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Looking Back, Moving Ahead
The credit union movement can look back on 2016 as another wildly successful year and another entry in a streak that has run for a number of years. But 2016 wasn't without its struggles. As credit unions celebrate record numbers for new memberships, lending and more, here's a look back at some of this year's less-than-perfect moments — and the lessons they can impart for the years to come.
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Philly Liquidations
It's not unusual for the National Credit Union Administration — working in concert with state regulators when necessary — to place struggling credit unions into conservatorship or liquidate them entirely. In some cases those struggling CUs can turn the ship around under NCUA's supervision and in other cases they're absorbed in mergers with larger institutions. One of 2016's most unusual stories came in April, when NCUA liquidated six Philadelphia-area credit unions, all of which individually served fewer than 1,000 members (and some less than 100) and most of which had less than $1 million in assets. NCUA at the time declared the six institutions insolvent with no prospect for restoring viable operations.

Just days after the liquidations, the FBI launched an inquiry into possible financial improprieties at the credit unions, all of which were run by the same person. A former president of one of the credit unions told CU Journal that the FBI was looking into money that had gone missing from the credit unions. All members' accounts were protected by the National Credit Union Share Insurance Fund.

A seventh Philly-area credit union — First African Baptist Church FCU — with ties to the initial six liquidated institutions was shuttered by NCUA in November for similar reasons. Credit Union Journal reached out to the FBI's Philadelphia branch office in December for an update, but a spokesperson for the bureau said it could not comment on ongoing investigations.

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Taxi Troubles
One of the biggest success stories of the tech world is Uber, and the ridesharing service continues to have a major impact on some credit unions — but sometimes one man's success is another man's challenge. It's why they call them "disruptors."

In the fall of 2015, New York's Montauk CU was placed into conservatorship due to surging delinquencies related to its taxi medallion loans. In March of this year it was merged into Bethpage CU. Montauk's challenges were a preface for some of the troubles to come in 2016, as midway through the year Melrose CU — also in New York — fired its CEO amid a 180% surge in delinquency rates on medallion loans. While Melrose quickly appointed an interim leader, it was faced with the task of creating a net worth restoration plan that would satisfy NCUA, following a three percentage-point drop in its net worth ratio tied to medallion loans, from 10.37% in Q1 to 7.49% in Q2.

While Melrose had the most high-profile challenges surrounding medallion loans this year, it was far from the only credit union to face such issues. Purchase, N.Y.-based Quorom FCU did not originate any medallion loans, but as of mid-year it held nearly $75 million in medallion loans, approximately 8% of its total assets. Similarly, Progressive CU in New York holds more than $400 million in medallion loans, and increased its allowance for loan losses by one-third during the second quarter of 2016 to $62 million while reporting a net income loss of $19 million during the first two quarters of the year.

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Inside Job
Just days into 2016, NCUA placed Michigan's Clarkston Brandon Community CU into conservatorship following the arrest of former CFO Michael Anthony Lajoice for embezzling $20 million over the course of his 12 years at the credit union.

The losses emerged when regulators from Michigan's Department of Insurance and Financial Services (DIFS) uncovered irregularities at the credit union and traced them to Lajoice, who was subsequently terminated and then turned himself into police, admitting to his crimes. Later in the year Clarkston Brandon was absorbed by Michigan State University FCU, giving it a deeper foothold in Southeast Michigan. In the wake of the Clarkston Brandon case and a host of other fraud scandals at CUs in recent eyars, the Michigan Credit Union League released a white paper during the summer on how credit unions can better spot instances of internal fraud.

In November, Jajoice pleaded guilty to bank fraud as part of a plea agreement. He now faces a prison term ranging from 10 years to a maximum of 30 years. His sentencing is set for March 2017.

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More Members, Fewer CUs
Even as membership and lending at credit unions continue to grow, the number of CUs has been on the decline for years. At least 18 credit unions closed their doors this year as a result of NCUA supervisory action, including liquidations, purchases or assumptions; conservatorship or mergers (with or without NCUA assistance).

Along with Clarkston Brandon in Michigan, Saginaw-based Valley State CU was also placed into conservatorship, with regulators citing "unsafe and unsound practices." Ohio's Cory Methodist Church CU was placed into conservatorship in February for similar reasons, but by September it had merged into Euclid, Ohio-based Eaton Family CU.

But while some CUs only faced conservatorship or merger, 11 institutions shut their doors for good as a result of liquidation, seven of which were shuttered as part of the large-scale Philadelphia liquidations. Among them were Veterans Health Administration CU, Washington, D.C.-based Education Associations FCU, Virginia's Mildred Mitchell-Bateman Hospital FCU and CTK CU in Milwaukee.

As the industry has consolidated in recent years, these closures — along with mergers and other factors shrinking the overall number of credit unions nationwide — have led to a debate over whether or not there is still a future for small credit unions, though at least one expert has noted that when small CUs close it has less to do with environmental factors than with those institutions' own aptitude.

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Across the Pond, But in the Same Boat
The good news — if you can call it that — is that these challenges aren't limited to American credit unions. Credit unions all across the world are subject to many of the same challenges as those in the U.S., as a delegation of UK credit union professionals explained earlier this year. And their Irish counterparts faced plenty of struggles in 2016 as well, including merger after merger and a series of scandals that included missing funds, hidden tax payments, rigged raffles, deeds to foreign properties and more.
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Lessons Learned
In spite of these challenges, the credit union community has a wealth of institutions that have faced conservatorship or other tough times and managed to turn the ship around — and, befitting an industry that speaks highly of collaboration — the executives at those CUs are often more than happy to share the lessons they've learned along the way.

In a series earlier this year, Credit Union Journal looked back on some of those turnarounds and the lessons other CUs might be able to learn from them.

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