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CU System briefs (03/21/2012)

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  • WARMINSTER, Pa. (3/22/12)--Freedom CU, a $500 million asset credit union based in Warminster, Pa., welcomed 158 new members from Crestmont Baptist FCU, which merged into Freedom on March 15. Crestmont Baptist had about $70,000 in shares and $19,000 in loan balances and served the congregation of First Baptist Church of Crestmont, located in Willow Grove, Pa. Freedom said the new members will have access to more products and services through Freedom's Abington branch, which features a full-service lobby with interactive kids activity area and  a Mac-equipped Technology Center …
  • ATHENS, Ga. (3/22/12)--First Reliance FCU, an $11 million asset credit union based in Athens, Ga., has received approval from the National Credit Union Administration to expand its field of membership to include anyone who lives, works, worships, or attends school in Madison, Oconee and Oglethorp counties (OnlineAthens March 17).  The credit union has served members in Clarke County since 1971. It has roughly 2,300 members …

SECU shows how its underwriting avoids mortgage headaches

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RALEIGH, N.C. (3/22/12)--State Employees' CU (SECU) of Raleigh, N.C., is showing what good underwriting on mortgage loans can do: it has had no mortgage loan "handbacks" from government-sponsored enterprises (GSEs), and says less than 1% of its mortgages ever need force-placed insurance.

The $24 billion asset SECU has received no mortgages handed back from Fannie Mae and Freddie Mac due to poor underwriting in the past  10 years. That "gives new meaning to the phrase 'zero tolerance' in mortgage underwriting for the secondary market," it added.

SECU consistently uses "stellar underwriting practices and has historically originated and serviced all loans--in effect, 'eating its own cooking,'" the credit union said. It began offering first mortgage loans to members in 1953. Today it services more than 125,000 mortgages in the state with balances totaling more than $12 billion. Its charge-off rate is 0.25%, even in the fourth year of a recession in a state with more than 10% unemployment.

"SECU's low mortgage delinquency ratios have always been the best gauge for our organization to confirm the high quality underwriting by our financial services officers," said Spencer Scarboro, senior vice president of loan originations at SECU.  Its 60-day ratio is 2.04%.

The credit union noted that it sold fixed-rate loans on the secondary market to Fannie and Freddie, but a change in risk-based delivery pricing by the GSEs prompted it to discontinue those loans and go with 15- and 20-year portfolio fixed rates, and its adjustable rate mortgages.

Force-placed insurance will be subject to new rules issued by the Consumer Financial Protection Bureau in the coming year. SEC said not only does it have less than 1% of mortgages requiring the insurance, but also only 0.60% of  its mortgages require force-placed insurance for more than 60 days.

"These low percentages are the direct product of several practices at SEC, including mandatory escrow requirements, with interest earned by the member on the escrow account; direct contact with members upon initial coverage cancellation, and its ongoing Mortgage Assistance Program," said SECU.

SECU agrees with CFPB's need to propose a regulation that would prevent servicers from charging for force-placed insurance products unless there is a "reasonable basis to believe that borrowers have failed to maintain their own insurance."  The credit union works with members to avoid needing force-placed insurance.  Its loan servicing staff track insurance through escrow system and contact the member if there's an insurance cancellation. Members get notification two to four weeks before the cancellation date so there is time to pursue a resolution.

When the cancellation date is reach, the member has another opportunity to resolve the issue before placing force-placed coverage, with SECU staff reaching out to provide quotes for traditional insurance. The average traditional insurance cost for members is 43.5 cents per $100, compared with a force-placed premium of 85 cents per $100. The industry cost for force-placed insurance can be up to 10 times the cost for traditional insurance, said SECU.

"The ultimate goal for us as a financial cooperative is to avoid any lender-placed insurance and help members budget for the annual cost of homeowners insurance through a required escrow account," said Mark Coburn, senior vice president of loan servicing at SECU.  "With SECU paying interest on these escrowed funds, the budgeting process is a win-win for members. SECU will never utilize lender-placed insurance as an initial reaction to a member's insurance cancellation dilemma--it's just not the right thing to do," he added.

Five Texas CUs designated as Juntos Avanzamos

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FARMERS BRANCH, Texas (3/22/12)--The Texas Credit Union League (TCUL) has awarded five Texas credit unions the Juntos Avanzamos designation, which signifies a credit union has a long-term vision and commitment to serving the needs of the Hispanic market.

The designation also alerts the Hispanic community that it can receive friendly, affordable financial services at these "capacity to serve" or "Juntos Avanzamos" institutions (LoneStar Leaguer March 21).

The five credit unions who received the designation are Caprock FCU, Lamesa; Coastal Community FCU, Galveston; One Source FCU, El Paso; River City FCU, San Antonio; and Security Service FCU, San Antonio.

"Access to affordable financial services is essential to achieving financial stability," said Gary Williams, chair of  the TCUL International Relations Committee. "These recently designated Juntos Avanzamos credit unions have demonstrated that they have the infrastructure in place to effectively serve the unbanked and underserved Hispanics in their respective communities."

Texas is home to the second largest Hispanic population in the U.S. Hispanics represent a significant unbanked/underserved population and pay substantially more for basic financial services from alternative financial providers such as payday lenders, TCUL said.

Two CUs acquire bank branches

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KLAMATH FALLS, Ore. and JACKSON, Miss. (3/22/12)--Two credit unions, one in Oregon and the other in Mississippi, announced in the past week that they are acquiring bank branches.

A purchase and assumption agreement that results in the transfer of two PremierWest Bank branches located in Dorris and Tulelake, Calif., to Pacific Crest FCU in Klamath Falls, Ore., was announced Monday. The announcement was made by Jim Ford, president/CEO of PremierWest Bancorp, the parent company of PremierWest Bank, and Kathie Philp, president/CEO of the $124.2 million asset Pacific Crest FCU (Marketwire March 19).

The two bank branches were scheduled to be closed April 20. However, both branches will remain open and transition to Pacific Crest late in the second quarter, with no interruption in service.

The acquisition has been approved by PremierWest Bank's and Pacific Crest's boards of directors. Completion of the transaction is subject to customary closing conditions, including regulatory approvals.

Hope FCU, a $140.3 million asset credit union based in Jackson, Miss., announced earlier this month that is has acquired the former BancorpSouth branch in Utica, Miss. (The Clarion-Ledger March 15).

Before the grand opening this spring, the building will undergo minor renovations, Hope FCU told the newspaper. BancorpSouth closed the Utica branch last August, leaving customers without banking services in the community. Hope FCU opened a temporary branch inside the Utica Town Hall to help fill the void and then moved to a modular branch in October, the paper said.

WOCCU backs Basel revisions on reg. proportionality

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WASHINGTON (3/22/12)--World Council of Credit Unions (WOCCU) submitted formal support Tuesday for proposed revisions to the Basel Committee on Banking Supervision's Core Principles for Effective Banking Supervision.

The revisions would make regulatory standards "proportional" to financial institutions' risk profiles and based on their impact on global financial systems. Supervisory proportionality would help reduce unnecessary regulatory burdens on smaller institutions, WOCCU said in a Tuesday letter to the committee's headquarters in Basel, Switzerland.

"World Council supports the committee's proposed revisions to its core principles vis-à-vis banking supervision," wrote Michael Edwards, WOCCU chief counsel and vice president for advocacy and governmental affairs. "We believe the proportionality concept will help reduce unnecessary regulatory burdens on credit unions and other small financial institutions that are non-complex and do not present systemic risks to the financial system."

Proper oversight is critical to credit unions' capabilities to effectively serve their members, especially during times of economic challenge, according to Brian Branch, WOCCU president/CEO. "We support the regulatory goals outlined by the Basel Committee and we appreciate the opportunity to represent the global credit union movement in helping the committee develop a proportionality of oversight appropriate to our movement," Branch said.

In his letter to Wayne Byres, Basel Committee general secretary, Edwards expressed WOCCU's support of the proportionality concept as outlined in principle 8 ("Supervisory approach"), principle 9 ("Supervisory techniques and tools") and elsewhere in the revisions. Edwards also stressed recommendations offered in Guiding Principles for Effective Prudential Supervision of Cooperative Financial Institutions, developed in 2011 by the International Credit Union Regulators' Network (ICURN), a worldwide network of credit union regulatory authorities. WOCCU serves as ICURN's secretariat.

ICURN developed its principles based on those set forth by the Basel Committee, but tailored them to a credit union and cooperative financial institution context. "World Council believes that the ICURN guiding principles are an appropriate proportional approach to supervision of credit unions," Edwards wrote.

To see a copy of the letter, use the link.

State supervisors name La. regulator to FSOC

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HARAHAN, La. (3/22/12)--John P. Ducrest, commissioner of the Louisiana Office of Financial Institutions (OFI) and chairman of the Conference of State Bank Supervisors (CSBS), has been appointed to the national Financial Stability Oversight Council (FSOC), according to the Louisiana Credit Union League.

The FSOC was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act to monitor the safety and stability of the nation's financial system, identify risks to the system and coordinate responses to any threat. The act requires one of the five non-voting members of the FSOC to be a state banking supervisor selected by other state banking supervisors, said the league  (eNews March 21).

William S. Haraf, former commissioner of the California Department of Financial Institutions, previously was state banking supervisors' representative on the FSOC.

Ducrest, commissioner of Louisiana's OFI since June 2004, was elected CSBS chairman in January 2011. As commissioner of OFI, he oversees financial services providers in the state, including credit unions.  He first joined OFI in 1985 as a financial examiner before becoming deputy chief examiner and commissioner.

During Hurricane Katrina, he earned praise for his leadership in working with other state officials and the federal government to ensure a functional financial system for the citizens of Louisiana, the league said.

BECU in IHuffPoI CUs matter need supplemental capital

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TUKWILA, Wash. (3/22/12)--Credit unions are an important source for consumer financial services and private sector lending, and need access to more supplemental capital, Gary Oakland, president/CEO of BECU in Tukwila, Wash., wrote in a blog entry Tuesday on The Huffington Post.

"Credit unions serve more than 90 million Americans and play a key role in supporting our economic recovery by extending much needed credit in communities across the country," Oakland wrote. "And our numbers are growing. Nationally, more than 1.3 million Americans opened new credit union accounts in the past year.

"Unfortunately, current law imposes inflexible regulatory capital requirements on credit unions which unfairly penalize healthy credit unions for growing to meet the needs of their members," he added. "As a result, many credit unions are being forced to consider discouraging deposits, limiting new memberships and scaling back member services. This is a disservice to the communities we serve," he said.

The Capital Access for Small Businesses and Jobs Act, H.R. 3993, bi-partisan legislation, would allow "credit unions to accept additional forms of capital to supplement their retained earnings in a manner that is consistent with their status as a not-for-profit financial cooperative," Oakland wrote.

He concluded by urging Congress to support the legislation.

The Credit Union National Association is asking Congress to allow credit unions to strengthen their ability to manage risks through the use of supplemental capital.

Canadas Central 1 weathering market volatility

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VANCOUVER, B.C., and TORONTO, Ont. (3/22/12)--Canada's Central 1 CU, the central facility for credit unions in British Columbia and Ontario, has weathered last year's market volatility and the adoption of new accounting standards. It announced Tuesday that it had  posted a $16.7 million profit during 2011, compared with $43.6 million a year earlier.

The credit union organization saw improvement in market volatility during fourth quarter, which  provided a year-end boost to the earnings.  Profit for fourth quarter was $15.4 million (Marketwire March 20).

"Our core business remains strong and profitable," said Central 1 President/CEO Don Rolfe. "The market turbulence resulted in a decrease in the fair value of some financial instruments we hold, but the quality of our investment portfolio remains high."

Credit spreads on provincial and corporate debt narrowed, and earnings from operations were up, resulting in stronger earnings than had been reported earlier in the year, said  Central 1.

Market volatility has resulted in mark-to-market losses on the fair value of financial instruments held by Central 1. Under the new accounting rules, securities must be recorded as "mark-to-market" or current market value, which led to a $109.7 million loss in fair value of Central 1's financial investments.

However, Central 1's securities are being held to maturity and the losses won't be realized. Also, its portfolio of bonds are diversified among government (45%-50%) , major banks (40%), and corporate bonds, Chief Investment Officer Charles Milne told the Vancouver Sun (March 21).

In its press release, Central 1 noted it does not hold any European sovereign debt. It is well-capitalized, with a regulatory capital base of $675.4 million and a ratio of regulatory capital to  risk-weighted assets of 34.8%.

Central 1 also reported these financial highlights:

  • Total assets at year-end were $14.6 billion, up from $13.7 billion in 2010.
  • Return on average equity was 2.6%, compared with 7.4% in 2010.
  • Central 1 paid $7 million in dividends to its member shareholders.
  • After taxes and dividends, Central 1 transferred $4.6 million to retained earnings, bringing that total to $304.7 million at year-end.

Study 35 of U.S. banking customers are virtual

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NEW YORK (3/22/12)--As many as 35% of U.S. banking customers have gone 'virtual' and are no longer using branches for day-to-day financial transactions, according to a new study by consulting firm Novantas.

The New York-based consulting firm said consumers prefer non-branch channels for a range of transactions, from deposits, to solving service problems.

"The rise of virtually domiciled customers at banks is both a huge challenge and an opportunity for the industry," said Novantas partner Kevin Travis, one of the study's authors. For traditional financial institutions, these customers "are an untapped source of cross-sales, but they are also great targets for new entrant and direct players, from internet-only banks, to wealth managers and credit unions."

The findings, based on a survey of 3,500 respondents, were presented Wednesday at a Community Bankers Association Live 2012 conference.

The changes in banking channels mean branch volumes will fall by as much as 20% in certain transaction categories, said Darryl Demos, Novantas partner and an expert in sales and service staffing and processes. With fewer customers walking in the door, banks face a sales crisis, with fewer "at-bat" opportunities to acquire new business, he added. "Banks could count on a 'if you build it, they will come' model working in most markets. Today, that's over. Returns on sales force investments are likely negative for the industry and may not be coming back," said Demos.

Novantas said the findings also indicated that banks are continuing to invest in technology that improves consumers' daily lives by giving them time they normally would spend standing in line at a branch.