Share Insurance Fund Drops $744.9 Million Through the End of Q3

Fueled by the failures of six credit unions this year, the NCUA’s Share Insurance Fund reserves had dropped $744.9 million by the end of the year’s 3rd Quarter, agency officials said Thursday.

Despite repeated requests for a further explanation of how those losses occurred, NCUA officials did not elaborate on the announcement, which was made at Thursday’s agency board meeting.

However, an examination of the credit union closures for this year centers on two potentially being the largest sources for the drain—Melrose Credit Union and LOMTO Federal Credit Union.

Both of those institutions faced millions of dollars in losses for loans made with taxi medallions as collateral. As rider-sharing services have gained in popularity, the value of those medallions has plunged.

Teachers Federal Credit Union took over both of those credit unions but did not take on any of the taxi-related loans, leaving those likely bad loans in the hands of the NCUA.

And so far, agency officials have refused to provide the number of loans the agency has assumed or their total amounts.

The NCUA’s Office of Inspector General must conduct “Material Loss Reviews” for any credit union that causes a drain of at least $25 million to the Share Insurance Fund. However, the office has not yet released reports on any of the six.

As a result of the liquidation charges and other costs, the share insurance fund reserve balance dropped from $957 million at the start of the 3rd Quarter to $156.2 million.

“These are big numbers,” NCUA Chairman J. Mark McWatters said at Thursday’s board meeting. “All of this happened without an assessment to the credit union community.”

“Larger credit unions, when they fail, cost a lot of money,” added board member Rick Metsger.

The board members said that the agency was able to absorb the losses because the board earlier this year approved the merger of the Corporate Stabilization Fund with the Share Insurance Fund.

As a result of that merger, federal credit unions received a $735.7 million dividend earlier this year. The board last year set the agency Normal Operating Level at 1.39%.

But at the end of the third quarter, that level stood at 1.35%.

By the end of the 3rd Quarter, these are the six credit unions that had failed:

• Melrose served 19,864 members and had assets of approximately $1.1 billion. But the credit union had some $833 million in commercial loans not backed by real estate–much of that total is likely taxi-related loans.
• LOMTO served 2,283 members and had assets of approximately $156 million, On June 30, LOMTO held $120.4 million in commercial loans not backed by real estate, a category that includes loans backed by taxi medallions, of which 66.9% were at least 60 days delinquent.
• First Jersey Credit Union served 9,045 members and had assets of almost $86 million at the time of its failure.
• Greater Christ Baptist Church Credit Union was a federally insured, state-chartered credit union that served 396 members and had assets of $608,330 at the time of its failure.
• Louisville Metro Police Officers Credit Union served 3,349 members and had assets of approximately $20 million when it failed.
• St. Elizabeth’s Credit Union was a federally insured, state-chartered credit union with assets of approximately $140,000 serving 196 members.

After the quarter had ended, the Radio, Television and Communication Federal Credit Union failed. It served 416 members and had assets of $3 million.

During the meeting, the board also approved its 2019-2020 budget. The 2019 Overhead Transfer Rate will be 60.5% and the operating fee will increase by an average of 2%, under the budget the board approved.

The board had opened the budget proposal to public comment, but while the agency expanded its explanation of sections of the document, the numbers remained unchanged from the NCUA’s original plan.

Federal credit unions cover just over 70% of the costs of the NCUA’s operations, while federally insured state-chartered credit unions pay just under 30%.

The budget proposal totals $334.8 million budget for 2019, a 4.3% increase above the board-approved budget for this year.

The plan calls for a $6.3 million increase of the agency’s operating budget, which amounted to $298.1 million this year. The operating budget estimate for 2020 is $316.2 million.

The agency’s personnel level would drop by 10 positions as a result of the agency’s reorganization plan. The reorganization plan resulted in the elimination of 15 positions, but the agency is proposing five new positions.

The budget document states that the agency will be finalizing several steps in its reform plan, including consolidating the number of regional offices to three, reducing leased office space by 80%, modernizing the examination process using enhanced technology and implementing plans for offsite examinations in an effort to contain travel costs.

The board also agreed to publish a proposed rule that would amend credit union fidelity bond requirements for credit unions.