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Weekly Recap — Wisconsin-based CU completes bank buy, more such deals coming

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Weekly Recap — Wisconsin-based CU completes bank buy, more such deals coming

The weekly recap features news on regulatory actions, mergers and other issues facing the credit union space. Send tips, ideas and chatter to ken.mccarthy@spglobal.com.

In the spotlight

* Superior, Wis.-based Superior Choice CU completed its purchase of Bruce, Wis.-based Dairyland State Bank, effective Aug. 31, according to both entities' websites. On Sept. 4, Dairyland State Bank, which already uses the Superior Choice CU name on its website, will begin operating as a branch of the credit union. Michael Bell, a lawyer with Howard & Howard, said in an interview that he expects three more credit union-buying-bank deal announcements in mid-September. Two of those are branch deals and one is a whole bank acquisition. There have been seven deals involving credit unions buying whole banks already announced in 2018.

* Due to a combination of factors including rising regulatory costs and increasing competition, the smallest U.S. credit unions continue to disappear from the banking landscape.

But America's First Network CU is trying to do something about that. The Trumbull, Conn.-based credit union has a unique "network" charter that allows it to gather small credit unions in merger-like transactions — thus creating back-office efficiencies — but at the same time permits the acquired credit unions to keep their names and identities. "So from a member-facing standpoint there is little to no change," Nick Moalli, President and CEO of America's First Network CU, said in an interview.

The credit union in 2017 announced mergers with Connecticut's East Hartford FCU and East Haven Municipal Employees CU and recently closed a merger with Rogers Employees FCU. One or two other credit unions may come on board in 2019, he said. Still, Moalli said America's First is not financially dependent on such deals to survive, and in some cases neither are the acquired credit unions.

For example, one of the institutions considering a merger with America's First in 2019 is doing well financially but is struggling to significantly grow membership. "So if they've had the same number of members for the last 40 years, it's a way to get some scale but maintain their own brand," Moalli said.

Moalli said there are now 98 credit unions in Connecticut and about 70 of those are below $50 million in assets. Those 70 comprise the pool of potential future merger targets for America's First Network, but Moalli added that as the credit union grows during the next few years the pool of potential partners will also increase.

America's First would also be permitted to bring in credit unions from outside of Connecticut as long as they are select employee group-based institutions, Moalli said.

In other news

* The NCUA Aug. 31 announced its largest-ever liquidation of a retail credit union. That looming action may have played a role in the amount of money the regulator rebated to credit unions in July, experts said. The NCUA on Aug. 31 liquidated $1.1 billion-asset Melrose CU after determining the Briarwood, N.Y.-based credit union was insolvent and unlikely to recover. "My guess, and it's only a guess, is that the NCUA took these potential loses into account a while ago and they were considered as it decided what rebates, et cetera, were given to credit unions," said William Mellin, president and CEO of the New York Credit Union Association.

* U.S. credit unions continue to convert members into auto loan customers. Auto loan penetration, or the number of auto loans as a percentage of total credit union members, increased to 20.8% at the end of the second quarter, up 26 basis points from March 31 and 80 basis points year over year. Over the last five years, auto loan penetration has increased by 4.6 percentage points.

* In search of new streams of noninterest income, some U.S. credit unions are exploring the marijuana industry. Others, however, are still hesitant about banking the space because of stigmas and confusing federal guidance. First-quarter 2018 data from the Financial Crimes Enforcement Network shows that approximately 100 credit unions have entered the cannabis banking space. While that number has increased in the last few years, those credit unions represent less than 2% of the 5,607 credit unions operating in the U.S. at the end of the second quarter.

* Greenbelt, Md.-based Transit Employees FCU is suing credit union services operator PSCU Inc. for providing poor customer service to the credit union's members, which Transit Employees believes harmed its reputation, Credit Union Times reported. The lawsuit alleges that PSCU put the credit union's members on hold for long periods, misdirected their calls and gave out incorrect information, causing significant harm to Transit Employees' reputation, the news outlet reported.