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Weekly Recap – Credit union-to-bank conversions could be gaining steam

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Weekly Recap – Credit union-to-bank conversions could be gaining steam

The weekly recap features newson regulatory actions, mergers and other issues facing the credit union space. Sendtips, ideas and chatter to kmccarthy@snl.com.

News

* BelAir, Md.-based HAR-CO Credit Unionis once again attempting to convertto a state-chartered mutual savings bank, AmericanBanker reported April 25. If state and federal regulators approve the creditunion's application, the institution will change its name to Har-Co Community Bank,according to the report. HAR-CO CU already tried to convert to a bank in 2011, withmembers' approval. However, the attempt was not completed, the report added, notingthat the reason was not disclosed in the credit union's recent application.

* Creditunions that are growing — or want to grow — have in some cases become with their constrictedability to conduct business on equal footing with banks, with the limitations onthe amount of small business lending they can do and with their lack of access tosupplemental capital. "So, when you look at those three things, they are allrelated to the ability to grow and generate earnings on the same basis as banks,who are their primary competitors," Peter Duffy, managing director at SandlerO'Neill, said in an interview. And credit unions that feel frustrated with one ormore of those issues sometimes decide that life as a bank might be better, and sothey seek out a conversion.

* Somesmall banks and credit unions are buildingtheir brands using the same marketing strategies as craft breweries— an emphasis on the small, the local and the authentic. Branding experts say themove can be a savvy way to stand out from the competition and attract younger customerswho do not rely on traditional branches.

* Salem,Ore.-based Valley Credit Unionselected Pat Force toserve as its next president and CEO, according to the website of O'Rourke &Associates. The website noted Force's service as CFO at Eugene, Ore.-based .

* membership eligibility throughoutall of Pinal County, following February's approval by the Arizona Department ofFinancial Institutions, according to a letter from the credit union's Presidentand CEO Alan Althouse and Chairman Thomas Cummiskey. The letter, included in theTempe, Ariz.-based credit union's 2015 annual report, stated that previously, TruWestmembership in Arizona was limited to only a few Pinal County ZIP codes.

* Tukwila,Wash.-based Boeing Employees CreditUnion said in its 2015 annual report that it plans to expand into the Spokane, Wash., and Charleston,S.C., areas later this year. The credit union will also add new financial centersin the Puget Sound region.

* Harahan,La.-based ASI Federal Credit Unionappointed Sonya Jarvisto serve as its new president and CEO, according to a news release posted on CUInsight.com.

Regulation/legislation

* TheNational Credit Union Administration approved23 credit union mergers in March, according to the agency's latest Insurance Reportof Activity. The agency listed "expanded services" as the reason behind12 of the mergers. The NCUA attributed seven of the mergers to "poor financialcondition." Two mergers were attributed to "conversion to or merger withNFICU." One each was attributed to "inability to obtain officials"and "lack of sponsor support."

* Whilesome labeled it a victory, other observers call a recent Financial Accounting StandardsBoard concession aimed at easing the anticipated tumult of a change to the way lendersbuild up loan-loss allowances a bigmistake. "It's just such a bad idea that it's laughably bad,"Jon Winick, CEO of bank consultancy Clark Street Capital, said in an interview,pointing his criticism at FASB. At issue is the FASB's plan to move the bankingand credit union industries away from their current loan-loss model — one basedon incurred losses — and toward an expected-loss model, under which lenders wouldforecast loan losses years into the future and, notably, set aside allowances forsuch projected losses at origination.

* TheFASB board unanimously voted to delayCECL implementation by a year from the dates decided on in a November 2015 vote.CECL will now be effective for public companies that are SEC filers in the fiscalyears beginning after Dec. 15, 2019, including interim periods within those fiscalyears. For nonpublic companies, the effective date is now the fiscal years beginningafter Dec. 15, 2020, including interim periods. For private companies, not-for-profitorganizations, and employee benefit plans, the standard will be effective for annualperiods beginning after Dec. 15, 2020, and interim periods within fiscal years beginningafter Dec. 15, 2021.

* TheNCUA barred the formerpresident and CEO of a defunct mortgage company from the credit union industry.Michael McGrath Jr. initially pleaded guilty to money laundering, mail fraud andwire fraud charges in June 2009 following a federal criminal investigation intothe operations of U.S. Mortgage Corp.and unit CU National Mortgage LLC, which performed various services in conjunctionwith the residential mortgage businesses of credit unions. He was eventually sentencedin January 2015 to seven years in prison and three years' supervised release, andwas ordered to pay more than $139.6 million in restitution.

* TheCooperative Credit Union Association has asked the NCUA to reconsider the definitionof what is considered an insurance-related activity under the Overhead TransferRate. The Association said the current definition is too broad and equates insurance-relatedactivities with safety and soundness, whereby shifting safety and soundness chargesto the NCUSIF and therefore to both federally-chartered and state-chartered creditunions. The OTR has increased by more than $21 from 2009 to 2016. More than 70%of the NCUA's total budget is derived from share insurance fund assessments throughthe OTR.

* TheNational Association of State Credit Union Supervisors also weighed in on the OTRcalling the methodology "severely flawed." "Fundamentally, NCUA'scurrent methodology that classifies all safety and soundness as solely an insurancefund concern runs contrary to both the plain language of the Federal Credit UnionAct and the history of bank and credit union regulation in the United States,"wrote NASCUS President and CEO Lucy Ito.

M&A

* InWashington, members of Seattle-based PugetSound Federal Credit Union approvedthe institution's merger with Redmond-based QualstarCredit Union, according to the former's website. The deal is expectedto close May 31. The transfer of Puget Sound accounts to Qualstar is scheduled forJuly 31.

* EauClaire, Wis.-based Royal Credit Unionagreed to St. Paul, Minn.-based from The termsof the deal, which is slated for completion in the second half of 2016, were notdisclosed in the April 27 news release.

* ScotchPlains, N.J.-based United FinancialServices FCU is set to mergeinto New Providence, N.J.-based AdvancedFinancial Federal Credit Union, effective April 30.