increased capital at most types of financial institutions all point to the heightened need for alternate capital for credit unions," the detailed report notes in its introductory paragraphs.

It goes on, "Without access to additional forms of capital, many credit unions will be forced to curtail the growth of member service and burden members with higher loan rates and fees and lower dividend rates for years to come."

CUNA's Governmental Affairs Committee this week accepted the report and identified alternative capital as one of credit unions' top legislative issues in the coming Congress.

A credit union's only source of capital is retained earnings. It is CUNA's longstanding policy to support the authority of credit unions to build additional capital, either from members or nonmembers, in a way that does not dilute the cooperative ownership and governance structure of credit unions. This additional capital should be subordinated to credit unions' share insurance funds, so that credit unions have the financial base to offer member services and adjust to fluctuating economic conditions, according to CUNA. (CUNA News Now)

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Price Tag For Corporate Bailout Soars To $16 Billion

Credit Union Journal Daily Briefing  |  Monday, September 27, 2010

ALEXANDRIA, Va. – NCUA, which a year ago had pegged the cost of the corporate credit union bailout at approximately $7 billion, last week said the projected cost to credit unions has escalated to as much as $16.1 billion.

The latest price tag, which will be paid by natural-person credit unions over as long as 12 years, includes $5.5-billion of corporate credit union capital eliminated by losses in the corporate system and $1.3 billion already paid by credit unions last year and this year as a so-called stabilization assessment. That leaves credit unions looking at a bill of some $9 billion moving forward.

The much larger corporate bailout expenses come as credit unions are expected to make annual payments to replenish the reserves in the National CU Share Insurance Fund, which are being depleted by growing losses among natural-person credit unions. NCUA has charged credit unions more than $2 billion last year and this year to replenish NCUSIF reserves and has projected additional charges for the next few years.

The continuing costs are projected to push thousands of credit unions into the red, force dozens to fail and accelerate the pace of mergers that has slowed over the past three years. In addition, while NCUA Chairman Debbie Matz insisted Friday that no member will lose any of their insured credit union deposits, many will be driven away from their credit union by the lower rates credit unions will be forced to pay on their deposits.

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Loan Growth Falls To Historic Lows


Credit Union Journal Daily Briefing  |  Wednesday, September 8, 2010

WASHINGTON – Credit union lending has all but dried up, even with interest rates plunging to new lows, leaving new challenges for credit unions to attract borrowers.

Monthly data complied by CUNA from almost 500 credit unions showed total credit union loans declined by 0.1% during July, and have declined by almost 1% for the first seven months of the year.

That’s the first time in almost 30 years credit unions have had negative loan growth through the first seven months of a year, according to Bill Hampel, chief economist for CUNA, who predicted the weakest year for loan growth since World War Two. “That’s why this recovery is so weak,” said Hampel.

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CU Chairman: (The Federal Community Charter) "is basically dead"

NCUA's Vantage Conversion Denial May Head to Court 
9/20/2010  By: Jim Rubenstein; CU Times
 
The NCUA's contentious denial last week of a federal conversion charter sought by the $654 million Vantage Credit Union of Bridgeton, Mo., could soon head to a federal court, it was disclosed Monday.

The possibility of litigation on the two-year-old community charter case by Vantage regarding its attempt to broaden its bi-state field of membership was raised by Hubert Hoosman, its president/CEO, who charged that the NCUA board made serious and "very troubling errors with broad injury to multiple community charters everywhere."

The federal multiple community charter, he concluded, "is basically dead" based on the NCUA's 2-1 board decision Sept. 16 upholding the Region IV director’s denial of the application.  According to the NCUA, Vantage as part of its conversion application had requested to include the city of St. Louis and seven additional counties, four in Missouri and three in Illinois.

The Vantage decision has drawn wide industry interest for its impact on interstate FOM expansion and, as one Washington lawyer put it, "Vantage unfortunately got caught between two recent rulings on community charters."

"Look, this case is so sensitive we can't even discuss it," quipped one East Coast consultant who tracks NCUA regulation and compliance.

In his e-mailed statement, Hoosman expressed deep disappointment at the ruling. "The future of federal chartered FOM memberships consisting of multiple communities is dead and credit unions just haven't realized it yet," he said. "Unless you are applying for a single county, single municipality or an extremely well defined rural district, you're dead from multiple community federal charter perspective."

"This is a great way to keep our banker friends happy," he added.

Due to the conservative interpretation of the new community charter rules, he went on, "the future of community charters involving multiple communities are almost totally in the hands of state regulators."

"I'm sure there will be exceptions for federal charters," he said. "My greatest fear is after the economy rebounds, progressive credit unions will get frustrated with the new standards, and seriously consider alternative charters as a means of developing a healthy growth strategy to better serve members."

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Presidential Tax Report Recommends Taxing CUs

8/30/2010 - CU Times - A report from the Presidential Economic Recovery Advisory Board on simplifying the tax system has included a recommendation to tax credit unions.

The board is an “outside advisory panel” that was charged with making recommendations for changes in the current tax system “to achieve three broad goals: simplifying the tax system, improving taxpayer compliance with existing tax laws, and reforming the corporate tax system,” the report said.

The report included the recommendation as part of its set of overall suggestions on how to reform the corporate tax system. Reports in previous administrations have made  similar recommendations.“Unlike other financial institutions like banks and thrifts, credit unions do not pay corporate taxes on their income,” the report said. “This puts them at a competitive advantage relative to other financial institutions for tax reasons. Eliminating this exemption would raise revenue and level the playing field, but would clearly raise taxes on credit unions.”

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Australian Credit Unions Pay Both Taxes and Volunteers

LAS VEGAS — July 21, 2010 - Australian credit unions pay both taxes and volunteers. However, like in the U.S., the loss of interchange income is a sore subject.

Louise Petschler, chief executive officer of Abacus-Australian Mutuals, the country’s national credit union trade organization, shared unique aspects of her country’s system during a general session. She was joined on a panel by CUNA Chief Economist Bill Hampel and Herve Guider, general manager of the European Association of Cooperative Banks who hails from Belgium.

Australia’s credit union volunteers are paid because "they take on very serious obligations, and we expect a lot from them," Petschler said, adding the posts can be as time consuming as a full-time job. 

Both Petschler and Guider said credit unions in their systems are regulated and taxed just like banks, unlike in the U.S., where Hampel said tax-free status consistently rates as the top legislative concern in CUNA membership surveys.

Taxes "had a big impact on profitability initially" when enacted in the early 1990s, Petschler said, but now the expense is managed as a part of regular operations. (CU Times)

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PCUA Appeals to the NCUA: ‘Spread Out Assessments’

CU Times - 7/13/2010 - By Jim Rubenstein

The Pennsylvania Credit Union Association formally complained this week about the NCUA’s assessment schedule urging the agency to use its discretionary power to spread out the assessments over the maximum period of time allowed by law.

This way “we can catch our breath,” said the association whose board adopted a formal resolution on the NCUA policy during a Sunday meeting.

“The association board recognizes that the NCUA has discretion regarding the operating level of the National Credit Union Share Insurance Fund and it works to the benefit of all credit unions if the NCUA utilizes that discretion,” said the resolution issued by  Ray Brunner PCUA chairman and president/CEO of West-Aircomm FCU of Beaver, Pa.

“In this challenging economy, Pennsylvania’s credit unions feel strongly that the NCUA should use its discretion to minimize the negative impact of its assessments on individual credit unions,” he added.

A spokesman said the PCUA leadership felt a need “to make a statement now about these assessments which keep coming” and its negative impact on the industry.  The spokesman said he was unfamiliar with any other similar resolutions adopted by state leagues.  The PCUA position was included in the trade group’s daily e-mail bulletin distributed Tuesday.

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NCUA Actions Spur More CUs To Shrink, Rather than Grow

Credit Union Journal Daily Briefing  |  Wednesday, June 23, 2010

ALEXANDRIA, Va. — Increasing numbers of credit unions are choosing to cope with NCUA's huge assessments by pushing down their asset size, instead of growing, in order to maintain their critical net worth ratios. They are doing this by managing their savings rates, in most cases, lowering rates in order to discourage new deposits or encourage marginally profitable depositors to withdraw funds.

"We've changed Patelco's strategy from being a rate leader in the market," in order to lower the denominator for the net worth ratio, said Scott Waite, chief financial officer for the San Francisco credit union giant, which has consciously reduced its assets from a high of $4.2 billion a year ago to $3.7 billion at the end of the first quarter.

The shrinkage has succeeded in pushing up Patelco CU's net worth ratio from 8.27% at mid-year 2009 to 9.54% at the end of May, even as total net worth has remained almost the same, according to Waite.

Other credit unions, healthy and not so healthy, are duplicating this anti-growth strategy as they expect NCUA's assessment last week of $1.1 billion for the corporate credit union bailout, and again later this year to replenish the National CU Share Insurance Fund, to eat away their net worth, pushing some of them further into prompt corrective action.

In announcing the $1.1 billion corporate assessment last week, NCUA said it will reduce the average credit union's net worth by about 13 basis points and push as many as 1,086 credit unions into the red for the second quarter when they are required to accrue the expense, and as many as 552 credit unions into the red for the year.

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Charge For Corporate Stabilization Is Anything But Stabilizing

Credit Union Journal Daily Briefing  |  Tuesday, June 22, 2010
  
ALEXANDRIA, Va. – Hundreds of credit unions are expected to be driven into the red and dozens will be forced into a net worth restoration plan as a result of the $1 billion corporate credit union stabilization charge assessed by NCUA last week.

“Some of our credit unions are getting beaten up,” said Cliff Rosenthal, head of the National Federation of Community Development CUs, of the member credit unions that are already teetering on the verge of undercapitalization.

According to NCUA, which approved the charge to repay coats accrued by its Corporate CU Stabilization Fund, the charge will push 1,062 credit unions into the red for the second quarter, and force 552 credit unions with positive net income for the first quarter into the red for the year.

At least 63 credit unions will be pushed under the 7% net worth mark, subjecting them to oversight by NCUA and 27 credit unions may be forced under 6%, forcing them to provide a net worth restoration plan to NCUA.

Credit unions big and small will feel the pinch

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Mica: Interchange amendment hurts CU capital condition

WASHINGTON (5/24/10)-- (CUNA News Now) - In a Friday letter sent to U.S. Treasury Secretary Tim Geithner, Credit Union National Association (CUNA) President/CEO Dan Mica said that Sen. Richard Durbin's (D-Ill.) interchange amendment would "not only exacerbate" capital pressures for many credit unions, "but also will severely limit the ability to build and maintain capital of all the approximately 5,000 well-capitalized credit unions that offer debit cards."

The letter noted that CUNA has "tried hard to avoid emotionalism and hyperbole in the deliberations regarding the regulatory restructuring bill." However, Mica said, "It is no exaggeration that the impact of the interchange amendment will be severe across the credit union system and will result in limiting consumer choices in some areas."

Mica also called for more "meaningful capital reform" for credit unions to grant credit unions "a better definition of capital and mechanisms to raise additional capital."

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Bullish Indicators Abound in FDIC Quarterly Banking Profile

American Banker  |  Friday, May 21, 2010 | By Joe Adler 

WASHINGTON — After a string of quarters marked by bad loans and tepid earnings, the Federal Deposit Insurance Corp. shared some genuinely upbeat news Thursday, suggesting the industry is headed toward recovery.

Banks slashed their loss provisions in the first quarter by 18%, which, combined with a 3% drop in noninterest expenses, helped drive the industry's best earnings performance in two years.

"The positive signs I've outlined today suggest that the trends continue to move in the right direction," FDIC Chairman Sheila Bair said in releasing the Quarterly Banking Profile.

The $18 billion quarterly profit was a turnaround from the end of 2008, when losses neared $40 billion. While officials said credit distress is still a reality — 73 banks were added to the problem bank list — they signaled more optimism for the future, including more lending.

"As banks and thrifts continue to strengthen their balance sheets, they are putting themselves in a better position to meet the growing demand for credit that is being generated by a recovering economy," Bair said.

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Losses Surge at NCUSIF

Credit Union Journal Daily Briefing  |  Thursday, May 20, 2010

ALEXANDRIA, Va. — NCUA had more bad news for credit unions this morning, announcing it has added eight more credit unions to its troubled list and set aside an additional $170 million to cover losses at natural person credit unions.

The additional reserves cut the reserve ratio for the National CU Share Insurance Fund and, with two other negative indicators, point to a higher premium assessment later this year, agency officials said during the NCUA Board's monthly meeting. The other negative indicators are significantly lower interest earnings on the NCUSIF's $9.4 billion in Treasury securities and high share growth of 11% for the first quarter of the year, which would cause to greater dilution of reserves later in the year.

NCUA had originally budgeted $750 million for losses in natural person credit unions, but the additional reserves increased that pot to $896 million.

Melinda Love, chief examiner for NCUA, warned of increasing losses as the condition of some of the deteriorating large credit unions becomes clearer. "There is an increasing potential that $750 million will not be sufficient to cover the potential losses (of those troubled large credit unions)," said Love. "We'll know more about losses at the big credit unions later in the summer."

The losses by natural person credit unions are one of the two components that will figure into a special assessment credit unions will be charged this year, with a separate payment assessed to fund the ongoing corporate credit union bailout.

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NCUA Officials Offer Bleak News on Finances

5/20/2010  CU Times - By Claude R. Marx

ALEXANDRIA, Va. — There is a good chance that the reserves set aside for losses in the NCUSIF “won’t be sufficient,” to cover the losses at some of the large credit unions, NCUA Office of Examination and Insurance Director Melinda Love told the NCUA Board today.

And Deputy Executive Director Larry Fazio told the board that the assessments from the Temporary Corporate Credit Union Stabilization Fund will be affected by the timing and amount of bond defaults within corporate credit unions, with current estimates calling for $7.6 billion in defaults over the next two years.  The stabilization fund has $6.4 billion set aside for current estimates of losses that would be incurred by the fund over the life of the securities, and must repay the Treasury Department $690 million in outstanding borrowings.  Congress gave the NCUA a $6 billion line of credit last year but the agency has only used $1 billion to date.

Love said the financial reports of credit unions have shown “very mixed results.” While the increase of CAMEL 3, 4 and 5 credit unions has slowed, some of the larger credit unions have continued to experience difficulty because of the economy’s difficulties.

She added that the agency’s staff needs to review second quarter results before determining what assessment level to recommend to the full board and the recommendation will come to the board this fall.

Through April, the NCUSIF had lost $138.1 million this year, although that is lower than the projected $218 million loss that the agency projected. But the agency has increased its reserve balance to $896.3 million, from $726.7 at the beginning of April.

Fazio said that the staff will have a recommendation on the assessment for the TCCUSF this summer.
NCUA Chief Financial Officer Mary Ann Woodson told the NCUA Board that 19.25% of insured shares were in credit unions with a rating of CAMEL 3 of higher at the end of April, compared with 19.5% at the end of February. The NCUSIF equity ratio was at 1.24%, compared with 1.26% at the end of March.

There have been 12 failures of federally insured credit unions this year, compared with 28 in all of 2009.

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Auditors Express Doubts On Corporate CUs As ‘Going Concerns’

Credit Union Journal Daily Briefing  |  Thursday, May 20, 2010

WARRENVILLE, Ill. – Losses for corporate credit unions continue to pile up at an accelerated pace, raising doubts about the corporates’ ability to continue as “going concerns” and new questions about whether NCUA will be forced to go back to Congress and seek additional assistance for the corporate bailout.

Growing losses at Members United Corporate FCU have eliminated almost all of the $9.5 billion corporate’s member capital and “raise substantial doubt about Member United’s ability to continue as a going concern,” the corporate’s auditors McGladrey & Pullen LLP, stated in the newly released audit for 2009.

Auditors have already raised “going concern” doubts about U.S. Central FCU and WesCorp FCU, which have been under NCUA conservatorship since March 2009.

Similar going concern doubts were expressed in recent days by auditors for Constitution Corporate FCU, Southwest Corporate FCU and several other corporates as losses in the system continue to expand. Southwest Corporate reported that its growing losses and diminishing capital raise substantial doubt about Southwest Corporate’s ability to continue as a going concern.

Auditors for First Carolina Corporate CU, which has reported diminishing capital, said “there is uncertainty about whether the Credit Union will be able to restore capital to a level necessary to meet the requirements of the new regulation.”

“These letters by the auditors are saying the situation is likely to get worse,” said Charles Felker, vice president at credit union bond house First Empire Securities and a former chief investments officer at NCUA, who urged the agency to seek additional assistance from Congress. “I’m wondering when NCUA will go to Congress and say ‘we need a bailout.'"

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Anheuser-Busch Employees’ CU to Serve Bank Customers

 
5/6/2010  - CU Times -  By Michelle Samaad
 
In a move rarely seen in the industry, Anheuser-Busch Employees’ Credit Union has signed an agreement allowing it to serve the retail and business customers of Stifel Bank and Trust. 

The $1.2 billion ABECU in St. Louis, Mo. signed a purchase and assumption agreement with the bank that will allow it to offer 550 customers the same services available to members including branch and ATM network access beginning May 1. The CU will continue to offer business account services that Stifel Bank offered its business clients before the agreement. Those products include one to four family investment properties, business mortgages, lines of credit, installment loans, checking, interest checking and certificates of deposit and business investment funds.
 
ABECU Senior Vice President of Marketing and Business Development Pier Alsup said the credit union was interested in the acquisition because it allows the CU to enter the business loan sector with an established book of business.

ABECU also purchased the bank’s building for an undisclosed amount where its name will replace the Stifel Bank name. The full-service location in Crestwood, Mo. will become the CU’s ninth branch. ABECU and its division, American Eagle Credit Union, currently operate 27 branches nationwide.

According to its website, Stifel Bank was organized in 2001 and chartered in January 2002 by the Missouri Division of Finance. Its board of directors includes 11 local business owners.

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Survey: Ignorance, Lack Of Sales Culture Haunt CUs

Credit Union Journal  |  Monday, May 3, 2010 | By Michael Bartlett

TALLAHASSEE, Fla.-Credit unions' reluctance to embrace "sales" has also caused many consumers to remain unaware CUs are a better deal than banks.

Data from a survey conducted by CU 24 before and during CUNA's Government Affairs Conference earlier this year found 77% of credit union leaders cited consumer misunderstanding of credit union benefits over banks as the greatest challenge in attracting new members. Last year, that figure was 67%.

"I've been around credit unions for a long time and it [consumer misunderstanding of CUs] has always been a challenge," said Jim Gowan, EVP and chief operating officer. "As they expand their charters, they are discovering the importance of marketing and advertising. Unfortunately, in this economic environment, marketing budgets have been cut."

Growing awareness will grow marketshare, noted Gowan. Gowan blamed a lack of a sales culture at many credit unions for this continuing issue, with many still uncomfortable with the word "sales."

"But I say if a credit union doesn't educate its members what is available, it is doing its members a disservice. If it does a good job of educating members, members will see the value."

Weak branding efforts and/or the name of a credit union sometimes can imply to a potential member they cannot join, Gowan said. While some CUs address that gap via their website, but they still have to drive the members to the site, he noted.

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Blevins: Hopeful CEOs “Experiencing Corporate Kool-aid Withdrawal”

4/30/2010  CU Times - By Heather Anderson
 
D. Henry Blevins, managing director at Crews & Associates, said credit unions should be concerned unexpected gains from securitized corporate assets would not be returned to their balance sheets.
 
But, he added, it’s a moot point.
 
Blevins called underperforming corporate investments “toxic waste”, and said CEOs expecting gains are “experiencing corporate Kool-aid withdrawal.”
 
The Little Rock, Ark.-based investment banker said his 50-plus credit union clients worry aloud that rising costs of corporate stabilization will prompt “the end of the current credit union era as we know it.”
 
“The NCUA is between a rock and a hard place,” he said, because half of all federally insured credit unions reported negative net income as of 2009 year-end. The burden of corporate losses is already too great for credit unions to carry, he said.

 “The not-for-profit credit union charter is remarkable, but many credit unions can no longer afford the costs associated with being not-for-profit,” he said. “The NCUA was present at both WesCorp and U.S. Central. Now NCUA must engage in some creative accounting and a ‘bad asset’ bank to hide the unintended consequences of their failure to adequately monitor and examine the corporates.”

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NCUA Extends Emergency Forbearance for Corporates

Credit Union Journal Daily Briefing  |  Thursday, April 29, 2010

ALEXANDRIA, Va. — The NCUA Board voted this morning to extend an emergency order essentially allowing corporate credit unions to ignore the agency's minimum capital standards until the end of 2011.

The order will allow corporates to operate at the capital ratios they had at November 2008, before the failure of U.S. Central FCU wiped out as much as half of all corporate capital, putting all but three of the nation's 28 corporates in violation of regulatory capital minimums.

The extension will allow the corporates to operate at their current diminished capital levels until a year after NCUA's new corporate regulation becomes effective, which is not expected until later this year.

NCUA Chairman Debbie Matz said the extension of the forbearance on corporate capital is necessary in light of ongoing diminishment of capital among the corporate, which she said poses a "continuing threat" to the entire credit union system.

The extraordinary order comes as at least three corporates, U.S. Central, WesCorp FCU and Constitution Corporate FCU, have had all of their capital eliminated, and several others are preparing to report a similar depletion of all capital.

Also this morning, NCUA reported it has increased the loss estimates on U.S. Central and WesCorp., the two corporate giants it has been running under conservatorship since March 2009, by $1 billion.

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CUs Brace For Next Hit From NCUA

Credit Union Journal Daily Briefing  |  Wednesday, April 28, 2010

WASHINGTON – Credit unions around the country are starting to set aside reserves for what they expect will be another large assessment from NCUA later this year – maybe as much as $4 billion to pay costs associated with the ongoing corporate bailout and for the failure of several large credit unions.

NCUA has warned credit unions it expects to follow up last year’s $1.1 billion assessment, or 15 basis points, with an assessment of between 15 bps to 40 bps this year, which could amount to as much as $4 billion. Last year’s assessment forced many marginally profitable credit unions into the red for the year, with half of all credit unions reporting losses for 2009.

NCUA is expected to set a definitive assessment later this summer after it has better information on the costs of natural person credit union failures, which it will combine with the growing costs of the corporate bailout.
NAFCU’s Wai recommended that credit unions having a difficult year begin to establish a reserve as early as possible. “If you are in a situation that your earnings are not so great you need to set aside some reserves so when the bill comes due you’re ready, kind of like a prepayment plan,” he told Credit Union Journal.

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NCUA Cites Defense CU For Violating Its Field Of Membership To Foster Growth

Credit Union Journal Daily Briefing  |  Tuesday, April 20, 2010
 
SAN ANTONIO – In a rare supervisory action, Air Force FCU has agreed to divest itself of loans and deposits associated with members that were added to the credit union’s rolls in contravention of its field of membership.

Under a letter of understanding agreed to with NCUA, the $335 million credit union has agreed to divest itself of all unqualified members, to set new documentation on how a member qualifies for membership, and to notify its bond insurer, CUNA Mutual Group’s CUMIS, of the addition of members ineligible to join.

The supervisory agreement is unusual because NCUA rarely monitors for adherence to FOM, and almost never cites a credit union for violating its own FOM. The LOA was signed in November but only made public in recent days as NCUA has expressed a desire to set public examples of its supervisory actions.
 
According to NCUA, Air Force FCU took “an overly expansive view” of its FOM and accepted deposits and made loans to people unqualified to be members between 2002 and 2009, helping push the credit union’s rapid growth. That meant during those years anyone who used Lackland Air Base facilities at any time – which amounts to almost anyone in the Air Force, was allowed to join. The ineligible members made up a significant percentage of the credit union’s shares and loans, NCUA said.
 
Under the supervisory agreement, NCUA said it has agreed not take formal administrative action against the credit union as long as it makes a good faith effort to comply with the divestiture order. The LOA was signed by nine of the credit union’s 10 directors.

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Focus Turns To Regulators’ Role In Financial Crisis

Credit Union Journal Daily Briefing  |  Monday, April 19, 2010
 
WASHINGTON – The role of the financial regulators’ and their oversight failures is coming under increasing attention by Congress and the public as the debate over financial services reform comes to a head.

During Senate hearings Friday, Carl Levin, chairman of the Senate Subcommittee on Permanent Investigations, called the Office of Thrift Supervision’s oversight of Washington Mutual “feeble” and “pitiful” in monitoring what would become the biggest bank failure ever. The thrift regulator, said the Michigan Democrat, “was more of a spectator on the sidelines, a watchdog with no bite, noting problems and making recommendations, but not trying to correct the flaws and failures it saw.”
 
NCUA also is undergoing growing criticism by its own Inspector General and from credit union executives and volunteers for its role in the corporate credit union meltdown and in the big credit union failures of the last few years.

Numerous credit union executives have called on NCUA to investigate its own role in the corporate meltdown as part of the reform of the corporate system. And a new report issued Friday by NCUA’s Inspector General found substantial evidence that examiners at NCUA and the California Department of Financial Institutions missed numerous opportunities to mitigate losses at Cal State 9 CU, the biggest California credit union failure ever.

Also on Friday, NCUA’s Inspector General issued a report that found NCUA effectively was asleep at the switch while the manager of a small West Virginia credit union, Center Valley FCU, stole every last dime of deposits, and then some, at a cost of more than $16 million to the NCUSIF.

That followed a recent report on the failure of High Desert FCU, which partially attributed NCUA examiners’ failure to assess the risk of a large concentration of member business loans to the demise of that one-time $190 million California credit union.

In one damning passage in the Cal State 9 report, the state regulator attributed some of its actions in the Cal State 9 case to the fact that the Bush administration was “pushing for less regulation” and “NCUA was pushing for lower net worth requirements, which would encourage credit unions to make more loans”

In recent remarks, NCUA Chairman Debbie Matz, who served on the NCUA Board from 2002 through 2005 before returning last year, deflected criticism for the corporate crisis, even while accepting some of the blame on behalf of the agency.

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Improved perceptions could boost CU growth

TALLAHASSEE, Fla. (4/15/10)--About 77% of credit union leaders surveyed said consumer misunderstanding of credit union benefits over those of banks is the greatest challenge in attracting new members, according to a new survey.

Credit Union 24 conducted the survey in February at the Governmental Affairs Conference sponsored by the Credit Union National Association.

The number is an increase of 10% from last year when 67% of credit union leaders cited perception as the greatest challenge, said the credit union service organization.  

For the second year in a row, the perception that credit unions have limited offerings, when compared with banks, was the second greatest challenge cited by 45% of credit union leaders surveyed.

While consumer misunderstanding is the greatest challenge, attracting new members is a key overall concern of credit union leaders. Nearly three-quarters, or roughly 70%, of those polled cited the current economic climate and National Credit Union Administration assessments as key challenges facing credit unions today, an 11% increase over last year. (CUNA News Now)

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Chances Slim For Supplementary Capital

Credit Union Journal Daily Briefing  |  Tuesday, April 13, 2010

WASHINGTON – The possibility that Congress will act to give credit unions authority to raise supplemental capital for their net worth calculation is very remote and such authority still could be years off, observers agree.

“It’s a high mountain to climb,” said Brad Thaler, senior lobbyist for NAFCU, which is focusing the brunt of its efforts in this Congress on increasing the cap on member business loans. The credit union lobbyist conceded that the supplementary capital provision could be added to another bill in progress but the opportunities are dwindling.

Even though both NAFCU and CUNA have agreed to language for a supplementary capital bill and NCUA Chairman Debbie Matz has asked Congress for the authority, congressional leaders have yet to include the necessary provisions in a bill and timing is running out on this year’s legislative session.

An NCUA panel chaired by NCUA Board member Gigi Hyland yesterday issued a report endorsing the concept of supplementary capital to be counted as net worth under the agency’s minimum capital, or prompt corrective action, rules, and an outline of three different forms supplementary capital could take.

The NCUA group acknowledges some of the controversy surrounding the issue of supplementary capital including the potential dilution of members’ voting and the recent experience with the failure of two corporate credit unions, U.S. Central FCU and WesCorp FCU, which wiped out their supplementary paid-in-capital and membership capital shares.

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Taxation Is Not a Reaper to Fear

CU Times - 3/30/2010  By Sarah Snell Cooke
 
Credit unions should leave no sacred cows in the field, and one of these that needs to be set free is the credit union tax exemption. Yes, it should be preserved but that depends upon the cost. The benefit should not be taken lightly or given up without a fight but it can’t be a line in the sand either.

The tax-exempt status of credit unions could prove to be more of bane than a boon; it cannot stymie progress. Credit unions should never back away from what they need to succeed, such as risk-based capital, alternative capital, member business lending, open fields of membership, just because of the threat of taxation.

Consider this: according to FDIC data obtained by NAFCU, 3,605 banks did not pay any federal or state taxes in 2009. This included TARP-bloated Citibank and Bank of New York Mellon all the way down to $4 billion Nevada State Bank; they all received massive refunds! How’s that for a tax-exemption?

It would be a mistake for Congress to decide to start taxing credit unions because they are not-for-profit cooperatives that do a world of good for their members. Credit unions can still behave like credit unions even if they were to be taxed. But, if in the end, it did mean credit unions would have expanded capital resources and service authorities, they would be better positioned to succeed after taxation rather than being stuck in a 1934 capital structure in today’s market place.

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Capital A Growing Concern At Successful CUs

Credit Union Journal Daily Briefing  |  Friday, March 19, 2010
 
RALEIGH, N.C. – Success may be too much for some large credit unions, who are looking at drawing in the reins a bit because of the negative affects it is having on their regulatory capital.

“It’s not an earnings problem, it’s a growth problem,” said Jim Blaine, president of State Employees’ CU, which grew 11% in 2008 and another 18% last year to almost $20 billion in assets. But the new assets diluted the credit union giant’s capital level to just above the 7% level, when regulators start to look closely at a credit union’s health.

Pentagon FCU’s Frank Pollack, who has managed an 8% growth in assets to $14 billion last year, said he plans to slow down growth this year to preserve a higher capital ratio.  The net worth, or capital ratio for the nation’s third-largest credit union dipped below 9% the last two years, to 8.7%, strong but still a threat to dilution by fast growth. “I’m not looking to grow so much this year,” Pollack told Credit Union Journal.

As illustrated by these two credit union giants, rapid growth has a negative impact on the capital by diluting the ratio. Perversely, negative growth, or a reduction in size, has the opposite effect, actually building the net worth ratio.

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NCUA Proposes New Conversion - Merger Regulations



The proposals are the latest round of continuous NCUA efforts to tighten its rules governing credit union conversions, still the most controversial issue for credit unions. And they come as several agents who have converted credit unions to banks say there is growing interest among credit unions in converting charters because of the difficult economic conditions. (Ed Roberts - CU Journal - March 18, 2010)



NCUA Dials Back on Regulatory Flexibility


Credit Union Journal Daily Briefing  |  Thursday, March 18, 2010 - By Ed Roberts

ALEXANDRIA, Va. — With losses growing among credit unions, the NCUA Board last week proposed reining in its popular regulatory flexibility program, known as Reg-Flex, which eases restrictions on healthy, well-run credit unions.

Under the proposal issued for public comment, four of the ten Reg-Flex areas would be eliminated, those allowing participating CAMEL 1 and CAMEL 2 credit unions to be exempt from the agency's limits on fixed assets, personal guarantees on member business loans, requirements for regular stress tests on risky investments and discretionary control of investments.

"We would like to give credit unions as much discretion as possible," said NCUA Chairman Debbie Matz, but "times are different today." She was referring to when Reg-Flex was introduced in 2002. "In our opinion it's time to make some changes.

Matz said there has been some evidence that shortfalls in some of these areas have contributed to losses among recent credit union failures. There are currently 3,140 credit unions eligible for Reg-Flex.

Separately, for the first time in decades the NCUA Board issued for comment new rules on the behavior and duties of directors. The proposed rules would require for the first time that directors gain some proficiency in finance within a reasonable period of being elected, generally three months.

The proposal also sets out certain fiduciary duties for directors and would bar a credit union from indemnifying a director or employee from incidents that are "grossly negligent, reckless, or willful" in connection with a decision that affects the fundamental rights of members."

Those provisions were included in a proposed measure that would make it harder for credit unions to convert to or merge into banks.

The provisions would require boards and management contemplating a conversion into a bank to obtain a pre-merger valuation of the credit union's net worth and consider paying out a special dividend to members before the conversion or merger.

It would also make major changes to the voting procedures for conversions by barring management from reviewing vote counts before a final tally is available to everyone. And it would require management to make additional disclosures on the estimated costs of the conversion and the effects on existing facilities, like branches and ATMs, and require disclosures of any compensation or employment agreements any managers or directors may have related to the conversion.

The proposals are the latest round of continuous NCUA efforts to tighten its rules governing credit union conversions, still the most controversial issue for credit unions. And they come as several agents who have converted credit unions to banks say there is growing interest among credit unions in converting charters because of the difficult economic conditions.

On the vote tally issue, Elizabeth Wirrick, an NCUA attorney who helped draft the rule, said in past conversions to mutual savings bank there have been incidents when the management has learned of running vote counts that enabled them to either boost the vote or to abandon the conversion altogether.

The proposed rules would make it clear that a director's fiduciary responsibility is clearly to the members and not to the "institution," as one state court ruled in the failed conversion of Columbia CU five years ago.

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Costs Of Corporate Meltdown Spreading

Credit Union Journal Daily Briefing  |  Wednesday, March 10, 2010

ALEXANDRIA, Va. – Last week’s disclosure of the elimination of all capital at U.S. Central FCU means more losses are going to start trickling down to corporate credit unions and to their natural person credit union members in the coming days.

The depletion of the corporates’ capital began in 2008, continued through 2009 and is expected to continue through this year, as illustrated in the more than 500 comment letters received by NCUA on its corporate rule proposal. This comes as NCUA is preparing to charge another assessment for the corporate credit union bailout.

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More Loan Losses Ahead

Credit Union Journal Daily Briefing  |  Friday, March 5, 2010
 
MADISON, Wis. – January was a bad month for credit unions with negative growth for both shares and loans, while loan delinquencies continued to rise to a 22-year high.

The delinquency ratio for credit unions climbed to 1.92% in January, the highest since 1988, according to Steve Rick, a senior economist for CUNA. Delinquencies are expected to continue rising until the end of the year, portending higher charge-offs and loan losses, he noted.

"It [the delinquency ratio] is going to continue to rise," Rick told The Credit Union Journal yesterday. "We still have 15 million unemployed Americans and 6 million of them have been unemployed for six months or longer. Those are the people who really show up on your delinquencies, and that number is still rising."

In an unusually bad sign, both loans and deposits declined in January, a traditionally slow time of the year for credit unions anyway. "Virtually every type of loan category actually fell, except first mortgages," said Rick, who attributed the trend to a "de-leveraging" in which people are trying to pay off their loans.

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CU Members Told to Take Their Money Elsewhere

Credit Union Journal Daily Briefing  |  Friday, March 5, 2010

LAS VEGAS – With rates near all-time lows and costs still rising, it has become so difficult for credit unions to earn a positive spread for its members that Nevada FCU is paying members to take their money elsewhere.

"There’s virtually no loan demand right now, given the local economy; short-term investments are paying as low as 0.10% to just 0.25%; and we’ve been told to prepare for an NCUA assessment of anywhere from 15 to 40 basis points – it’s a negative spread," declared Brad Beal, president of the $820 million credit union.

"It’s a whole different deal," Beal told The Credit Union Journal yesterday. "Never in my life have I seen anything like it. Net yields are in the negative."Some area credit unions and banks are trying to shrink

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Fed Chairman Bernanke Cool To MBL Hike For CUs

Credit Union Journal Daily Briefing  |  Thursday, February 25, 2010
 
WASHINGTON – Federal Reserve Chairman Ben Bernanke yesterday refused to endorse an increase in member business loan limits for credit unions, despite bills in the House and Senate asking for the hike.

The Fed Chairman's stance is important because the credit union lobby is hoping to get an endorsement from the Obama administration for the pending legislation.

Bernanke on Wednesday told the House Financial Services Committee the current 12.25% of assets cap on member business loans, and other restrictions, were enacted in exchange for credit unions’ tax exemption. “The banks would complain obviously that if credit unions are allowed to do everything banks can do, why are they tax favored? I think that's the trade-off Congress has to consider," Bernanke said in response to a question from Rep. Brad Sherman, a California Democrat who sponsored the MBL bill in the House.

Credit unions have been lobbying for 10 years to lift the cap, enacted as part of HR 1151, the CU Membership Access Act, which legalized multiple group fields of membership for credit unions.

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NCUA: Troubled Credit Unions Growing

CU Journal – Feb 18, 2010 - ALEXANDRIA, Va. — More storm clouds surfaced among credit unions last month with two more failures and the number of troubled institutions increasing by six, to a total of 357, NCUA said this morning.

But even as the number of troubled credit unions, those rated either CAMEL 4 or 5, is up from 271 a year ago, more problematic is that the total shares in this year's troubled credit unions is more than double from last year, now $5.8 billion, meaning far more deposits are involved.

NCUA has set aside $760 million, its most ever, to deal with potential losses in those credit unions, according to Mary Ann Woodson, chief financial officer for the agency. "We expect that 2010 will be a difficult year, just as 2009 was," she told the NCUA Board during a briefing this morning.

The growing loss projections make it increasingly likely that NCUA will charge credit unions another premium later this year to replenish reserves for the National CU Share Insurance Fund. Credit unions paid a total of $1.1 billion last year to replenish the fund and to capitalize the newly created Corporate CU Stabilization Fund.

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Charter Conversion Bill Advances in Virginia

Credit Union Journal Daily Briefing  |  Thursday, February 18, 2010
 
RICHMOND, Va. – A charter conversion bill that would allow state-chartered credit unions to convert to mutual savings banks in the same way federal charters can appears well on its way to passage.

The bill, which originally was crafted to allow banks to acquire credit unions and vice versa, was approved by the state Senate. The House already passed an identical bill. The two chambers must vote on the legislation one more time.

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Grant Thornton: CU Merger Appetite Falling

CU Times - 2/5/2010  -  By Jim Rubenstein
 
The NCUA corporate assessment coupled with depressed capital and net worth ratios is producing a definite “lowered appetite” for credit union mergers in 2010, according to a New York CPA firm which issued a study this week on the banking industry’s interest in failing banks.

“We do see a lack of willingness and caution by large credit unions to entertain mergers in this very challenging, unprecedented climate,” said James Norfleet, senior manager of Grant Thornton LLP.   

It’s hard to forecast what the outcome might be on the industry of this “discerning attitude in due diligence” as large CUs approach voluntary and involuntary merger partners, said Norfleet. Grant Thornton found that 62% of bank executives it surveyed were interested in pursuing a failed bank.

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Corporates Yet To Realize Large Amounts Of Unrealized Losses

Credit Union Journal Daily Briefing  |  Friday, February 5, 2010

ORLANDO, Fla. – Corporate credit unions continued to hold securities showing unrealized losses of $17 billion at year-end 2009, which is down from the more than $25 billion in unrealized losses corporates held at the beginning of the year, but NCUA cautioned against reading too much into those numbers because growing amounts of losses are being realized.

"You also have to look at the actual credit losses, which have increased with every quarter," Scott Hunt, director of NCUA’s Office of Corporate CUs, said during yesterday’s NCUA Town Hall meeting on the corporate regulatory proposal. The chief corporate examiner said NCUA is reluctant to sell the troubled bonds because it would require them to lock in losses. "We don’t want to liquidate bonds. That would make for multiples of the (special NCUSIF) assessments."

Hunt said professionals hired by NCUA to project credit losses continue to see conditions worsen even beyond conservative estimates. "Most people who enter (mortgage) delinquency enter foreclosure. We’re really only delaying the inevitable in many cases. When these homes hit the market it will put a dampening on the prices in the markets we’re most concerned about, the sand states, which will only exacerbate losses on those securities," he said.

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NY Times notes CUs' reaction to small biz plan

NEW YORK (2/4/10)--The objections of the Credit Union National Association (CUNA) to the Obama administration's plan to pump $30 billion into community banks for business lending while snubbing credit unions' efforts to assist with the recovery were noted in Wednesday's issue of The New York Times.

The president's proposal would use $30 billion of repaid bailout loans to help community banks increase lending to small businesses as part of a broader effort to boost creation of jobs. It doesn't mention credit unions.

The Times reported that the community bankers praised the plan. "But the Credit Union National Association declared itself 'outraged and baffled,' asserting the government could do more without cost ot taxpayers by allowing more business lending by credit unions," the report said.

Indeed CUNA has spoken out on behalf of credit unions on the initiative (News Now Feb. 3). CUNA President/CEO Dan Mica said the proposal is entirely focused on small and community banks, and includes nothing for credit unions.

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Losses Accelerate At Corporate CUs

Credit Union Journal Daily Briefing  |  Tuesday, February 2, 2010
 
WALL STREET – Even after the elimination of all of their capital in U.S. Central FCU, new problems are emerging for corporate credit unions as they continue to watch their investments deteriorate.

The biggest corporates are reporting in year-end financial statements they no longer can rely on private insurance taken out on billions of dollars in troubled mortgage-backed securities, forcing them to realize millions of dollars in new losses.

Members United Corporate FCU, which is expected to report new losses in its year-end financials, told members Friday that two bond insurers covering its investments, Financial Guarantee Insurance Corp. and Syncora Guarantee, have been ordered by the New York Insurance Department to stop paying claims in order to preserve what little capital they have.

A third bond insurer, Ambac, also is battling solvency issues, prompting Southwest Corporate FCU to take a new, $6.9 million write-down on securities it owns, the Dallas corporate reported on Friday.

The news comes as several corporates are reporting big losses for 2009. WesCorp FCU reported Friday it lost almost $1.2 billion for 2009. Southwest Corporate FCU reported a $226 million loss for last year. Corporate One FCU had a $42.3 million loss for the year.

All three corporates reported they have written down their capital in U.S. Central by 100%. The rest of the corporates are expected to follow suit in the coming days.

The bond insurers have reported huge losses because of their insurance on collateralized debt obligations and credit default swaps, eliminating some of their ability to pay claims.

Bond insurance is considered one of the credit enhancements because it increases the likelihood of getting paid when bonds fail. The elimination of bond insurance will accelerate losses being reported by the corporates, as well as other investors, according to Ken Ritz, a Fitch Investors analyst who covers the corporates. "This means that extra layer of credit enhancement isn’t there anymore," he told The Credit Union Journal.

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Credit Unions Aren't as Flexible as Banks

Washington, DC - CU Times - In his experience, Dr. Robert Manning said credit unions aren’t as flexible as banks when it comes to negotiating debt with struggling consumers. “Credit unions are living in a time warp, where they think their members should pay them first and stiff their bank creditors,” Manning said. Those that stick to an all-or-nothing collections strategy not only “leave money on the table,” he said, but they bully members into paying nothing at all.

“Most credit unions don’t realize members are stiffing them because they know they can’t get any more credit there,” he said. “Maybe back in the old days, that could have worked, but now the average credit union member has multiple lines of credit and will do whatever it takes to keep food on the table.”

Although federal regulations require a total write-off in many situations, Manning said credit unions could still accept partial payments and funnel them through loan loss reserve accounts, preserving the member relationship.

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Commercial Loan Losses Hit Texans CU

RICHARDSON, Texas – Hard times continued for Texans CU in 2009, especially in the $1.7 billion credit unions member business loan portfolio, helping push losses for the one-time Texas Instruments credit union to $51.2 million."The most significant factor behind Texans’ loss in 2009 was the continuing impact of the economic recession on our commercial loan portfolio," said Mike Sauer, president of Texans, in an e-mail response to The Credit Union Journal.

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Former ViewPoint CU goes to stock offering

PLANO, Texas (1/28/10)-- CU Times - ViewPoint Financial Group--parent company of ViewPoint Bank, a former credit union in Plano, Texas--announced Tuesday it will reorganize from a two-tier mutual holding company to a full stock holding company and will undertake a "second-step" offering of additional shares of common stock.

It expects the conversion and offering, subject to regulatory, shareholder and depositor approval, to be completed this summer and raise upwards of $200 million in fresh regulatory capital.
 
ViewPoint Bank President/CEO Gary Base noted that "while we're already well-capitalized and have grown tremendously since we first became a public company in 2006, the additional capital we can raise from this offering will allow us greater flexibility and increase our opportunities for future strategic growth."

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Corporate Bailout Stymies CU Rebound

Credit Union Journal Daily Briefing  |  Tuesday, January 26, 2010
 
ALEXANDRIA, Va. – Expenses accrued by natural person credit unions to pay for the meltdown of the corporate network are continuing to flood the movement in red ink, pushing thousands of otherwise profitable credit unions into the loss column again for 2009, according to fourth quarter financial performance reports being filed with NCUA this week.

Last year’s NCUA assessment for the corporate bailout, combined with write-downs on corporate capital, are expected to push as many as 25% of credit unions from the black into the red, according to Tun Wai, chief economist for NAFCU.

He said many credit unions are combining the 15 basis point premium they paid to NCUA last year with the write-down on their corporate capital and reporting it as a single number as an NCUSIF Stabilization cost, making it difficult to determine the details of the corporate expenses. "We don’t know if this represents everything they have accrued for their corporate expenses or is this just the 15 basis points (NCUA assessment)," Wai told The Credit Union Journal yesterday.

California credit unions, already battered by the poor economy, appear to be the most affected.
Western FCU, in Manhattan Beach, Calif., for example, had all of its $5.6 million operating net wiped out by a $10.4 million charge, creating a $4.9 million loss for 2009. Contra Costa CU, in Martinez, Calif., reported a $477,000 operating net for 2009, but a $3.8 million expense for the corporates pushed it into the red to the tune of $3.3 million. San Francisco FCU reported a solid $1.3 million operating net for the year, but a $4.8 million expense for its corporate exposure made that into a $3.5 million loss.

At $8.6 billion credit union giant BECU, a $58.8 million corporate charge turned a $17.4 million operating profit into a $41.4 million loss for the year.

Credit Union of Texas, which has had a difficult few years, reported a healthy $3 million operating net for 2009, but a $10 million expense under NCUSIF Stabilization created a $7 million loss for the year.

Corporate expenses also pushed many struggling credit unions deeper into the red. It increased a $40.6 million operating loss at Texans CU to $51.2 million; pushed a $23.7 million operating loss at Coastal FCU up to a loss of $40.1 million; and a $31.7 million operating loss at GTE FCU to a $44 millioin loss for 2009.

For Kinecta FCU, it took a $46.2 million operating loss and made it into a $71.3 million loss. And for Suncoast Schools FCU it almost doubled a $39.2 million operating loss to a $77 million loss for 2009.

Even some of the best performers are reporting much lower net income because of the corporates. Fairwinds CU, in Orlando, Fla., had a $13.1 million operating net reduced to just $2.4 million after recording a $10.7 million "NCUSIF" expense; Digital FCU saw its $9.3 million operating gain become a $4.3 million net after taking a $5 million NCUSIF charge; Stanford FCU saw its net income almost halved to $7.6 million after the corporate expense; and Addison Avenue FCU had a healthy $4.3 million net for 2009 trimmed to just $1.5 million after accounting for the corporate expenses.

Because of the disparity in reporting, NAFCU’s Wai cautioned on comparing credit unions. Some credit unions, he noted, charged their NCUSIF expenses and write-downs on their own corporate capital in 2008, so corporate charges will not show up in their 2009 financials. Others are delaying taking the full write-down on so-called depleted in their corporates. He suggested it will be at least three years before credit union financials will be consistent again and observers will be able to make accurate comparisons.

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ASI Denies Talks With NCUA On Wind-down

Credit Union Journal Daily Briefing  |  Thursday, January 7, 2010

DUBLIN, Ohio – An article reported online by Credit Union Journal Jan. 6 incorrectly stated that NCUA and American Share Insurance are in negotiations regarding ASI’s primary deposit insurance program. Both NCUA and ASI commented yesterday that no such formal talks have taken place or are scheduled.

In a statement released by ASI, Dennis Adams, president said, "No such statement or reporting has been made or rendered by ASI in any form and there are no such negotiations going on between ASI and the NCUA. ASI is financially sound, with fully funded reserves, and is anticipating a year-end equity ratio in excess of 1.30% of primary insured shares. Statements of this nature can undermine an otherwise healthy program, raising concerns where concerns don’t exist."

ASI provides primary deposit insurance to more than 150 state-chartered credit unions in nine states. The article reported that Velocity CU, Austin, Texas, is switching from NCUSIF insurance to private insurance provided by ASI.

The private insurer has come under stress in recent months due to losses among several of its large Nevada credit unions, reporting before year-end that it is working to infuse cash into Silver State Schools CU, the state’s largest credit union. The losses forced ASI to charge its credit unions a premium of 15 basis points at year end.

ASI is the last survivor of a one-time network of more than 20 private deposit insurers. The others were wound down and their credit unions converted to federal coverage under the NCUSIF by NCUA after the 1991 failure of Rhode Island Share and Deposit Indemnity Corp., better known as RISDIC.

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Silver State ‘Scare’ Heats Up ASI Vs. NCUA Debate

CU Times - 12/30/2009

The long-running industry debate over federal versus private insurance for credit unions was fired up again this week thanks to the financial mishaps at Silver State Credit Union in Nevada with both NCUA and American Share Insurance parties trading barbs about “scare” tactics.

The latest pronouncements came amid two developments: ASI’s decision to impose an unprecedented 15 basis point deposit premium to take care of expected losses from unidentified problem CUs and comments made to a Las Vegas newspaper Tuesday by the Silver State CEO, David Rhamy that NCUA Chairman Deborah Matz was unduly engaging in “scare” maneuvers to get rid of private insurance.

Specifically, Rhamy charged that NCUA Chairwoman Deborah Matz in remarks at a CUES conference earlier this month was trying to “scare people”  that ASI-insured CUs were at risk  and that the Ohio-based ASI lacks ability to pay depositors if a large CU fails, a claim vigorously denied by ASI.   

Asked by Credit Union Times for a response to Rhamy’s “scare” comments, John J. McKechnie, NCUA director of public and Congressional affairs, said "NCUA has one goal in mind: protecting consumer deposits in credit unions.  There is no substitute for the strength and stability of NCUSIF insurance, which carries with it the backing of the full faith and credit of the federal government.”

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Actual WesCorp Losses Are Double Clayton’s March Estimates

CU Times - 12/17/2009 

Investment losses at the $21 billion Western Corporate Federal Credit Union are “substantially greater” than originally projected by Clayton Holdings earlier in the year, Chief Investment Officer Joe DiMichele told members in yesterday’s Webcast. 

Clayton’s updated September projections anticipate WesCorp will write off $40 million for the month of December and another $65 million in January 2010. Those figures are roughly double what Clayton originally projected back in March.

Cumulatively, the new figures increase WesCorp’s estimated actual losses to more than $2.5 billion by Dec. 31, 2010. Clayton had originally only estimated about $1.6 billion in actual losses by that time.

While delinquencies have leveled off in subprime and Alt-A securities, Option-ARM and prime delinquencies show “no signs of abating,” which DeMichele said “is of some concern to us.” “Fundamentally, the outlook for securities continues to deteriorate, albeit at a slower pace,” he said, adding WesCorp’s portfolio is “still under some stress” as financial managers look into the future. 

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CU to Close 8 More Branches - 27 Total

PASADENA, Calif. – Wescom Central CU, still struggling with the southern California recession, announced plans yesterday to shutter another eight branches. The planned closings come after the $3 billion credit union has shut 19 branches over the past two years, and will reduce its branch network to 29 from 56 outlets in 2007.

The one-time $3.8 billion credit union has been one of the hardest-hit from the economic downturn in the region, with losses of $63 million in 2008 and $67 million for the first three quarters of 2009.

The Wescom plans come amid several other credit union retrenchments announced this week, including the closure of eight branches by Arizona FCU and lay-offs and a branch closure by Elevations CU in Boulder CU.

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NCUA Calls On Congress For Capital Reform

Credit Union Journal Daily Briefing  |  Tuesday, December 8, 2009
 
WASHINGTON – NCUA Chairman Deborah Matz pitched potential ways of stretching credit union capital to key lawmakers yesterday, either by allowing credit unions to raise alternative capital or to risk-weigh some of their assets, such as Treasuries, at zero.
 
Matz called on House Financial Services Committee Chairman Barney Frank to consider amending the Federal CU Act’s minimum capital standards to allow certain credit unions to raise new forms of capital in the form of uninsured instruments that would be counted under the FCU Act’s definition of net worth, or minimum capital.
 
The NCUA Chairman also urged that certain fast-growing credit unions be allowed to exclude from their "total assets" those assets that have no risk-weighting, such as short-term Treasury securities. This would boost the net worth ratios for those credit unions.
 
In a letter delivered yesterday to the powerful lawmaker, Matz said she is concerned that high growth in some credit unions is diluting their capital ratios and tamping down their financial services because of the risk of being adversely labeled under the agency’s minimum capital rules, known as prompt corrective action, or PCA.
 
"Some financially healthy, well-capitalized credit unions that offer desirable services are discouraged from marketing them too vigorously out of concern that attracting share deposits from new and existing members will inflate the credit union’s asset base, thus diluting its net worth," wrote Matz.
 
Matz’s proposal falls far short of the risk-based capital system NCUA has urged Congress to enact for credit unions in recent years but is still being pushed by NCUA. "The risk if reputational damage from being branded less than "well-capitalized" and in need of "restoring" net worth, and from being subjected to mandatory and discretionary restrictions that accompany a falling net worth ratio, is reportedly having a significant chilling effect on the willingness of some "well-capitalized" credit unions to accept new share deposits," Matz told Frank, the Massachusetts Democrat. "In effect, the reward for their success in attracting new shares is the risk of a demotion to a lower net worth category if accepting those shares drives down the credit union’s net worth ratio."

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California CUs Sue WesCorp FCU Management and Board

Credit Union Journal Daily Briefing  |  Tuesday, November 24, 2009

SAN DIMAS, Calif. — A group of seven large California credit unions plan to file suit this afternoon in state court against the former management and directors of WesCorp FCU over the failure of the one-time $32 billion corporate credit union.

The suit, the fourth in recent months over the troubles in the corporate network, will make a number of allegation related to the losses at WesCorp, which has wiped out more than $2 billion of capital for more than 2,000 member credit unions of the corporate.

Faced with billions of dollars of losses on mortgage-backed securities, WesCorp, along with U.S. Central FCU, was taken under conservatorship by NCUA on March 20, precipitating in creation of a special federally-backed fund to finance the bailout of the corporates. The fund, the Corporate Stabilization Fund, will absorb and pass on as much as $7 billion of losses in the corporate system to natural person credit unions over the next seven years by way of special assessments.

Among those named as defendants in today’s suit are: Robert Siravo, the former president and CEO of WesCorp., Robert Harvey, the former chairman of the board, Gordon Dames, a director and Bill Cheney, president of the California CU League, who also sat on the board of U.S. Central.

In recent months Cheney, in his role as U.S. Central director, was also sued by Corporate America CU, along with other directors and managers of U.S. Central. There have also been suits filed recently against Members United Corporate FCU.

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CU 2010 assessment may be 15 to 40 BPs

ALEXANDRIA, Va. (11/20/09)—The credit union assessment to fund the National Credit Union Share Insurance Fund (NCUSIF) and the corporate credit union stabilization fund could range from 0.15% and 0.4% of insured shares in 2010, National Credit Union Administration (NCUA) estimated Thursday.

At the agency's open board meeting, Melinda Love, director of examination and insurance, predicted that NCUSIF losses for the coming year could range from $450 million to $1.68 billion—a substantially wide range. Those losses, she said, could require a 0.1% to 0.25% premium, And the assessment to fund the NCUA's Corporate Stabilization Fund could be between 0/05% and 0.15% of insured shares.

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NCUA Tries To Tame An ‘800-Pound Gorilla’

Credit Union Journal Daily Briefing  |  Friday, November 20, 2009
 
ALEXANDRIA, Va. – NCUA, which is managing the two biggest corporate failures ever, is continuing to try to work down billions of dollars of toxic mortgage bonds held by U.S. Central FCU and WesCorp FCU, lest it be forced to realize the diminished value of the bonds in a fire sale.

The future of the impaired assets, as much as $40 billion worth in the two corporates and as much as $50 billion throughout the corporate network, was the major problem in the network not discussed during yesterday’s NCUA Board debate on a new corporate rule – the so-called 800-pound gorilla in the room, according to NCUA Board member Gigi Hyland.

Despite taking over the one-time $52 billion U.S. Central and one-time $34 billion WesCorp almost nine months ago, NCUA still sees no clear path to disposing of the troubled assets without taking on major losses for the two corporates. "We’re not going to sell them. I can tell you that much," Larry Fazio, NCUA deputy executive director, told The Credit Union Journal yesterday. "We don’t want to lock in a market loss." He questioned whether the market for some of the assets will ever be good enough to warrant a sale.

Instead, NCUA plans to hold the bonds for as long as possible, hoping to recoup as much of the principle through time and that realized, or actual, credit losses turn out to be less than the projections under so-called other-than-temporary impaired, or OTTI, he said. But that could be many years, according to Fazio. He said an average life on some of the assets in question is four years, but "some of these have a tail of 20 years."

The actual losses realized on the assets, most of them mortgage-backed securities, will determine the future, if any, of U.S. Central, WesCorp and as many as half-dozen other corporates dealing with lesser concentrations of toxic assets.

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Fryzel: Alternative Capital Plans Need To Be More Definitive To Be Considered

Credit Union Journal  |  Monday, November 16, 2009

ORLANDO, Fla. — Individual credit unions and their trade associations need to generate greater consensus and a more in-depth plan for alternative capital if they expect Congress to take action anytime soon, according to NCUA board member Mike Fryzel.

The former NCUA chairman told a crowd of credit union leaders at a CUES CEO/Executive Team Network roundtable discussion that the two-page document recently crafted by CUNA and NAFCU was not enough for legislators to even consider a bill.

"The NCUA board needs to know how many credit unions could use alternative capital," Fryzel said, noting that the issue has divided many in the industry. If the trades and individual institutions are not on the same wavelength, Congress will not listen. And don't expect the regulator to go out on a limb for it, either. "Unless (Congress) asks, we don't say anything," said Fryzel.

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Number of Troubled Credit Unions Grows

CU Times - 10/22/2009 - As a result of the sluggish economy, 5.13% of all insured shares are in credit unions with CAMEL 4 or 5 ratings and there are 326 credit unions with such ratings, NCUA CFO Mary Ann Woodson told the NCUA Board today.

Those credit unions represent about $36.5 billion in assets. By contrast, at the end of December there were 271 credit unions with those ratings. In addition, there are 1,634 credit unions with CAMEL 3 ratings, compared with 1,540 at the end of last December.

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Kern Schools FCU Says It Is Under NCUA Supervisory Agreement

Credit Union Journal 10-21-2009

BAKERSFIELD, Calif. – Troubled Kern Schools FCU revealed yesterday it has been operating under a supervisory agreement with NCUA requiring it to rebuild its capital.

The $1.7 billion credit union, which reported capital had fallen to 5.05% at mid-year putting in in NCUA’s undercapitalized category, said NCUA has given it 24 months to rebuild capital to 7%.

Kern Schools is one of a dozen troubled billion-dollar credit unions under supervisory agreements with NCUA. The credit union lost $24.3 million in 2008 and $30.9 million for th first six months of 2009.

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NCUA, Bank Regs Warn Congress of More Failures

Credit Union Journal | Friday, October 16, 2009

WASHINGTON — NCUA told Congress it expects growing losses on mortgages and member business loans to combine with billions of dollars of losses trickling down from troubled corporate credit unions to cause increasing credit union failures into 2010 and 2011.

Most troubling is that more of the problems are expected to be among larger credit unions, those over $100 million in assets, said NCUA Chairman Deborah Matz during a hearing last week before the Senate Banking Committee. "Troubled credit unions with over $100 million in assets have grown at a faster rate than those with assets under $100 million," the NCUA Chairman told Senators.

At the end of September there were 66 credit unions over $100 million that NCUA considered troubled (CAMEL 4 or CAMEL 5), compared to just 12 in 2007. In recent weeks there have been four failures of credit unions that were once over $100 million. Through the end of September there were 21 credit union failures this year at a cost of $95 million to NCUA, with more losses expected. "NCUA anticipates the overall number of troubled credit unions is likely to increase through the end of 2010 and into 2011," said Matz.

NCUA said the cost of the 21 CU failures has been $95 million so far, which is about a third of the $270 million cost of last year's failures, but is expected to grow in coming months. The losses among CUs the past two years and the increase in federal deposit insurance coverage caused NCUA to charge credit unions a $1.1 billion premium last month to replenish the reserves of the National CU Share Insurance Fund, with additional assessments predicted for 2010 and 2011.

Matz told lawmakers last week that continuing losses among corporate credit unions, especially U.S. Central FCU and WesCorp FCU, are trickling down to natural person credit unions and adding to growing losses on mortgage and member business loans.

The NCUA Chairman said member business lending continues to be a small part of credit union portfolios, just over 3%, but an increasing amount of them are held by troubled large credit unions. MBL delinquencies for a group of 71 large credit unions watched by NCUA for supervisory concerns soared from just 0.17% to 8.34% over 42 months, more than double the 3.19% for all credit unions, said Matz. A similar trend is occurring for MBL charge-offs. "NCUA is concerned with the increasing levels of delinquent member business loans, as well as an increasing concentration of large credit unions with supervisory concerns which are holding member business loans," she said.

The NCUA chairman noted delinquencies and losses continue to rise to all-time highs for credit unions putting growing numbers of credit unions with high concentrations of mortgage loans at risk. Also troubling, she said, is the record-low mortgage rates, which are causing credit unions to take on new interest-rate risk as they boost mortgage refis and make new home loans. "While NCUA recognizes the benefit to consumers of refinancing higher rate real estate loans into lower fixed rate loans, NCUA is concerned with the increasing interest rate risk associated with a high level of fixed rate, long-term assets should rates rise rapidly," said Matz.

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NCUA Facing Litany of Challenges

CU Times - July 15, 2009 - It’s not just the problems of the corporates. The financial difficulties of many natural person credit unions–including some of the larger ones–have increased pressure on the NCUSIF and made assessing additional premiums on credit unions inevitable.

While the fund had a $5.3 billion reserve balance as of the end of May, the most recent data, its net income for the year has been $137.7 million, compared with the projected amount of $205.4 million.

Adding to the concern is that CAMEL 4 or 5 credit unions represent 3.99% of insured shares, compared with 1.31% a year ago. There have been 243 troubled credit unions this year, compared to 301 at year-end 2008.

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Coastway CU Now A Bank

Credit Union Journal | Wednesday, July 1, 2009

CRANSTON, R.I. – Coastway CU ends 89 years as a credit union today when it becomes a mutual savings bank.

An overwhelming majority Coastway members approved of the conversion to a mutual bank in April. The $300 million credit union, the state’s fourth largest, plans to use its new charter to expand its business lending, limited to just 12.25% of assets as a credit union.

The credit union was chartered in 1920 as Telephone Workers CU.

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CU-Convert Raises Capital With IPO

Credit Union Journal | Wednesday, July 1, 2009

FORTH WORTH, Texas – OmniAmerican Bank, known until 2006 as OmniAmerican CU, said it plans to convert from a mutual to a publicly owned bank with an initial public offering.

OmniAmerican was one of two Texas credit union giants to convert to mutual savings bank at the start of 2006, joining Community CU, now ViewPoint Bank.

The OmniAmerican plan establishes March 31, 2008 as the date for determining the eligible depositors of OmniAmerican Bank who can participate in the subscription stock offering. The bank hopes to raise as much as $100 million with the offering.

OmniAmerican, which was chartered in 1956 to serve Carswell Air Force Base, has assets of $1.06 billion, down from almost $1.2 billion when it converted from a credit union.

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NCUA Sees Additional Charges For Troubled CUs

Credit Union Journal | Friday, June 19, 2009

ALEXANDRIA, Va. – NCUA officials acknowledged yesterday the $5.9 billion bailout of corporate credit unions will not be the last hit for credit unions this year.

Additional costs to rescue and resolve several large natural person credit unions and the new law more than doubling deposit insurance for all credit union accounts will likely require more funds from credit unions to replenish the reserves for the National CU Share Insurance Fund, Mary Ann Woodson, chief financial officer for the agency, told the NCUA Board yesterday.

The costs could amount to anywhere between $750 million and $900 million for the industry, representing 15 basis points, or 0.15% of assets, according to Woodson’s projection. Credit unions would have to pay that from premium assessed by the NCUSIF later this year. That’s on top of the $1 billion of the $5.9 billion corporate credit union bailout credit unions will be paying for this year.

Yesterday the NCUA Board agreed to transfer the $5.9 billion cost from the NCUSIF to a new Corporate CU Stabilization Fund. But the additional costs would be charged to federally insured credit unions from the NCUSIF to bring the fund’s reserves up their mandated 1.3% level (dollars reserved per $1,000 of insured deposits). Under the new corporate credit union bailout law NCUA could choose to stretch out the premium to replenish the reserves for as long as eight years. But that decision will be based on the possibility of accruing additional losses to the fund over the next few years.

The causes of the diminished reserves are the expected charges for large natural person credit unions; and the dilution of the reserves because of the increase in deposit insurance coverage to $250,000 per account from $100,000. This means that NCUSIF reserves are now spread among an additional $50 billion of deposits, Woodson told the Board.

In addition, deposit (share) growth among credit unions is running much higher than expected as consumers shift their savings to federally insured deposits, further diluting the reserves of the NCUSIF.

The number of troubled credit unions, those rated CAMEL 4 or 5, has grown 24% over the last year to 301, according to NCUA. Though more than half of the troubled institutions are under $10 million, at least 10 of them are billion-dollar credit unions.

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CUNA Reports $8 Million Loss, Absent Hit On Its U.S. Central Stock

Credit Union Journal | Wednesday, May 6, 2009

WASHINGTON – CUNA reported yesterday that the declining stock markets pushed it into the red to the tune of $8 million for 2008, up from a $5.2 million loss for 2007.

The 2008 losses do not include any charges on $1 million worth of membership capital shares CUNA holds in U.S. Central FCU, which NCUA has directed corporate members of U.S. Central to mark down by 63%. CUNA avoided the mark down by re-characterizing its U.S. Central holdings from a current asset to a long-term asset.

CUNA controlled two seats on the U.S. Central board, which was removed by NCUA after the $34 billion was taken under conservatorship on March 20.

While CUNA reported an $866,806 operating margin for 2008, market value losses of $8 million on CUNA’s investments and investments in its pension plan erased the margin and largely created the $8 million net loss for the year.

The 2008 loss also include a $926,390 expense for CUNA’s Stracomm 110 project, the "Little Guy" marketing campaign aimed at Capitol Hill.

The two years of losses eliminated 83% of CUNA’s unrestricted net assets (reserves) over the past two years, reducing reserves from $15.8 million at the start of 2007 to just $2.7 million at the end of 2008.

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Members United Reports $511 Million Loss

CU Times - 5/4/2009

Members United recorded a $511 million of losses against its capital base as of February month-end, wiping out all of the $10 billion institution’s retained earnings and paid-in capital. Member capital shares will also take a $129 million hit.

The losses include a $234 million total capital loss from U.S. Central PIC and a $266 million OTTI that represents future credit losses on Member United’s residential mortgage backed securities.

“Total capital of $866 million can absorb this base case loss estimate, and the remaining $355 million will either serve as the foundation to rebuild upon or will absorb future losses if the markets continue to deteriorate,” Members United told members in an e-mail this morning that preceded today’s financial update Webinar. Slides from the Webinar will be posted to Member United’s Web site later today. (www.membersunited.org)

The securities portfolio OTTI includes an additional write down on Lehman Brothers unsecured debt. Other losses include an additional loan loss allowance for a line of credit extended to the failed Central States Mortgage, and a $2 million NCUSIF impairment.

“After 23 years of working to put money in the pockets of credit unions, it pains me to have to report these results to you. But with these actions, some of the items causing uncertainty are behind us,” said CEO Joseph Herbst.

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Members at R.I.-based CU OK bank charter

CRANSTON, R.I. (5/4/09)--Members of a Cranston, R.I.-based credit union approved its plan to convert from a credit union charter to a mutual savings bank at a membership meeting Wednesday night.

Nearly 80% of members who voted approved the conversion of Coastway CU (Providence Journal May 1). The $300 million has 30,000 members. About 6,000 members voted.

The next step is to submit the election results to the National Credit Union Administration and the state Division of Banking. If approved, the conversion could come as early as three to four months, said the credit union. It will change its name to Coastway Community Bank.

The credit union said it is up against its business lending cap and will be able to expand business lending as a bank.

Analysts have estimated that as many as 25 credit unions may be considering charter changes (US Banker May 1). That compares with eight credit unions that switched charters in the past five years. They attribute the increase to the mortgage market meltdown and the impact on the bottom line of recapitalizing corporate credit unions.

Of the 34 credit unions that have converted since 1995, 27 have either gone public or merged with other banks. (CU Times)

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U.S. Central Reporting $2.3 Billion OTTI; Liquidity Squeezing Corporates

CU Times - 5/1/2009

U.S. Central FCU will report a $2.3 billion Other-Than-Temporary-Impairment charge when it releases its March 31 financials, the NCUA released today in its weekly corporate update. The OTTI will result in a total depletion of paid-in-capital, and a 63% hit on member capital accounts. The NCUA said it will release a letter to credit unions that provides accounting guidance.

The news follows today’s release of Western Corporate FCU’s financials, which revealed a $5.6 billion credit loss on its securities portfolio, and resulted in a total loss of PIC and MCA.

Also in the weekly report, the NCUA said seasonal liquidity challenges are taking their toll on stressed corporates. Chairman Michael Fryzel said the combination of normal seasonal outflow patterns and a broadly stressed market has prompted the board to consider providing longer term funding options and other enhancements to the Temporary Corporate Credit Union Liquidity Guarantee Program.

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Red Ink Spreads Throughout The Credit Union Movement

Credit Union Journal | Monday, April 20, 2009

ALEXANDRIA, Va. – NCUA's corporate assessment was booked by most credit unions in the first quarter of 2009, and its effect can be seen in the March 30 call report data, with many credit unions reporting losses as a result.

Losses that had been focused largely on the so-called Sand States of California, Arizona, Nevada and Florida for the past two years moved through most of the credit union movement in the first quarter, with hundreds of credit unions reporting losses for the first time ever.

From Connecticut, where American Eagle FCU reported a first quarter loss of $8.5 million; to New Jersey where Polish & Slavic FCU had a $9.6 million loss; to Georgia where Atlanta Postal FCU had a $11.1 million loss; to Minnesota where Wings FCU wracked up an $8.7 million loss; Tennessee where Eastman CU’s losses were $9.7 million; and North Carolina where Coastal FCU reported a staggering $26.3 million in red ink for the first quarter, the first quarter appears to have succeeded last year’s fourth quarter as the worst ever for credit unions.

Losses were appearing all over the country where they never were before. Westerra CU in Colorado had a $6 million loss; Del-One FCU in Delaware a $1.9 million loss; Evansville FCU in Indiana $4.6 million in red ink; Campus FCU in Louisiana negative $2.3 million; Maine State FCU a $1.7 million loss; Hudson Valley FCU in New York minus $16.4 million; Advantis FCU in Oregon negative $5.3 million; Unitus FCU in Oregon a $6.2 million loss; New England FCU in Vermont minus $2.3 million; Anheuser-Busch Employees FCU in Missouri a loss of $7.8 million; and all the way to Alaska, where Credit Union One reported a $3.9 million loss for the first quarter.

Meantime, credit unions in the Sand States continued to get battered during the quarter. In California: California CU reported a $25.3 million loss; Mission CU a $4.2 million loss; Contra Costa FCU an $8.7 million loss; Alliance CU minus $4.8 million; Kern FCU negative $8.2 million and High Desert FCU a loss of $12.9 million.

In Arizona; Deer Valley FCU minus $3.1 million; Hughes FCU negative $3.7 million; Pima FCU minus $2.4 million and Sunwest FCU negative $1.8 million.

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Corporate Rescue Could Be Between Eight and 20 Basis Points Annually

4/15/2009

Shoring up the corporate credit unions could cost credit unions an assessment of between eight and 20 basis points a year–with an average of 14—over seven years, if Congress approves the NCUA’s proposal for a stabilization fund, NCUA Deputy Executive Director Larry Fazio said today.

“Our goal is to keep the premium to a manageable level,” he said during a conference call with reporters.

Natural person credit unions would repay the fund over a seven-year period.

NCUA Executive Director David Marquis said they are opposed to requesting a longer repayment period because “the longer out you go, the more problematic it could become” because of changing economic conditions. (CU Times)

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NAFCU Survey Shows Strong Support for Limits on Investors in Secondary Capital

4/15/2009

Three quarters of the respondents to NAFCU’s Flash survey said they wanted limits on who could invest in their secondary capital and 46.5% of them wanted secondary capital restricted to members of that credit union.

The survey also found that 86.2% of those asked wouldn’t favor creating secondary capital if it meant the elimination of credit unions’ tax-exempt status.

Most also said that in light of the current recession, it was “unlikely” that outside investors would be interested in injecting capital in credit unions. (CU Times)

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Mica Says CUs Have Lost Confidence in NCUA

3/26/2009

Credit unions “have lost confidence and trust in their regulator” as a result of NCUA’s unwillingness to disclose data that led to the decision to place U.S. Central Federal Corporate Credit Union and Western Federal Corporate Credit Union into conservatorship, CUNA President Dan Mica wrote NCUA Chairman Michael E. Fryzel, last night.

Mica said that every credit union that has weighed in has “expressed concern, outrage, anger and frustration at the current situation.” (CU Times)

Credit unions “have lost confidence and trust in their regulator” as a result of NCUA’s unwillingness to disclose data that led to the decision to place U.S. Central Federal Corporate Credit Union and Western Federal Corporate Credit Union into conversatorship, CUNA President Dan Mica wrote NCUA Chairman Michael E. Fryzel, last night.

Mica said that every credit union that has weighed in has “expressed concern, outrage, anger and frustration at the current situation.”

He requested that NCUA provide additional information on the analysis of corporate credit union assets by PIMCO by the end of Friday.

He said NCUA’s board had instructed him to take all necessary action to get the information “including Congressional hearings, direct contact with the administration, and up to including all possible legal remedies."

NCUA Director of Public and Legislative Affairs John McKechnie said “details of the PIMCO engagement, such as PIMCO's methodology and other confidential, proprietary information, are not public."

Becker’s and Mica’s letters came on the eve of today’s closed NCUA Board meeting at which will members will consider ways to fund the additional costs to the NCUSIF stemming from the conservatorship of U.S. Central and Wescorp.

CUNA also said that its grass roots effort to urge NCUA board members to spread out the period during which the NCUSIF must be replenished has generated 10,000 emails to the agency as of 10:30 a.m. today.

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Three-Tier CU System Collapsing From The Top

Credit Union Journal | Tuesday, March 24, 2009

LENEXA, Kan. – Billions of dollars of losses from this weekend’s takeover of U.S. Central FCU and WesCorp FCU will cascade on down through the three-tiers of the credit union system: from U.S. Central at the top, to its 26 corporate members; and down to the 8,100 regular credit unions, known as natural person credit unions, which will be forced to take it out of their own members.

NCUA confirmed yesterday that the failure of U.S. Central will force U.S. Central’s 26 corporate members to charge-off all of their membership capital shares and paid-in-capital in the corporate credit union for corporate credit unions–a total of $2 billion.

In addition, the 1,022 credit unions that are members of WesCorp will have to charge-off all of the membership capital share accounts and paid-in-capital they held in WesCorp–another $2 billion charge to those credit unions.

The failure of the two corporate giants will not only erase the capital shares and PIC in the two, but cost the National CU Share Insurance Fund at least another $1.2 billion to resolve–a cost that will be spread through all of the nation’s federally insured credit unions.

The cascading losses, according to NCUA officials, will push as many as 247 at-risk credit unions below minimum capital standards forcing an estimated 67 of them towards failure under so-called prompt corrective action rules.

Marquis and other NCUA officials estimated yesterday the cost for the corporate bailout could ultimately rise to as much as $10.8 billion in losses. Under a worse-case scenario, those losses could be as much as $16 billion, he said.

Between the write-down of credit unions’ 1% NCUSIF deposit and the expected premium charge later this year, every federally insured credit union will have to subtract 100 basis points, or 1%, from their net worth to pay the cost. For WesCorp members, who will have to charge-off their WesCorp capital accounts (MCS and PIC) as well, that could amount to as much as 150 bps, or 1.5%, of net worth, according to Marquis.

NCUA officials said credit unions will have to reflect the write-down of their 1% deposit on their 5300 Call Report for the first quarter ending March 31. The eventual premium charge will be assessed in September when the credit unions should report that charge.

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Conservatorships Require NPCU Financial Statement Adjustments

3/23/2009 (CU Times)

Credit unions finalizing 2008 annual reports will have to make some 11th-hour adjustments to their year-end financials, thanks to Friday’s conservatorship of the $34 billion U.S. Central FCU and the $23 billion WesCorp.

The regulatory action forced the NCUA to revise its total NCUSIF liability to $5.9 billion, from its earlier estimate of $4.7 billion.

“If your credit union has already reflected the stabilization expense on the financial statements, the accounts will need to be adjusted for the increase in the NCUSIF’s recorded liability estimate. The individual expense for the stabilization action should be calculated based on insured shares of $100,000 in two parts: 1) Multiply insured shares as of December 31, 2008, by 0.30% to arrive at the projected premium expense; 2) Multiply insured shares as of December 31, 2008, by 1% to arrive at the NCUSIF Deposit. Multiply the NCUSIF Deposit by 69% percent to arrive at the revised impairment expense. Previously, this was estimated at 51% of the deposit,” NCUA Chairman Michael Fryzel wrote.

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Congress Help Urged To Avert CU Meltdown

Credit Union Journal | Friday, March 20, 2009

WASHINGTON – Banking and credit union leaders implored lawmakers yesterday to give regulators vast new financial resources to help stabilize the nation’s depository system.

Representatives from NCUA and the credit union industry asked the Senate Banking Committee for access to billions of dollars in new resources for both the National CU Share Insurance Fund and the industry itself, and even to lean on the Financial Accounting Standards Board to ease mark-to-market accounting rules.

David Wright, president of Services CU, predicted 70% of all credit unions will fall into the red this year as a result of the $5 billion assessment for the corporate bailout and even force healthy credit unions to increase fees, raise loan rates, cut dividends and even reduce lending, at a time when consumers all around the country are in need of additional sources of funds.

The CEO of the $35 million South Dakota credit union, who was appearing on behalf of NAFCU, said as many as 210 credit unions will be pushed below NCUA’s minimum capital limits, requiring supervisory agreements.

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CUs Pessimistic About Growth and Concerned About Impact of NCUSIF Premium

3/17/2009

NCUA’s decision to levy a premium to shore up the NCUSIF as a result of the corporate stabilization plan has caused 70% of credit unions surveyed by NAFCU to adjust their growth predictions downward.

According to NAFCU’s March Flash Report, 97.7% of those surveyed said their predictions for net income growth had been effected by the premium announcement and 2.3% said their prediction on asset growth.

The association’s survey found that 80.6% of respondents were expecting a decline in net income growth this year, 14.9% were expecting an increase and 4.5% expect no change.

A plurality of respondents expected a decline in loan growth this year. (CU Times)

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For This REIT, Bank Status Is Worth the Tax

American Banker | Friday, January 2, 2009

CapitalSource Inc. enjoys a tax advantage as a real estate investment trust, but it is willing to give that up to accelerate loan growth, lower its funding costs, and gain access to a larger infusion of government capital.

The Chevy Chase, Md., commercial finance company entered the banking business when it established an industrial loan company in July, and it has been so pleased with the results that it wants to shed its REIT status and convert to a bank holding company.

CapitalSource is already flush with capital, but as a bank holding company it would have a platform to gather even more deposits, which it would use to lend more to middle-market businesses, said Tad Lowrey, the president and chief executive of CapitalSource Bank in Pasadena, Calif.

The conversion would also put the $19 billion-asset CapitalSource in better position to buy more banks.

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Massachusetts Bank-CU Merger Deal Approved

American Banker | Monday, November 24, 2008

A Massachusetts merger of a bank and a credit union has won regulatory approval. Haverhill Bank said Friday that its deal to absorb Northeast Community Federal Credit Union in Haverhill should close next month. Both the state Division of Banks and the National Credit Union Administration approved the plan last week.

Haverhill Bank is a cooperative, so no money would change hands in the transaction. It would have assets of about $260 million, deposits of $220 million and capital of $30 million after the deal closes.

Haverhill Bank and Northeast Community announced their agreement in August 2007. Though the state's regulations allow such a merger without requiring the credit union to convert to a mutual savings bank first, the deal hit some snags with the NCUA that delayed the closing.

"Operating together as one, the organizations are better equipped to serve the Greater Haverhill community," Thomas R. Faulkner, Haverhill Bank's president, said in a press release. For example, the bank will be able to offer larger loans, he said.

Mr. Faulkner would be the combined entity's chairman and chief executive officer after the deal closes. Peter L. Di Benedetto, Northeast Community's CEO and treasurer, is to become its president and chief operating officer. Despite their different charters, "both organizations have deep roots in the local community and hold similar values," Mr. Di Benedetto said.

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Realtors See Credit Unions Only As Place for Cheap Car Loans

LAS VEGAS – (Nov 18, 2008) Credit unions made a little bit of progress at last week’s National Association of Realtors convention, but American Credit Union Mortgage Association President Bob Dorsa said he’s frustrated with the industry’s image among Realtors.

“Probably half the Realtors I spoke to belong to a credit union somewhere, but they just couldn’t seem to make the leap to referring credit unions to their clients,” Dorsa said. “Like most members, they see the credit union only as a good place to get a cheap car loan, as frustrating as that is.”

Dorsa also said most Realtors assumed their clients weren’t eligible to join any credit union, and didn’t understand the community charter concept.

The ACUMA leader said he hopes the newly approved Realtors Federal Credit Union will help raise credit union awareness among realtors.

Though he was in the exhibit hall for most of the Orlando event, Dorsa said he thought attendance was down this year by at least 5,000 people, compared to last year’s NAR conference in Las Vegas. (CU Times)

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Congress Hammers Last Nail In The Coffin For CURIA

Credit Union Journal | Monday, November 17, 2008

WASHINGTON – Any chance that Congress would pass at least a portion of the credit union regulatory relief bill known as CURIA were dashed on Friday when House leaders announced they won’t seek an economic stimulus package when they return to Capitol Hill later this week for a brief "lame duck" session.

The credit union lobby had been working to convince lawmakers to include CURIA’s two main provisions, a risk-based capital system for credit union and an increase in the business loan limits, onto an economic stimulus bill. But major differences between congressional leaders and the Bush administration convinced lawmakers to hold off on a stimulus bill until after a Democratic administration takes office in January.

The credit union lobby has been working through three congresses–six years–to get CURIA passed. Hope was raised earlier this year when a slimmed down version, without the two main provisions, was introduced in the House. Then House leaders pared the bill back even further and combined it with a regulatory relief bill for banks–known by the unwieldy name of the Credit Union Bank and Thrift Regulatory Relief Act.

But the financial crisis, which has spawned a congressional backlash against deregulation effectively killed CUBTRRA. Now, with congressional growing against deregulation of financial services, the prospects of CURIA in the next congress grow even murkier.

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CUs Get Pushed Out From Under The TARP

Credit Union Journal | Monday, November 17, 2008

WASHINGTON – The credit union lobby was working last week to develop some kind of assistance package geared towards credit unions, after the Treasury Department effectively edged them out of its bailout plans under the Troubled Asset Relief Program, or TARP.

But a consensus was illusive, with CUNA targeting the National CU Share Insurance Fund as the vehicle for funneling assistance to credit unions, and NAFCU insisted the NCUSIF not be used because of the potential to risk the health of the credit union deposit fund.

Both groups were lobbying Congress last week to get the Treasury to reverse course, after Treasury Secretary Henry Paulson announced the $700 billion bailout approved by Congress last month will not be used to buy distressed mortgage assets, but to infuse banks and other financial interests with new capital. Because credit unions have been unable to gain clearance for the cash infusions, this effectively leaves them out in the cold.

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Losses Mount For NCUSIF

Credit Union Journal | Monday, September 15, 2008

ALEXANDRIA, Va. – NCUA said losses for the National CU Share Insurance Fund continued to grow in July, as the credit union deposit insurance fund reported its biggest single-month loss ever of more than $225 million.

The July losses include more than $200 million accrued for two of the biggest credit union failures ever: Cal State 9 CU, a one-time $460 million credit union in Concord, Calif., and Sterlent CU, a one-time $150 million credit union in nearby Pleasanton, Calif. The remnants of the two California failures were purchased by San Francisco-based Patelco CU, while NCUA assumed the failed assets, mostly real estate loans.

July’s NCUSIF losses include the charge off of a $100 million loan made to Cal State 9, the largest loan ever charged off by the credit union insurance fund.

Growing losses by the deposit fund have depleted its reserve ratio to 1.22% (dollars reserved per $100 of insured deposits), below NCUA’s minimum level. NCUA projects the reserve ratio will rise by year end. However, several large credit unions have reported big losses in recent months and are teetering on the brink of either an NCUA emergency loan or assisted merger or failure.

If the fund ends the year under a 1.25% ratio, NCUA is required to charge credit unions a premium to replenish the reserves.

NCUA has not charged a premium since 1990-1991 – the last crisis in the credit union industry when dozens of failures depleted the fund’s reserves.

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KV FCU Eyes Spring Nuptials With Local Bank

Credit Union Journal | Tuesday, September 9, 2008

KENNEBEC, Me. – Officials of KV FCU have set a tentative agreement to merge into nearby Kennebec Savings Bank, the venerable thrift that traces its origins all the way back to 1870, in a new permutation of the credit union conversion to bank.

Both institutions are healthy, reporting similar return-on-assets of around 0.70 for the first half of the year, and both have steady growth. "I look at this as two local financial institutions that will be stronger combined," Mark Johnston, president and CEO of the $640 million savings bank, told The Credit Union Journal this afternoon.

Both are already the product of several mergers; KV FCU of a three way combination three years ago, and Kennebec Savings Bank of a two-way merger.

Under this deal, KV FCU will convert to a federally chartered thrift and Kennebec Savings Bank from a state to federal thrift, before combining.

NCUA’s new rules on conversions to mutually savings banks will require the 46-year-old credit union to first notify its members that the conversion is being contemplated and allow them to respond.

The boards of each institution are scheduled to vote on whether to proceed next month. If all goes according to plan the merger could be completed around next spring.

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Coastway Up Against MBL Cap

CU Times - July 22, 2008

CRANSTON, R.I. — It appears that Bill White, CEO of the $310 million Coastway Credit Union, did not exaggerate when he cited a need to increase the CUs ability to make business loans as a reason to favor conversion to a mutual bank in a press release about the potential charter change.

According to the CU's filing with NCUA, Coastway is right up against the statutory cap on member business lending of 12.25% of its total assets. According to Coastways documents, the CU had booked $37.6 million in member business loans as of the end of March 2008 or about 12.13% of its $310 million in total assets.

“As a Rhode Island-chartered, member-owned mutual savings bank, the board of directors believes that growth will enable Coastway to increase its lending capacity to businesses, as well as to individual members,” White said in a release about the charter change.

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Members Do Not Care About Ownership or the Tax Exemption - Task Force Findings Validate Converting Credit Union Strategies

NEW YORK (7/2/08)--Membership Growth Task Force Chairman Dick Ensweiler presented the group's findings and recommendations to the Credit Union National Association's (CUNA's) Board Tuesday during America's Credit Union Conference & Expo this week in New York.

"Fifteen percent of potential members are actually members of credit unions, and it's not growing," Ensweiler, president of the Texas Credit Union League, said.

Potential members "are getting inconsistent messages about credit unions, and branding isn't the answer because credit unions want to do their own marketing to show they're unique from other credit unions," he said. Marketing messages emphasizing member-owner benefits and tax-exemption are not messages that resonate with potential members. "We need an awareness and image campaign" that should focus on "what people care about—trust, respect, or whatever the right message is today." (CUNA News Now)

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Fizz Goes Out of CURIA-Lite

WASHINGTON – (April 30, 2008) The credit union lobby was licking its wounds yesterday, hours after congressional leaders pulled the credit union regulatory relief bill from a scheduled vote in response to a massive outpouring of opposition by the bankers.

John Magill, chief lobbyist for CUNA, said he was confident the CU Regulatory Relief Act would have gotten the two-thirds majority necessary under the House’s so-called suspension rules, if the bill had been put to a vote yesterday, as planned. “I believe we had the votes,” said Magill.

But hundreds of bankers descended on Capitol Hill in recent days, lobbying against the credit union bill. Leaders in both parties were reluctant to have their members vote on what turned out to be a controversial bill, pitting two powerful constituencies against each other, as election season is approaching.

Ron Ence, senior lobbyist for the Independent Community Bankers Association, said his group had sought to amend language in the bill so that entire U.S. cities, such as San Francisco, Miami, Washington, D.C. and Philadelphia, would not qualify as underserved areas, as they currently do under NCUA rules. The ICBA also wanted language requiring loans credited to underserved areas actually are used in those areas.

“We wanted to tighten down the definition of underserved, so that underserved means underserved,” Ence told The Credit Union Journal yesterday. “But they (the credit union lobby) weren’t willing to sit down and compromise.” (Credit Union Journal)

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