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News Now: September 2, 2014

CU lending growth highest since 2006, say NCUA 2Q numbers

Washington
ALEXANDRIA, Va. (9/3/14)--In the second quarter of 2014, federally insured credit unions saw the highest year-over-year loan growth since 2006, the National Credit Union Administration announced Tuesday. Outstanding loan balances rose 9.8%, to $673.9 billion, from the second quarter of 2013, according to call reports from the quarter ending June 30.

According to data from the NCUA:
  • New auto loans grew 17% to $77.7 billion;
  • Used auto loans increased 11.6% to $135.3 billion;
  • Net member business loan balances rose 12% to $48.8 billion;
  • Non-federally guaranteed student loans increased 26% to $2.9 billion;
  • Short-term small loan originations, a consumer-friendly alternative to predatory payday loans, were up 27.5% from the first half of 2013;
  • First-mortgage real estate loans reached $279.2 billion, up 9.9% from the second quarter of 2013. Of these outstanding loans, 61% had fixed rates; and
  • Total loan growth over the year contributed to a 4.2 percentage-point increase in the overall loan-to-share ratio, which reached 71.7%, the highest ratio since the fourth quarter of 2010.
The Credit Union National Association released its survey results for the month of July this week, which showed similar increases in loan growth ( News Now Sept. 2).

"Overall, the 1.4% monthly increase in loans (16.7% annualized) is the fastest monthly advance since August 2005, and the 10.2% year-over-year increase is the highest seen in nearly a decade," said Mike Schenk, interim chief economist at CUNA.

While the NCUA's data showed a slight decrease in long-term investments as a share of assets, NCUA Chair Debbie Matz said she did not believe it would be enough to alleviate NCUA concerns of interest-rate risk. The industry's net long-term asset ratio is currently 35.4%.

"Long-term, fixed-rate assets remain elevated, and interest-rate risk continues to be a key concern and a supervisory priority for NCUA," Matz said.

Total investments by federally insured credit unions are $291 billion, a 2.7% decline from the second quarter of 2013. Investments with maturities of three years or less increased $3 billion from the previous quarter but were $13 billion below the second quarter of 2013.

According to the NCUA, federally insured credit unions with more than $500 million in assets led in most performance measures. These 448 credit unions held $760 billion in combined assets, 69% of the system's total assets during the quarter. Those credit unions also reported faster growth and higher returns on average assets than the credit union system as a whole.

Credit unions with assets of less than $10 million recorded higher net worth ratios but lagged in net worth growth, loan growth, membership gains and return on average assets.

Other notable items from the NCUA data include:
  • The number of federally insured credit unions fell to 6,429 at the end of the second quarter, 252 fewer than at the end of the second quarter of 2013, a 3.8% decline, which is consistent with recent consolidation trends within the credit union system;

  • Federally insured credit unions' return on average assets ratio rose to an annualized 81 basis points through the end of the second quarter, three basis points below the second quarter of 2013. Net income in the quarter ending June 30 was $2.3 billion, up 2.9% from a year earlier.

  • Interest income rose $410 million from a year earlier, to $9.1 billion for the quarter. Non-interest income increased $303 million from the previous quarter but was $73 million lower than the second quarter of 2013;

  • Aggregate net worth ratio for federally insured credit unions was 10.77% at the end of the second quarter, 16 basis points higher than the previous quarter and 27 basis points higher than the end of the second quarter of 2013;

  • Federally insured credit unions' total assets grew 4.5% from the second quarter of 2013, to rise above $1.1 trillion for the first time. Overall, share and deposit accounts declined slightly from the first quarter to $940.4 billion but were 3.4% higher than the $909.5 billion at the end of the second quarter of 2013. Share drafts were up 6.3% from a year ago, and regular shares were up 7.3%. All other deposits were up 0.4%;

  • The delinquency ratio of 0.85% was below the 1.04% ratio in the second quarter of 2013. The net charge-off ratio was 49 annualized basis points, down from 50 basis points in the previous quarter and down from 58 basis points a year earlier; and

  • The percentage of loan charge-offs due to bankruptcy rose from the previous quarter to 20.6%, but remained below the 22.1% level at the end of the second quarter of 2013.
Use the resource link below to access the News Now article on CUNA's monthly survey data.

CUNA meets with NCUA on status of RBC plan

Washington
ALEXANDRIA, Va. (9/3/14)--With the National Credit Union Administration Listening Sessions almost seven weeks in the past, the Credit Union National Association continues its work to inform the scope of the agency's risk-based capital (RBC) proposal. CUNA interim President/CEO Bill Hampel, General Counsel Eric Richard and Deputy General Counsel Mary Dunn met with NCUA Chair Debbie Matz and agency senior staff Tuesday to follow up on credit unions' continued concerns.

"We appreciate the opportunity to meet with the chairman and continue to express our concerns. Among the issues we discussed today was that the proposed higher level for well-capitalized credit unions would negatively affect a number of credit unions' capital buffers. We have urged the agency to lower the well-capitalized RBC level," Hampel said. The NCUA's RBC proposal calls for a 10.5% RBC component for well-capitalized credit unions and an 8% RBC threshold for adequately capitalized credit unions.
 
As is widely known, the NCUA chair already has stated that the agency will be making changes in several areas, highlighted by CUNA, the state credit union leagues and credit unions as needing change:
  • Recalibrating the risk weights in areas such as mortgages and member business loans;
  • Clarifying that only the NCUA board may impose additional minimum capital above the well-capitalized threshold; and
  • Providing longer than 18 months for credit unions to comply once the rule is adopted.
CUNA welcomes changes in those areas. The agency may also consider whether the RBC treatment of the 1% National Credit Union Share Insurance Fund deposit as well as goodwill related to mergers should be revised and whether interest-rate risk should be managed as part of the supervisory process rather than under the umbrella of the RBC rule.
 
CUNA is also underscoring that the significant changes that are anticipated to the original proposal support credit unions having another opportunity to comment on the plan before it comes before the agency for a final vote.

Other Resources

Climbing CU membership focus of USA TODAY's 'snapshot'

CU System
WASHINGTON (9/3/14)--The credit union movement's achievement of reaching 100 million memberships was broadcast to a national audience Tuesday, as USA TODAY featured a graphic in its daily front-page "Snapshots" section that illustrates the movement's path to the milestone.

In 1973--numbers supplied by the Credit Union National Association (CUNA) showed--credit union memberships nationwide topped 27.4 million. By 1993, credit unions were serving 65.5 million memberships.
Click to view larger image News that credit union memberships now top 100 million graced the front page of USA Today Tuesday.

And, of course, in June, credit unions hit the more than than 100.1 million memberships mark, a number equating to one-third of the U.S. population. According to CUNA's monthly estimates from July, that number has since climbed to 100.5 million.

CUNA has launched a campaign to raise awareness for credit unions in step with the industry reaching the 100 million-membership milestone this summer.

The campaign includes the website www.americascreditunions.org , where credit union members nationwide can upload selfies of themselves with the hashtag #100MM and a brief note about why they are a part of the movement.

The milestone is also being celebrated throughout the country.

Click to view larger image Nebraska Credit Union League staffers march behind the "100 million credit union memberships" banner to promote awareness on Labor Day in Omaha, Neb. (Nebraska Credit Union League Photo)
On Monday, Nebraska Credit Union League staff, alongside member credit unions, marched in the Septemberfest Labor Day Parade in Omaha, Neb., to promote the achievement.

At the head of the group, volunteers carried a "100 million credit union memberships" banner, while credit union employees handed out information cards, koozies and T-shirts to parade attendees.

The Credit Union Association of New York, meanwhile, helped coordinate articles with several newspapers in the state, including The Little Falls Evening Times , The Herkimer Evening Times, The Rome Sentinel and The Utica Observer-Dispatch. Each article mentioned that New York credit unions have reached 5 million memberships and the national milestone of 100 million memberships.

Elected officials in New York also have picked up on the media attention, as New York Lt. Gov. Robert Duffy expressed his support for credit unions on Twitter, tweeting that "I am a huge fan of ESL and NYS's credit unions" and linking to an article in The New York Post called "Credit union membership hits 100 million-client milestone."

The milestone also was mentioned on a segment of the show "Pennsylvania Newsmakers," which recently featured Pennsylvania Credit Union Association President/CEO Patrick Conway and board Chair Maria LaVelle, CEO, Westmoreland FCU, Greensburg, Pa., with $67 million in assets.

The discussion on the program, among other credit union subjects, focused on the state's increasing number of credit union memberships, now up to 3.8 million in Pennsylvania, in addition to the national milestone ( Life is a Highway Aug. 29).

60% call CUs trustworthy in latest Chicago Booth/Kellogg School index

CU System
CHICAGO (9/3/14)--Credit unions are holding strong on their position as trusted financial providers in the latest Chicago Booth/Kellogg School FinancialTrust Index, released Tuesday.
 
About 60% of respondents said they found credit unions to be trustworthy compared with 30% for big, national banks, "which tend to be for-profit and invest in financial products that are unfamiliar to many Americans," the study's release said.
 
"It is not just because of the not-for-profit motive of credit unions," said study co-author Luigi Zingales. "People trust more local than national banks and trust more credit unions than local banks. The more local an institution is, the more trusted it is."
 
Zingales, a professor at the University of Chicago Booth School of Business, and Paola Sapienza, a professor at the Kellogg School of Management at Northwestern University, surveyed 1,014 financial decision-makers June 18-25 for this year's index.
 
The FinancialTrust Index also found that respondents were concerned with income and educational inequality. "While on average, the economy, the housing market, and the stock market are doing better, Americans fear that--because of income inequality--most of them will not enjoy the benefits of these improvements," Sapienza said.

Prize-linked savings programs land NY Times front page

CU System
NEW YORK (9/3/14)--Through prize-linked savings (PLS) accounts, credit unions appear to have discovered a way to make saving fun and attractive, The New York Times wrote in an article that ran on its front page Sunday.

Prize-linked accounts "essentially treat every deposit as a ticket in a prizewinning raffle," the article's author said. "The idea is to offer the thrill" without the risk.

PLSs, which have been legalized in nine states across the country, have earned the acclaim, The New York Times wrote, of left-leaning poverty advocates and conservatives who like the private, market-based approach and emphasis on personal responsibility.

The programs work by offering credit union members a chance to win monthly and annual cash prizes each time they drop money in their savings accounts.

This way, even if the member doesn't win the cash prize at the end of the month or year, they still have built up their savings, plus interest, without risking any money.

One of the most popular PLS programs, Save to Win, which was developed in Michigan in 2009, has led to 50,000 accounts being created and $94 million being saved over the last five years, according to The New York Times .

Through Save to Win, members open a one-year certificate of deposit (CD), and for every $25 they deposit, they earn an entry into a monthly drawing.

"I didn't have $500 to start a CD, and when they said it was only $25, I knew I could do that," Cindi Campbell, who recently won a $30,000 year-end grand prize at Telco Community CU, Asheville, N.C., with $117 million in assets, told The New York Times.

Washington credit unions employing the Save to Win program recently reached the milestone of taking in more than $1 million in deposits after just one year of operation ( News Now Aug. 21).

Nebraska, Michigan, North Carolina, Washington, Connecticut, Indiana, Maine, Maryland and Rhode Island have passed laws allowing credit unions to offer PLS programs, all with the help of their state credit union leagues.

New York likely will be the next on the list, as the state's Legislature recently approved its own law that now only awaits the signature of Gov. Andrew Cuomo.

A version of the article appeared in print on Sunday on page A1 of The New York Times . To read the online version, use the link.

Fixed-assets proposal article tops News Now's most-read list in August

CU System
MADISON, Wis. (9/3/14)--An article describing how National Credit Union Administration's (NCUA) fixed-assets proposal could apply to state-chartered credit unions in certain states was the most read News Now story in August.
 
The NCUA's fixed-assets proposal is meant to apply to federal credit unions. It would allow federal credit unions with assets of $1 million or more to exceed the limit on the purchase of fixed assets, currently 5% of shares and retained earnings, without receiving a waiver from the agency. This is provided the credit union maintains a fixed-assets management program.
 
However, credit unions in Alabama, Arizona, Illinois, Iowa, Maine, Oklahoma, Rhode Island and Texas are permitted by their state credit union acts to exercise powers conferred on federal credit unions without seeking approval from the state's regulator.
 
In addition to the story on the NCUA's proposal, the 10 most-read articles in August included:
 
10. CUs' down-payment programs help members achieve dreams
 
LINTHICUM, Md. (8/19/14)--Using down-payment assistance programs, credit unions across the country are helping members, particularly first-time homebuyers, finally achieve their dreams of homeownership.
 
9. 62 CUs to pay total $57,750 for late-filing penalties

ALEXANDRIA, Va. (8/5/14)--Sixty-two credit unions were identified by NCUA as being subject to civil money penalties for the late filing of their first-quarter call reports, and all 62 have consented to those penalties, the NCUA announced today.
 
8. Call report focus of new CUNA survey

WASHINGTON (8/15/14)--The Credit Union National Association has sent a survey to credit union officials asking for opinions on the NCUA's 5300 Call Reports. The survey aims to gather information on credit unions' experiences with the call reports and completing and submitting the required data.
 
7. Late 2Q Call Reports: 75 CUs could face civil money penalties

ALEXANDRIA, Va. (8/26/14)--The number of late call report filers in the second quarter dropped to 75 credit unions from 104 in the first quarter, but NCUA Chair Debbie Matz said the goal still is full compliance.
 
6. New NCUA board member McWatters outlines action priorities

ALEXANDRIA, Va. (8/28/14)--J. Mark McWatters, one day after being sworn in as the newest NCUA board member, has announced his top priorities for his term at the agency. In a statement, he named regulatory relief, transparency, accountability, supporting low-income credit union members and promoting greater industry diversity as among items high on his list.
 
5. Philosophy drives shared branching success
 
MADISON, Wis. (8/25/14)--Shared branching: It may be the most distinctive feature of cooperative credit unions, but one of the least understood--at least until you need it.
 
4. Changes in FICO scoring could improve credit access

SAN JOSE, Calif. (8/11/14)--The most-used credit score in the country will no longer include records of consumers failing to pay bills if the bills are paid or settled, according to a report by The Wall Street Journal .
 
3. CUNA urges FASB: leave CUs out of credit loss reporting proposal

WASHINGTON (8/22/14)--CUNA reiterated its "strongest opposition" to a Financial Accounting Standards Board proposal involving credit losses in a letter sent to the board today. The letter, signed by CUNA interim President/CEO Bill Hampel, states that the proposed changes are likely to have a "significant detrimental" impact on a number of credit unions and their members.
 
2. EMV task force update: 575M chip cards issued by 2015

NEW YORK (8/14/14)--A group of electronic payment industry organizations have predicted more than 575 million chip-enabled credit and debit cards will be issued by the end of 2015.

1. NCUA fixed-assets proposal could apply to some state-chartered CUs

ALEXANDRIA, Va. (8/13/14)--While the NCUA fixed-assets proposal is meant to apply to federal credit unions, it could also apply to state-chartered credit unions in certain states. A number of states have a statutory provision that allows state-chartered credit unions to exercise powers allowed for federal credit unions.

Other Resources

Comments sought for 2015-17 Fannie, Freddie housing goals

Washington
WASHINGTON (9/3/14)--The Federal Housing Finance Agency (FHFA) has announced it is seeking comment for a proposed rule to establish housing goals for Fannie Mae and Freddie Mac for 2015-2017.

The Housing and Economic Recovery Act of 2008 requires the agency to establish the goals, and the current rule is set to expire at the end of this year.

The agency is requesting comment on three separate options for establishing the single-family housing goals:
  • First option: Use the current two-step process, which involves setting both a prospective benchmark level and a retrospective market level measure based on Home Mortgage Disclosure Act data;
  • Second option: Set only prospective benchmark levels; and
  • Third option: Use only the retrospective market level measure.
Click to view larger image (Source: FHFA)
According to a release from the FHFA, it has proposed single-family benchmark levels for 2015-2017 that the agency would consider adopting under the first option, which can be seen in the adjacent table. The proposal would keep the benchmarks at current levels for low and very low-income families "in an effort to encourage Fannie Mae and Freddie Mac to promote safe and sound lending to lower-income borrowers."

If the second option was adopted, the FHFA would consider adopting single-family benchmark levels in the final rule that are lower than the proposed levels. The third option would not involve setting a prospective benchmark level.   

The proposed rule also includes benchmark levels for multifamily housing goals and, for the first time, would establish a goal for small multifamily properties of between five and 50 units. These are intended to be affordable for low-income families.

The proposed multifamily benchmark levels would be the same for Fannie Mae and would gradually increase for Freddie Mac.

"These levels would require the enterprises to continue to support affordable multifamily housing despite the expectation that the enterprises' overall multifamily market share will continue to decline in the coming years due to increased participation by the private sector in the multifamily market," according to an FHFA statement.

FHFA is also requesting comment on whether multifamily housing goals credit should be allowed for blanket loans on manufactured housing communities.

Comments are due to the FHFA by Oct. 28. Use the resource link below to access the full proposed rule.

FHFA proposes revisions to FHLB membership requirements

Washington
WASHINGTON (9/3/14)--Financial institutions hoping to apply and retain membership in one of 12 Federal Home Loan Banks (FHLB) may have a new set of requirements to meet, the Federal Housing Finance Agency (FHFA) announced Tuesday.

The proposed rule is intended to ensure members maintain a commitment to housing finance and that only eligible entities can gain access to FHLB advances and the benefits of membership, the FHFA said in a release.

The FHLB system provides its members with a source of funding for mortgages and asset-liability management, liquidity for a member's short-term needs and additional funds for housing finance and community development. According to the FHFA, 1,204 credit unions are currently FHLB members.

The proposed rule would:
  • Establish a new quantitative test requiring all members to hold 1% of assets in home mortgage loans and to do so on an ongoing basis.  Currently, applicants need only demonstrate a nominal amount on their balance sheet at the time of their application, but not thereafter;

  • Require certain members that are subject to the 10% residential mortgage loans requirement to adhere to this requirement on an ongoing basis.  Currently, these members are subject to the requirement only when they initially apply for membership in a FHLB, but not thereafter;

  • Define "insurance company" to mean a company that has as its primary business the underwriting of insurance for nonaffiliated persons. This effectively excludes captive insurers from membership and prevents entities not eligible for membership from gaining access to FHLB advances through a captive insurer; and

  • Clarify the standards by which an insurance company's "principal place of business" is to be identified in determining the appropriate bank district for membership.
According to the proposed rule, using data from the December National Credit Union Administration 5300 Call Reports, 14 credit unions (1.2%) would not comply with the proposal's 1% requirement. The Credit Union National Association is gathering data regarding the number of credit unions close to the 1% threshold. 

"Based on an initial review of the proposal, it seems it may make it harder--at least at the margins--for credit unions to maintain eligibility for FHLB membership because of the 1% requirement," said Robin Cook, CUNA assistant general counsel for special projects. "Although we appreciate the need for FHFA to ensure FHLB members have a commitment to housing finance, credit unions close to the 1% threshold may need to work to ensure they are over 1% on an annual basis. We are concerned this may create a new compliance obligation for credit unions."

CUNA will meet today with FHLB representatives to discuss the impact of the proposal on credit unions.

The rule does not expand FHLB membership to privately insured credit unions, which would require Congressional action. Under current law, privately insured credit unions are generally prohibited from joining the FHLB program under current law unless they are designated as community development financial institutions. 

CUNA supports the passage of the Capital Access for Small Community Financial Institutions Act (H.R. 3584), which would make 132 small, privately insured credit unions eligible for membership. H.R. 3584 was passed by the House May 6, and CUNA wrote to the Senate Banking Committee May 19 urging the committee to take up the bill.

Comments are due to the FHFA by Nov. 1. Use the resource link below to access the complete proposed rule.
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