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Compensation rule must address CU difference CUNA

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WASHINGTON (6/1/11)--The National Credit Union Administration’s (NCUA) final rule on incentive-based compensation arrangements should distinguish between credit unions that have not rewarded undue risk taking and those financial institutions that have, the Credit Union National Association (CUNA) has said. Any burdens that this rule places on credit unions should be minimized, CUNA added in a Tuesday comment letter. The NCUA proposal seeks to ensure that the incentive-based compensation arrangements of credit unions with $1 billion or more in assets "appropriately balance risk and financial rewards," are "compatible with effective controls and risk management," and are "supported by strong corporate governance.” The compensation proposal, which is required by the Dodd-Frank Act, does not cover salaries or other compensation, such as bonuses, where risk is not involved. The proposed rule was jointly issued by the NCUA, the Federal Reserve, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Securities and Exchange Commission. CUNA in the letter said that credit unions have generally not provided the kinds of abusive compensation plans that are the subject of this proposal and that encouraged unmanageable risks, and added that many credit unions would likely not be subject to the rule, as they generally do not provide the type of compensation addressed by the proposal. However, CUNA still urged the agency to work with other regulators “to make important changes in the proposal that will recognize the significant differences between credit unions and other institutions regarding compensation arrangements that are the subject of this proposal.” CUNA also recommended that the agency revise and clarify its definitions of “executive officers” and “incentive-based compensation.” CUNA also called on the NCUA to exclude Credit Union Service Organizations (CUSO) from the final compensation rule. While the NCUA had not proposed including CUSOs under the rule, it did request input on whether or not CUSOs should be covered. The NCUA should also clarify which types of information financial institutions must include when they file compensation policy disclosures to the agency, CUNA added.

Magnolia FCU purchases assets of Valued Members FCU

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ALEXANDRIA, Va. (6/1/11)--Valued Members FCU of Jackson, Miss., with $9 million in assets and 2,000 members, was liquidated by the National Credit Union Administration (NCUA) Tuesday. Magnolia FCU, also of Jackson, immediately purchased and assumed the closed credit union’s assets, liabilities and members. Early in May, the NCUA announced it would work with Valued Members FCU to “resolve issues” affecting safety and soundness. The agency said that placing the troubled credit union into conservatorship would enable the institution to continue regular operations "with expert management in place, correcting previous service and operational weaknesses." It also enabled members to continue their business with their credit union. However, yesterday the NCUA said the credit union's declining financial condition led to its closure and subsequent purchase and assumption. The accounts of the new Magnolia FCU members remain federally insured by the National Credit Union Share Insurance Fund up to $250,000. The new Magnolia FCU members also will experience no interruption in services. Magnolia Federal is a large, full-service institution with $104 million in assets and more than 14,600 members.

Call report results show CU resiliency Matz says

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ALEXANDRIA, Va. (6/1/11)-–National Credit Union Administration (NCUA) Chairman Debbie Matz said the “solid financial start to 2011” reflected by first quarter credit union call report data released on Tuesday “shows the resilience” of the credit union industry and demonstrates that credit unions are continuing “to make solid progress during the economic recovery.” The NCUA’s quarterly survey compiles the results of 2011 first quarter call report data from 7,292 federally insured credit unions. The report noted that the most telling sign of credit union recovery was the 23 basis point (bp) increase in return on average assets (ROA). ROA totaled 74 bp during the quarter. The agency also noted improvements in several key indicators, including a 2.72% increase in assets, a 3.21% increase in member shares, and a 10.55% increase in net income. Net credit union income during the quarter totaled $1.7 billion. Credit Union National Association (CUNA) Chief Economist Bill Hampel said that the improvements in loan quality and net income “are really good signs, and are likely to persist throughout the year.” “Fueled largely by lower provision for loan loss expenses in 2011 than 2010, we expect credit union ROA to be at least 60 bp for the full year, even after the corporate stabilization assessment,” Hampel added. The number of credit union members increased by 300,000, totaling 90.8 million during the quarter. Total assets held at credit unions totaled $939 billion as of March 31, a $25 billion increase from the previous quarter’s numbers. Operating expenses and provisions for loan loss expenses also declined during the quarter, and net worth ratio dropped 10 bp due to assets growing more rapidly than capital, the NCUA said. The agency also noted improvements in several key indicators, including a 2.72% increase in assets, a 3.21% increase in member shares, and a 10.55% in net income. Net worth totaled $93.6 billion and investments, excluding cash on deposit or cash equivalents, totaled $253.8 billion, the NCUA reported. Loans were the only indicator to decline, falling 0.86% to a total of $560 billion. The NCUA said that credit unions made $564.8 billion in loans during the previous quarter. Credit quality continued to improve. While the delinquency rate remained near a 25-year high, it continued to drop, from 1.75% in December to 1.62% in March. The ratio of net charge-offs to average loans also fell, to 1% in the first quarter, a drop of 13 bp from the 2010 full-year rate, the NCUA said.

House holds hearings as Senate stays in recess

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WASHINGTON (6/1/11)--With members of the Senate remaining in their home districts after the Memorial Day holiday, and no major action expected in the House, credit unions will want to watch out for four House hearings. The first of these hearings will take place on Wednesday when the House Small Business Committee will discuss capital access for small businesses. The House Financial Services Committee’s monetary policy and technology subcommittee will later that day hold a hearing entitled, “Federal Reserve Lending Disclosure: FOIA, Dodd-Frank and the Data Dump.” Federal Reserve representatives from the central office and the Fed’s New York branch will testify during that hearing. A House Budget Committee hearing on Fannie Mae, Freddie Mac and taxpayer exposure to housing markets will take place on Thursday, with the full House Financial Services Committee discussing allegations of mismanagement and waste in the U.S. Department of Housing and Urban Development’s HOME Investment Partnership Program during a Friday hearing. Legislation that would lift the debt ceiling, as well as legislation related to domestic security and military construction spending, are also on the schedule. The House will have its own district work period next week, and the Senate is scheduled to return to Washington. Both the House and Senate will be in session on June 13.

Inside Washington (05/31/2011)

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* WASHINGTON (6/1/11)--A bipartisan group of 39 senators forwarded a letter Friday urging regulators to expand the proposed exemption from risk-retention rules mandated by the Dodd-Frank Act. The lawmakers said the 20% down payment required for a qualified residential mortgage (QRM) would prevent too many borrowers from obtaining loans (American Banker May 31). “The proposed regulation goes beyond the intent and language of the statute by imposing unnecessarily tight down payment restrictions,” the senators wrote. “These restrictions unduly narrow the QRM definition and would necessarily increase consumer costs and reduce access to affordable credit. Well-underwritten loans, regardless of down-payment, were not the cause of the mortgage crisis.” The proposal would implement provisions of Dodd-Frank requiring lenders to retain 5% of the credit risk for securitized loans. But the act also calls for QRMs to be exempted. The comment period ends June 10, but agencies have received many requests to extend the comment period, said the Banker