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Weekly Recap — Connecticut CUs work to adapt amid state's economic woes

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Weekly Recap — Connecticut CUs work to adapt amid state's economic woes

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

A recent report by the Connecticut Post painted a dismal picture of the economic situation in Connecticut, and the CEO of one of the state's largest credit unions talked recently about how the company is responding to operating in such an environment.

Rocky Hill, Conn.-based Nutmeg State Financial CU President and CEO John Holt told S&P Global Market Intelligence that Connecticut is an economically challenged environment in which to operate a credit union. The state runs at a deficit each year, fiscal stability is hard to come by and companies such as General Electric have left the state. "So we continue to struggle with those factors along with population losses," he said.

In response, the credit union has positioned itself to work with Hispanic communities and people who are looking for an alternative form of banking. It also recently signed a deal to install a Department of Motor Vehicles office in one of the credit union's branches. That move has attracted more recognition of the Nutmeg State brand while also bringing more potential members into the branch, Holt said.

Auto lending has been a focus for the credit union, which expects that lending line to be one of its most resilient business lines amid the state's woes. That is because the market will always be there, regardless of economic challenges for the state's workers or competitive threats to auto lenders brought on by things such as ride-sharing services, Holt said.

"We're just going to have to do things a little differently," he said.

In other news

* Holt also expressed concerns that a new National Credit Union Administration rule could have a chilling effect on mergers. The NCUA in June approved a rule that will require partnering credit unions to disclose to members merger-related compensation hikes greater than 15% of overall compensation or $10,000, whichever is more, for select employees. Holt said he is not opposed to transparency, but he believes the NCUA's rule is too intrusive.

* The NCUA approved 14 credit union mergers in June, according to the regulator's latest Insurance Report of Activity. Eleven of the May mergers were attributed to "expanded services." Two were due to "poor financial condition," and "lack of growth" was cited as the reason for another. The merging credit unions had $245.7 million in assets combined.

* The NCUA board filed administrative charges against Alan Kaufman, former CEO, treasurer and board member of Briarwood, N.Y.-based Melrose CU, and is requesting he be ordered to pay restitution of at least $3.5 million. In a release, the NCUA said it is seeking a prohibition order against Kaufman and has assessed him with a civil money penalty of $1 million. But Kaufman told the Credit Union Times that the NCUA is trying to cover up for its mistakes with Uber. "I can't say anything more than that right now," Kaufman told the publication. "But hopefully I will, in the near future, be able to give you the real story behind this."

* Two NCUA employees told S&P Global Market Intelligence that they could not comment or speculate on the possibility of a future distribution from the stabilization fund. Jacksonville, Fla.-based VyStar CU paid $12.5 million into the stabilization fund and expected about $3.5 million in the initial refund issued last month. CEO Brian Wolfburg called the dividend payment a "significant dent" to what the credit union paid into the fund. Still, he said he would use all means possible to put pressure on the NCUA to make additional refunds if the agency finds later that it has the ability to make them. "Not that I see that happening," he said.

* Curt Long, Chief Economist for the National Association of Federally-Insured Credit Unions, believes the Federal Reserve will raise interest rates two more times in 2018. "Overall, prices are rising steadily, and recently imposed tariffs will likely add to inflationary pressure," Long said in an Aug. 13 release. "The [Federal Open Market Committee] is almost certain to raise rates again next month due to the tight labor market and building inflation and odds also favor another rate hike in December." The release pointed out that 88% of private economists surveyed by The Wall Street Journal also believe two more hikes are coming this year.