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3Q call report CUs earnings up chargeoffs slow

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WASHINGTON (11/30/10)--All the major indicators that credit unions like to see growing--loans, assets, savings, net income and net worth--grew during third-quarter, according to the third-quarter Call Reports submitted by the nation's 7,402 federally insured credit unions. What's more, delinquency has leveled off and loan losses are falling, said the report, released Monday by the National Credit Union Administration (NCUA). "This is further confirmation that the worst of the financial crisis is behind us," said Bill Hampel, chief economist at the Credit Union National Association (CUNA). "We still have a way to go to get back to financial conditions that most credit unions would find appealing, but it sure is nice to be headed in the right direction. The big challenge for most credit unions going forward will be building loan volume, rather than having to deal with rising loan losses," Hampel told News Now. Return on Average Assets (ROA), a key measure of credit union earnings, increased to 0.45% from second quarter's 0.40%, said NCUA. Increasing operating expenses were offset by declining cost of funds, lower provision for loan loss expense, and higher fee and other income. Meanwhile, credit union membership continues to grow, reaching 90.8 million members. Assets, loans and shares grew during the traditionally slow-growing third quarter. While share growth continues to outpace loan growth, used-automobile and unsecured loans and credit cards remain popular, said NCUA. Used-vehicle loans expanded 1.8% and continued to lead loan growth during the third quarter while new vehicle loans declined 3.6%. Unsecured loans increased 1.4%, and real estate loans rose 0.1%. Overall credit union lending remained flat, posting a 0.1% increase. The delinquency ratio--while high--appears to have stabilized at 1.74% after reaching 1.76% in the first quarter and 1.73% in the second quarter. The net charge-off ratio continued to inch lower in the third quarter, falling to 1.13% from 1.16%. “Positive trends are emerging,” noted NCUA Chairman Debbie Matz. “Although difficult economic conditions persist, I am particularly encouraged by the return on average assets growing to 0.45%, up significantly from 0.18% at year-end 2009 and negative 0.05% at year-end 2008. Coupled with the aggregate net worth ratio holding steady at 9.9%, there is reason to believe that credit unions are making progress. "Having said that, NCUA is well aware of the stressed financial environment in which credit unions operate, and is committed to maintaining a rigorous supervisory regime that will enhance safety and soundness,” she said. As of September, loan modifications accounted for nearly 2% of all loans. While the pace of loan modifications slowed, growth continues as credit unions work to assist members, said NCUA. From June through September:
* Assets increased 0.4% to $907.9 billion from $903.9 billion; * Loans increased 0.1% to $567.1 billion from $566.4 billion; * Shares increased 0.3% to $779.9 billion from $777.8 billion; * Investments declined 1.8% to $226.2 billion from $230.3 billion; * Net income increased 11.3% to $3.0 billion from $1.8 billion; and * Net worth increased 1.4% to $90.6 billion from $89.3 billion.
For details, use the link.

Inside Washington (11/29/2010)

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* WASHINGTON (11/30/10)--Demand for Federal Home Loan Bank (FHLB) advances fell to $402 billion in the third quarter, their lowest point since 1999. The 10-year low prompts questions about the system’s future at a time when the Federal Reserve Board has made efforts to create liquidity in the economy, according to industry experts (American Banker Nov. 29). Advances are a core business of home loan banks. Attempts to reach into other areas, such as mortgage loan purchasing and mortgage-backed securities investments, have resulted in losses at several home loan banks. Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc., said the FHLBs are experiencing difficulties in providing funding to insured depositories. Banks, in turn, attempted to increase earnings with investments, only to experience losses. These developments raise questions as the Obama administration puts together its housing reform package, said the Banker. Banks argue that the drop in advances is a natural part of the cycle resulting from FHLBs’ role in providing liquidity during the recent financial crisis …

SAFE Act webinar to cover registration regulations

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WASHINGTON (11/30/10)—The Credit Union National Association (CUNA) will inform credit unions on registering for and complying with the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) during a Dec. 9 webinar. The “SAFE Act--Get Ready to Comply with the Registration Requirements” webinar, which will take place between 3 p.m. and 4:30 p.m. ET, aims to educate credit unions and their employees about the new registration process which is expected to begin on Jan. 28. Credit unions will hear from the Conference of State Bank Supervisors (CSBS) about its new registration procedures, and the National Credit Union Administration on regulatory requirements and examiner expectations. The SAFE Act requires credit union mortgage loan originators and their employing institutions to register with the CSBS' National Mortgage Licensing System & Registry (NMLS). Compliance with the SAFE Act’s registration requirement is required within 180 days after the agencies provide public notice that the NMLS is accepting initial registrations. The first step will be for the credit union itself to register in early 2011 and then its covered employees will individually register. Registration is expected to run until mid-2011. Once the system is up and running, credit unions will be required to ensure that their mortgage loan originators are properly registered and prohibit any employees who are not registered from performing any mortgage loan origination duties. Residential mortgage loans, including home equity loans, are covered by the SAFE registration rules. For more on the webinar, use the resource links.

CUNA works toward lame duck MBL vehicle

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WASHINGTON (11/30/10)--As the brief, year-ending lame duck session truly begins this week, the Credit Union National Association (CUNA) continues to closely monitor action in the House and the Senate to find an appropriate vehicle that could carry legislation that would increase credit unions’ ability to engage in member business lending (MBL). “The key, obviously, is to attach our provisions to something that will become law. Our efforts face procedural realities, and obviously the underlying bill that would serve to move MBL provisions must be one that can get through the Senate and be passed with at least 60 votes,” CUNA Vice President of Legislative Affairs Ryan Donovan said. However, underscoring the uncertainty that generally accompanies a lame duck session, Donovan added that CUNA believes there is no more or less certainty surrounding credit union efforts to move MBL legislation than there is surrounding any other group’s legislative efforts. “No one knows what will happen in the Congress in the next few weeks,” he added. Congress could adjourn on Dec. 17, but the exact date that the 2010 congressional session will end on is still not known. CUNA is continuing discussions with Senate leadership regarding the MBL issue, and is also working elsewhere to broaden support both for the MBL legislation and other credit union issues. CUNA Senior Vice President of Political Affairs Richard Gose added that grassroots pressure continues to build behind the MBL effort, saying that credit unions “have garnered more support” for pro-MBL legislation over the last six months. Credit unions will want to keep an eye out for several relevant hearings this week, beginning with a Wednesday Senate Banking Committee hearing entitled "Problems in Mortgage Servicing From Modification to Foreclosure." Treasury official Phyllis Caldwell, Federal Deposit Insurance Corp. Chairman Sheila Bair, Federal Reserve Governor Daniel Tarullo, acting Federal Housing Finance Agency Director Edward DeMarco, and acting Comptroller of the Currency John Walsh are scheduled to testify during the hearing. The Senate Finance Committee will also examine tax reform during a Thursday hearing on historical trends in tax income and tax expenses. Representatives from the Treasury, the Joint Committee on Taxation, and the Congressional Budget Office will testify during that hearing.

NCUA assessments could continue well below FDICs CUNA

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WASHINGTON (11/30/10)--The deposit insurance fund assessments charged by the National Credit Union Administration (NCUA) over the last three years have averaged 25% lower than the assessments that the Federal Deposit Insurance Corporation (FDIC) has charged to banks during that same time period, according to a Credit Union National Association (CUNA) white paper. The paper, which examines past insurance fund assessments and projects the likely amounts of future assessments, found that the FDIC’s assessments levied since the beginning of 2008 have totaled 47 basis points (bp) of total deposits, equivalent to 52 bp on insured deposits. The NCUA’s total assessments have totaled 41 bp of insured shares over that same time period, a number that is nearly one-fifth below the amount charged by the FDIC. CUNA in the paper projects that both groups will have to impose significant assessments on their insured institutions to restore their funds in the coming years. The NCUA’s combined credit union assessments for both NCUSIF premiums and Corporate Stabilization charges will likely average eight bp per year until 2021, for a total of 90 bp. CUNA has projected that the FDIC’s assessments will total 144 bp by 2021, a full 50% above the total amount to be assessed by the NCUA. However, CUNA noted that both of these assessment estimates are derived from the NCUA and FDIC’s current expectations regarding future losses from failed institutions and the performance of various legacy assets. If the economic recovery is slower than expected, or stalls completely, future assessments will be higher than these projections. However, a stronger than expected recovery could reduce these future assessments, the paper added. "We are now facing the highest deposit insurance assessments for banks since the early 1990s, and for credit unions since the NCUSIF was capitalized in its current form in the early 1980s" said Bill Hampel, CUNA's chief economist. "This is the unfortunate consequence of the worst financial crisis in the U.S. since the 1930s," he added.

Comment letter backs NCUA low risk definition expansion

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WASHINGTON (11/30/10)--The Credit Union National Association (CUNA) in a Monday comment letter to the National Credit Union Administration (NCUA) said that it “strongly supports” the NCUA’s expansion of its definition of “low-risk assets” under prompt corrective action (PCA). CUNA asked for this change after an October meeting with several of its member credit unions. The NCUA last month amended the low-risk asset definition to include “debt instruments unconditionally guaranteed by the National Credit Union Administration.” This move allowed credit unions to purchase senior debt instruments known as “NCUA Guaranteed Notes” (NGNs). The NGNs are comprised of $35 billion of distressed assets that were conserved from failed and conserved corporate credit unions, and the NGNs are currently available on the open market. The NGNs carry a zero risk weight, as they are fully backed by the U.S. government. The NCUA in late October settled the first two NGN offerings, with its Senior Series I-A notes paying a floating-rate coupon of one-month London Interbank Offered Rate (LIBOR) plus 0.45% per annum, subject to a maximum note interest rate cap equal to 7% annually. The NCUA's Senior Series II-A notes will pay a fixed-rate coupon of 1.84% annually, according to the NCUA. CUNA in its comment letter advocated expanding the low-risk definition to include “other types of permissible credit union investments,” and asked the NCUA to “consider issuing a separate rulemaking to broaden the scope of the new definition to include similar low-risk investments, such as credit union investments in Federal Home Loan Bank securities.” CUNA also backed the NCUA’s decision to make the final rule effective upon publication in the Federal Register, saying that delaying the effective date would have made the first two NGN offerings “much less successful” or could have harmed the credit union system as a whole by delaying the sale of the NGNs. For the comment letter, use the resource link.

Fed pay freeze comment postponed by NCUA

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ALEXANDRIA, Va. (11/30/10)--President Barack Obama on Monday announced a pay freeze for all civilian government employees, and the National Credit Union Administration (NCUA) said that it would defer making any public comment on the freeze until the full details are released. The pay freeze, which will be in effect from the 2011 fiscal year until the end of fiscal 2012, will save an estimated $2 billion during the remainder of fiscal 2011. The plan will save $28 billion over the next five years, and more than $60 billion over the next 10 years, according to White House estimates released on Monday. The freeze “will apply to all civilian federal employees, including those in various alternative pay plans and those working at the Department of Defense--but not military personnel,” the White House said in a release. The pay freeze, however, needs congressional approval to become effective. The NCUA earlier this month approved $7 million in new spending to provide a net increase of 5.7% in pay and benefits to its employees. The NCUA increased its overall budget for 2011 by $25 million. Credit Union National Association (CUNA) President/CEO Bill Cheney has questioned the NCUA's budgetary increase, saying that CUNA was concerned that the NCUA was "asking for more resources from credit unions at a time when so many credit unions are feeling the pain of an obstinate recession."