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Weekly Recap — The pros and cons of a community charter

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

In the spotlight

* By almost any measure, Illinois is one of the top states for agricultural production in the country and its farmers borrow millions each year to finance their operations. But credit unions in the state lend next to nothing in that space. Agricultural loans at Illinois banks and thrifts totaled $4.85 billion at the end of the fourth quarter of 2016. That number has fluctuated in recent quarters from as low as $3.93 billion in the first quarter of 2014 to a high of $4.99 billion at the end of the fourth quarter of 2015, according to SNL Financial data. For Illinois credit unions, total agriculture loans at the end of the most recent quarter were only $11.2 million.

The situation is somewhat similar in Iowa, said Patrick Jury, president and CEO of the Iowa Credit Union league. "As odd as it seems, Iowa credit unions are not heavy ag lenders," he said.

In a subsequent interview, Ottumwa, Iowa-based Community 1st Credit Union vice president of commercial and ag lending, Brian Dostal, said he doesn't believe credit unions necessarily have to be of a certain size to offer ag lending. It is true that doing ag lending often means exposing the institution to larger credits, but he added that there are many smaller farm operations that are always in need of loans. "It's basically being comfortable with the process and understanding how to underwrite it," he said.

Dostal said commodity prices have significantly reduced during the past three to four years, putting financial pressure on many operations. "The $7 corn and $14 soybeans is now under $10 beans and $3.50 corn," he said. "That's been a strain on the farmers." One positive going into 2017 was that much of the input costs for local farmers have dropped, he said.

Dostal said competition for ag credits comes primarily from community banks and the Farm Credit Services. Large national banks are not prevalent in the ag space in Community 1st's markets, he said. Community 1st's ag book is nearly $65 million, or about 60% of its total portfolio.

In other news

* As both state-chartered and federally chartered credit unions gain more latitude to expand their fields of membership, differing expansion strategies are emerging. Field of membership has been one of the most discussed issues in the credit union space recently, especially after the National Credit Union Administration in October 2016 passed a rule to modernize its applications. Some institutions, including Fremont, Mich.-based Gerber Federal Credit Union, have taken the opportunity to expand to a community charter.

* Richland, Wash.-based HAPO Community Credit Union expanded its services to include commercial lending, with the launch of its commercial services division, the Walla Walla Union-Bulletin reported April 3. The National Credit Union Administration in 2016 approved a new rule to open up commercial lending to credit unions, and most of the provisions of the rule went into effect Jan. 1, 2017. But credit unions still must deal with a statutory cap that limits total business loans to 12.25% of total assets or 175% of net worth.

* The Credit Union National Association applauded legislation that addresses what it calls a disparity in the treatment of certain residential loans made by banks and credit unions. When banks make loans for the purchase of one- to four-unit, non-owner-occupied residential dwellings, these are classified as real estate loans. But when credit unions make the same loans, they are classified as business loans, and therefore are subject to the cap on member business lending under the Federal Credit Union Act. The Credit Union Residential Loan Parity Act would amend the Federal Credit Union Act to provide an exclusion from the cap for these loans.

* The bankruptcy trustee for ITT Educational Services Inc., Deborah Caruso, has sued five credit unions — Indianapolis-based Eli Lilly Federal Credit Union (now Elements Financial Federal Credit Union); Greenwood Village, Colo.-based BellCo Credit Union; Wichita, Kan.-based Credit Union of America; Sylvania, Ohio-based Directions Credit Union; and Waterloo, Iowa-based Veridian Credit Union — for their alleged role in helping the former management of the for-profit college chain boost executive pay while eventually making ITT insolvent, The Wall Street Journal reported March 31.

* In a House Financial Services Committee hearing April 5, Reps. Sean Duffy, R-Wis., and Bill Huizenga, R-Mich., attacked Richard Cordray's leadership at the Consumer Financial Protection Bureau, alleging that he allowed a culture of discrimination and harassment. They claimed that a number of employees blew the whistle on instances of sexism, racism, intimidation and retaliation, representing irony for a bureau that examines financial companies for the same types of violations.