Thursday, January 9, 2020

NCUA’s Modern Examination and Risk Identification Tool (MERIT) will be released during the second half of 2020

The NCUA’s Modern Examination and Risk Identification Tool (MERIT) will be released to all examination staff during the second half of 2020, agency board Chairman Rodney Hood told credit unions Tuesday.
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In the agency’s annual letter outlining the NCUA’s supervisory priorities, Hood also said that NCUA Connect, a common entry point for authorized users to gain access to NCUA applications, also will be made available this year.

The NCUA has conducted a limited launch of the MERIT system.

Hood said that unlike the current examination process, known as AIRES, credit unions will be able to use MERIT for several activities, including the secure transferring of documents, providing status updates, requesting due date changes on corrective actions and securely accessing completed examinations.

In his letter, Hood provided details of the agency’s supervisory priorities for the year:

  Bank Secrecy Act & Anti-Money Laundering

Hood said the agency will continue to emphasize the need for credit unions to comply with customer due diligence and beneficial ownership rules that went into effect in May 2018.

The agency also will work with other banking regulators on such issues as updates to the BSA/AML examination manual, providing clarification and ways to improve required filings on transactions and ensuring that they are filed in a timely fashion.

The NCUA also will work with other regulators on issuing guidance on “politically exposed persons.”

A politically exposed person is defined as someone who has been entrusted with a high-profile political function and who may be more exposed to bribery as a result of the position her or she may hold.

Consumer Financial Protection

The scope of consumer financial protection reviews is largely risk-focused and are based on a credit union’s compliance record, products or services and any new or emerging concerns, Hood said.

He added that each year, the NCUA selects specific consumer financial protection rules on which to focus during exams.

In 2020, the agency intends to focus on compliance with the Electronic Fund Transfer Act, fair credit reporting, the Gramm-Leach-Bliley Act requirements for the handling of non-public information about consumers, and percentage rate and late charge issues in the Truth in Lending Act.

The agency also will test for compliance with small dollar lending rules, including those associated with the Payday Alternative Loan model. NCUA examiners also will determine whether short-term, small-dollar loans that are not modeled on the PAL program comply with federal rules.

NCUA board member Todd Harper has called for the agency to implement a separate consumer protection examination and asked that three staff members be hired to develop that test.

The agency board last month adopted its 2020 budget without those additional staff members included, although board member J. Mark McWatters expressed some sympathy with Harper’s position.

Credit Risk

Agency examiners also will determine if credit unions analyze the ability of borrowers to meet debt service requirements without undue reliance on the value of collateral.
The agency also this year will implement enhanced examination procedures for credit unions with high concentrations of a specific loan type.

The NCUA has come under fire for its supervision of credit unions that held a high concentration of tax-medallion loans. The failure of two credit unions that held taxi medallions as collateral cost the Share Insurance Fund more than $700 million.

Cybersecurity

In 2018, the NCUA began using the Automated Cybersecurity Examination Tool, which is now being updated. Credit unions will be able to complete self-assessments through the updated tool this year.

The agency also will continue its cybersecurity assessments for credit unions with assets over $250 million and begin completing assessments with those with assets of more than $100 million.

Liquidity Risks

Examiners will review credit union liquidity management and planning this year, with a particular focus on credit unions with low levels of on-balance sheet liquidity.

Agency examiners also will assess the potential impact of changing interest rates and credit union contingency plans.

Other issues

The NCUA will assess the possible impact that LIBOR cessation may have on credit unions, as well as planning for the new Current Expected Credit Losses standard.

The agency also said it expects to update its guidance for credit unions that provide services to hemp-related businesses.

Saturday, January 4, 2020

FIREFIGHTERS FIRST CREDIT UNION GIVES BACK OVER $2 MILLION TO FIREFIGHTERS AND THEIR FAMILIES

LOS ANGELES, CALIFORNIA – Firefighters First Credit Union distributed more than $2 million in profit sharing proceeds to their membership comprised of career firefighters and their families nationwide. This marks the 38th year the organization has honored their legacy built upon “firefighters helping firefighters.” This year’s distribution brings total profits returned to members to over $48 million. 



“Firefighters do so much more than respond to fires. They make communities safer, stronger and better prepared for emergencies,” said Dixie Abramian, Firefighters First Credit Union’s President/CEO. “They stayed strong all year—through wildfires, hurricanes, floods and other emergencies that happened nationwide. We are heartened by how much firefighters and their families give back to their communities and are proud to share our success with them. No group is more deserving than the Fire Family.” 

Firefighters First Credit Union gave back to members by improving their financial lives in many ways. In addition to Annual Profit Sharing, they offered many account enhancements, including: out-of-network ATM fee reimbursements, they don’t charge for domestic wire transfers, stop payments and expedited person-to-person Popmoney® transfers. 

The approach to profit sharing at Firefighters First Credit Union was simple. Payouts represented a refund on the interest members paid on loan accounts and a bonus on the dividends earned in savings accounts. Individual payouts varied based on the scope of the member’s financial relationship with the Credit Union. The more members banked with Firefighters First Credit Union and utilized their services—Firefighter Insurance Services, Firehouse Financial and Firefighters First Trust Servicesthe
more members received in their annual payout. They posted the payouts to member accounts on December 31, 2019.

“During the Great Depression, banks stopped lending. At Engine Company No. 28 in Los Angeles, firefighters passed a cigar box to help rookies buy their gear. With a handshake and a promise to repay, Los Angeles Firemen’s Credit Union was born. Today, Firefighters First keeps that spirit of “firefighters helping firefighters alive,” states Scott Gibbons, Board of Directors Chair. “Our Board of Directors takes member ownership seriously. We’ve retained profit sharing as an important benefit to our members.” 

Firefighters First Credit Union will celebrate their 85th anniversary in 2020. “We’re serving 3rd and 4th generation firefighters and their families,” said Abramian. “Firefighters exemplify trust, loyalty, and service. We want to reflect that in the way we take care of their financial life. They make what we do worth doing.”

For more information, please visit www.FirefightersFirstCU.org/Payout. 

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About Firefighters First Credit Union
Firefighters First Credit Union was formed in 1935 as Los Angeles Firemen’s Credit Union and serves full-time, paid firefighters nationwide and their families. In 2014 they changed their name to Firefighters First Credit Union to better reflect their member base and in 2017 received their Federal Charter. Firefighters First currently has assets of almost $1.5 billion serving over 49,000 members.


December 2019 Media Contact: Kelly Ramsay
Senior VP, Marketing
323.550.2216
KRamsay@FireFirstCU.org




Wednesday, December 18, 2019

NCUA: Q3 2019 State Credit Union Data Report Now Available

ALEXANDRIA, Va. (Dec. 17, 2019) – Federally insured credit unions generally saw continued positive trends in the third quarter of 2019, according to the latest NCUA Quarterly U.S. Map Review (opens new window).

Growth trends in the credit union system continued in the third quarter of 2019, though loan growth slowed from a year earlier. Median loan growth in the year ending in the third quarter was 3.8 percent, and median asset growth was 1.9 percent. Almost 90 percent of federally insured credit unions reported positive net income at the end of the quarter.

The review tracks performance indicators for federally insured credit unions in all 50 states and the District of Columbia and includes information on two important state-level economic indicators: the unemployment rate and home prices.




Monday, December 16, 2019

Why Are More Credit Unions Buying Community Banks?


Top of Form
 
Why Are More Credit Unions Buying Community Banks?
KEY TAKEAWAYS

  • Acquiring banks and thrifts has become another way for some credit unions to grow in size.
  • *This trend is growing but remains small—only seven deals in 2018—because of regulatory and business-model challenges.
  • Small banks with strong community ties and banks with different specialties, such as business lending, can be appealing to credit unions.

    *Note: Credit unions have acquired 21 U.S. banks since 2018, according to S&P Global Market Intelligence, compared with 12 purchases in the prior five years. .

By Andrew P. Meyer

Thursday, April 11, 2019


In the current banking environment, there is a strong perception that bigger is better. Although banks and thrifts (hereafter referred to as “banks”) have been consolidating for decades, the trend has accelerated in recent years. One factor driving this trend is regulatory compliance costs. Research using data from the Conference of State Bank Supervisors (CSBS) 2018 National Survey of Community Banks has shown that the bigger the bank, the less it spends on regulatory compliance as a percentage of total noninterest expense.1


Credit unions also face economies of scale. In addition to other constraints on their growth, they have field-of-membership requirements: a common bond, a multiple common bond or a community bond. State-chartered credit unions may have more or less restrictive membership criteria, depending on the state. Restrictions on their field of membership have relaxed over time, giving credit unions more options for growth than ever before.


One way to grow, of course, is organically—building new branches or obtaining new customers via advertising or through special deals. A much faster way to grow, however, is to purchase another financial institution and integrate it into existing operations. Historically, the vast majority of credit unions expanding via acquisition have done so by buying other credit unions. In the last few years, however, there has been an increase in the incidence of credit unions buying banks. Indeed, there was only one such transaction in 2012, but it had grown to seven transactions by 2018. 



Acquiring a Bank vs. Another Credit Union

So what would entice a credit union to pursue a bank instead of another credit union? For one thing, it may be the fastest way to expand into new business lines that are more closely associated with banks (for example, business lending). The average ratio of business loans to total loans for the acquiring credit unions in the quarter before the transaction was 8.6 percent, whereas the average for the acquired banks was 33.8 percent. The acquisitions of the commercial banks raised the business-loans-to-total-loans ratio in the credit unions to 10.9 percent.


Moreover, like credit unions, small community banks tend to have strong community ties and know their customers on a more personal level than their large-bank counterparts do. This strong community relationship can be an asset to the acquirer.


Field-of-Membership Issues

Of course, one potential roadblock is field of membership, and a credit union must plan for such considerations early in the process. For example, if a credit union’s membership is limited to employees of a particular corporation, it would be hard-pressed to find a commercial bank whose customer base covers only those same employees.
 

On the other hand, if a credit union’s field of membership covers all residents of a particular state, it would not be difficult to find a small community bank that serves only that state or a small portion of that state. If that portion is located somewhere other than where the majority of the purchaser’s existing members are located, there is an added bonus of geographic diversification along with some new employees who are familiar with the new area.


It is possible to petition one’s regulator to change the field-of-membership constraint, but there is no guarantee of success, and such a move would need to take place well in advance of any purchase discussions.


Other Regulatory Issues

Once a merger has been consummated, the former commercial bank no longer exists as a legal entity, and the acquiring credit union may not use the word “bank” on any of its signage or literature. It must also make clear to depositors that they are no longer under the protection of the FDIC Deposit Insurance Fund, but rather the National Credit Union Share Insurance Fund. Of course, banks that switch from a national charter to a state charter, or vice versa, also face regulatory issues.


The Bank’s Decision to Sell

The decision to sell a bank is never an easy one. The banks in Table 1 (see below) that have engaged in these transactions are quite small, all well under the $500 million mark. If a bank is struggling to maintain profitability only because of its small size, then a wide variety of financial institutions would likely be able to benefit from the purchase. If the problems are more complex than a mere inability to take advantage of scale economies, however, there are reasons to believe that a credit union might be a preferable suitor.


First, credit unions do not necessarily have the same pressure to generate a return on investment for their shareholders. Rather, credit unions need only cover their operating costs, provide satisfactory member services and maintain an adequate regulatory capital base. Thus, if a target bank’s profitability is under pressure, a credit union buyer might be more willing to take a chance on the purchase. For the 19 banks listed in Table 1, six of them had a negative return on assets (ROA) as of the quarter before the transaction, and the average ROA was only 0.08 percent.


Second, credit unions might be willing to pay a higher price because of their favorable tax treatment. Unlike commercial banks, credit unions are not subject to profit taxes. If a bank is organized as a C corporation, its profits are taxed once at the corporate level and then taxed again at the individual level when they are distributed to shareholders as dividends. If a bank has fewer than 100 shareholders and satisfies some other size and complexity criteria, it can organize itself as a Subchapter S corporation. For these banks, profits are not taxed at the corporate level, but they are still taxed at the individual level when they are passed through to the shareholders. Credit unions, in contrast, do not pay any taxes at the corporate level, nor do they pass any tax liability to the owners of the organization, namely the members of the credit union. This favorable treatment may make it more likely for a credit union than a commercial bank to purchase a marginally profitable community bank.


Finally, as noted above, small community banks tend to have deep ties to their customers and take pride in fostering their communities’ growth and financial security. Other things equal, the owners of these banks might prefer to sell to an organization that has similar customer-oriented values. That is, they might feel that they have more in common with the culture at a neighborhood credit union than with the culture of a distant large bank.


Conclusion

Only time will tell whether credit unions will continue to buy banks at an increasing rate. Because of all the regulatory and business-model barriers involved, it will likely never be a dominant transaction type, but there are clearly times when it makes business sense.


Other credit unions will likely study the financial performance of these “early adopters” to determine whether to pursue their own bank deals. If the acquiring credit unions can successfully navigate the different cultures, regulations and business models, and if they can retain enough of the employees and customers, these transactions have the potential to be a win for all the stakeholders involved.


Table 1
Transaction Date
Buyer
Credit Union Type
Credit Union Assets (in millions)
Name of Acquired Bank
Acquired Entity’s Primary Regulator
Acquired Entity’s Assets (in millions)
Size Ratio of Seller to Buyer
1/1/2012
United FCU
Federal
$1,344.3
Griffith Savings Bank
FDIC
$85.2
6.34%
3/1/2014
Landmark CU
State
$2,308.8
Hartford Savings Bank
FDIC
$175.4
7.60%
4/1/2014
Municipal Employees’ CU of Baltimore
State
$1,242.6
Advance Bank
OCC
$54.2
4.36%
6/1/2014
Five Star CU
State
$258.9
Flint River NB
OCC
$19.2
7.41%
11/1/2015
Five Star CU
State
$323.9
Farmers State Bank
FDIC
$44.7
13.81%
12/1/2015
Achieva CU
State
$1,195.2
Calusa Bank
FRB
$167.3
13.99%
5/1/2016
Avadian CU
State
$645.4
American Bank of Huntsville
OCC
$107.1
16.59%
8/1/2016
Advia CU
State
$1,218.2
Mid America Bank
FDIC
$81.3
6.68%
8/27/2016
Royal CU
State
$1,855.6
Capital Bank
FDIC
$35.4
1.91%
3/3/2017
Family Security CU
State
$587.8
Bank of Pine Hill
FDIC
$20.1
3.42%
6/1/2017
IBM Southeast Employees’ CU
State
$979.3
Mackinac Savings Bank FSB
OCC
$111.5
11.39%
9/1/2017
Advia CU
State
$1,437.7
Peoples Bank
FDIC
$226.6
15.76%
4/21/2018
Lake Michigan CU
State
$5,461.2
Encore Bank
FDIC
$391.6
7.17%
6/15/2018
Mid Oregon FCU
Federal
$289.1
High Desert Bank
OCC
$20.3
7.03%
8/1/2018
Georgia’s Own CU
State
$2,342.7
State Bank of Georgia
FDIC
$96.2
4.10%
9/1/2018
Superior Choice CU
State
$417.5
Dairyland State Bank
FDIC
$79.8
19.11%
9/29/2018
LGE Community CU
State
$1,296.2
Georgia Heritage Bank
FDIC
$94.3
7.28%
10/1/2018
Achieva CU
State
$1,743.4
Preferred Community Bank
FDIC
$115.9
6.65%
11/1/2018
Evansville Teachers FCU
Federal
$1,568.8
American Founders Bank
FDIC
$88.3
5.63%
SOURCES: The National Information Center

ABOUT THE AUTHOR

Andrew P. Meyer 
Andrew Meyer is a senior economist at the Federal Reserve Bank of St. Louis.