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Weekly Recap: Consultant says total CUs could fall to 5,000 before leveling

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Street Talk Episode 65 - Deferral practices trap US bank portfolios in purgatory


Weekly Recap: Consultant says total CUs could fall to 5,000 before leveling

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

It was a typical week in terms of mergers in the U.S. credit union space with a small amount of deals announced and a few others completed.

Falling into the latter category, Fullerton-based Pacific Community CU merged into Anaheim-based Credit Union of Southern California. SNL data shows that as of Sept. 30, Credit Union of Southern California had $1.23 billion in assets, while Pacific Community CU had assets of $182.5 million.

There are now roughly 5,700 credit unions in the U.S., and that number could fall to about 5,000 before leveling off, Cornerstone Advisors Senior Director Vincent Hui said in an interview. Hui said the optimal number may be closer to 3,000, but it will never get there because many institutions can survive indefinitely if they have decent capital levels and earnings.

In addition, there are some credit unions that may be OK simply serving a very specific niche and adding value to those members and would have no need to sell, Hui said.

"Look at the bank side where the impetus to sell is clearer cut," he said. "Even then, and despite a decrease in numbers, there are still thousands of banks and new de novos all the time."

Hui said the credit union environment could change in 10 to 15 years when most millennials and members of Gen Z will have balances and borrowing needs and will want to handle transactions outside of branches.

"That will be a wake-up call for credit unions that have built their model on physical locations," he said.

In other news

* After declining for two quarters, total delinquencies for U.S. credit unions rose in the third quarter of 2017, with used vehicle loans continuing to show weakness. At the end of the third quarter, total delinquencies on credit union balance sheets totaled $14.74 billion after sitting at $13.39 billion in the second quarter and $13.03 billion at the end of the third quarter of 2016. Used vehicle loans were the largest delinquent category at the third quarter's close for the industry at $4.19 billion, up from $3.74 billion in the prior quarter.

* New York-based Lower East Side People's FCU filed a lawsuit seeking to remove Office of Management and Budget Director Mick Mulvaney as acting director of the Consumer Financial Protection Bureau. In its complaint filed Dec. 5 with the U.S. District Court for the Southern District of New York, the credit union argued that under the Dodd-Frank Act, Deputy Director Leandra English should be appointed as acting director of the bureau. Lower East Side added the president could not appoint a White House employee "who serves at his whim and pleasure" to run an independent association.

* The National Credit Union Administration on Dec. 4 liquidated Riverdale CU after determining that the Selma, Ala.-based credit union was insolvent and had no prospect for restoring viable operations. Metairie, La.-based Jefferson Financial FCU immediately assumed Riverdale CU's membership, shares, loans, and most other assets. Riverdale CU — the fifth federally insured credit union liquidation in 2017 — had earlier been placed into conservatorship on June 22 due to unsafe and unsound practices at the credit union, according to the NCUA.

* Geoff Bacino, a credit union consultant and former NCUA board member, said in his monthly newsletter it does not appear that nominations for the two open NCUA board seats will be made before the end of the year. Bacino said it is rumored that there are two names being considered for the Republican seat, but Minority Leader Charles Schumer has not yet forwarded his selection for the Democratic seat. "As one who has gone through this process twice, I will continue to say that when it comes to Presidential nominations those that talk the most usually know the least while those that talk the least usually know the most," Bacino wrote.

* NCUA Board Member Rick Metsger said the share insurance fund may need to increase loss reserves as the values of taxi medallions decline. Metsger, speaking to the Oregon Department of Financial Services CEO roundtable, said prices for New York taxi medallions at two recent public auctions were considerably lower. "That, combined with a continued increase in already high delinquency rates on medallion loans, suggests the share insurance fund's reserves may have to increase in the very near future," he said.