Where CUs Struggled in a Year of Successes

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.

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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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.