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
* Profitability metrics at U.S. credit unions reached their highest levels in nearly a decade in the first quarter of 2018, with both return on average assets and net income at the highest level since the second quarter of 2009. Return on average assets was 0.90%, an increase of 19 basis points from the previous year. Net income was over $3 billion for the first time since the second quarter of 2009. The $3.17 billion total was 34.8% higher than the year-ago quarter.
* U.S. credit unions continue soliciting their own memberships in an effort to grow auto loans, and they seem to be finding traction. Auto lending penetration, defined as the number of vehicle loans as a percentage of total members, stood at 16.0% for the credit union industry at the end of the first quarter of 2013. That number grew to 20.6% at the end of the first quarter of 2018. One credit union making strides in selling existing members on auto loans is Erie FCU. Its auto penetration was 15.7% at the end of the first quarter, up from 11.4% in the year-ago quarter.
In other news
* Federally insured credit unions no longer have to count loans made on one- to four-unit family dwellings as member business loans after a vote by the National Credit Union Administration board. Those loans will no longer count toward the aggregate member business loan cap that limits such loans to the lesser of 1.75x the institution's net worth, or 12.25% of the credit union's assets. The member business lending rule previously required those dwellings to be the primary residence of a member in order to be excluded.
* The NCUA on May 31 issued notices of prohibition against two individuals, including Municipal CU President and CEO Kam Wong, who was charged with embezzlement, defrauding a financial institution and wire fraud in the United States District Court for the Southern District of New York. From at least 2013 through January 2018, Wong allegedly engaged in a scheme to obtain money from the New York-based credit union to which he was not entitled. The NCUA board has prohibited Wong from further participation in the affairs of any credit union.
* The Credit Union National Association submitted a white paper to the Consumer Financial Protection Bureau in an effort to ensure that regulations are better tailored and streamlined. Among the recommendations was that the CFPB better understand the unique structure and business model of credit unions as member-owned financial services institutions that are "inherently consumer friendly." "Thus, the bureau must focus on the problem actors in the industry, not credit unions. To do so, actions must be taken to provide exemptions for credit unions in current and future regulations," CUNA wrote.
* Ussco Johnstown FCU could join a growing number of credit unions by converting from a select employee group-based charter to a community-based charter.
But such an action will probably not happen for three to five years, CEO Todd Cover said in an interview during the Pennsylvania Credit Union Association's annual conference. At that point, the Johnstown, Pa.-based credit union could also adopt a more universal name such as "Laurel Highlands FCU," Cover said.
A number of credit unions have taken the opportunity to expand through a community charter, which opens up membership to anyone who lives, works, volunteers, goes to school or attends religious services in a particular city, county or counties.
Cover said some companies that the credit union has a relationship with operate outside of the county lines, and that issue would need to be addressed. A community charter can be expanded to multiple counties, but the NCUA often requests a marketing study to prove that those additional counties comprise the same community.
In the meantime, USSCO Johnstown has been successful in growing membership through its affiliation with the local library system. Residents who do not work for one of the hundreds of select employee groups that the credit union does business with or who do not have a family member who is a member of USSCO can join the Friends of the Cambria County Library and then be eligible for membership.
"A lot of those people thought they couldn't do business with us, but now we are gaining some momentum," he said.
