It had been more than six years since a credit union successfully emerged from conservatorship, but it recently happened twice within a week.
But those developments might be more a coincidence than a sign of hope for other troubled institutions, industry insiders said.
The National Credit Union Administration announced Feb. 23 that the $4.2 billion-asset Municipal Credit Union in New York was released from its
Then on March 1, the NCUA announced it had released
Before these announcements, the most recent credit union to come out of conservatorship was Texans Credit Union of Richardson, Texas, in 2016. The vast majority of credit unions that enter conservatorship are either closed or merged into another institution.
The two recent success stories may simply be a coincidence rather than a sign the regulator is making a concerted effort to get more troubled institutions back on their feet, said Keith Leggett, a retired American Bankers Association economist who continues to follow credit union issues closely.
The NCUA has a goal of resolving problem credit unions within an average of 24 months after its Camels composite downgrade, he said. Camels is an internationally recognized methodology that assesses a bank's capital adequacy, asset quality, management, earnings, liquidity and sensitivity to stress.
The move by the NCUA to remove the two institutions from conservatorship earlier than that threshold “would suggest that the issues confronting the credit unions were addressed,” Leggett said.
Mark Treichel, a former NCUA executive director who now runs Credit Union Exam Solutions, agreed. “This would be a coincidence,” he said.
Each regional director is tasked with serving as conservator of the credit unions that he or she recommends be placed into conservatorship by the NCUA. The director represents the rights of the membership and also has a fiduciary responsibility to minimize the cost to the National Credit Union Share Insurance Fund, he said.
“All other things being equal, the goal is to return the CU to control by the membership,” Treichel said. “The totality of the facts at each conserved credit union will dictate the likely resolution.”
A second chance
Officials of Southern Pine didn't respond to a reporter's calls for this story, but Kyle Markland — who was appointed CEO of Municipal Credit Union in November 2020 after the conservatorship was announced — was willing to discuss Municipal's comeback. Its performance in recent audits and examinations was a key factor in its early release, he said.
“We cannot rewrite some past chapters in our history,” Markland said. “We were fortunate that MCU’s fundamentals were strong; we were not conserved because of balance-sheet issues. What is truly different now as we move forward is that our members have high-performing leadership that was chosen based on their values, experience and expertise.”
Municipal’s former CEO, Kam Wong, was charged in 2018 with
Last week, Municipal announced a new board of directors, chaired by Tom Canty, and a new supervisory committee chaired by George Cherubini.
The organization has instilled a strong culture of compliance and recruits those who share the highest level of integrity and ethics — from its board to the customer-facing branch teams, Markland said.
“We have also created a system that requires a separation of duties and dual controls. We welcome comprehensive audits and examinations to ensure compliance and the strength of our policies and procedures,” he said.
Conservatorship is often a death sentence for tiny credit unions, and it is much more common to see those institutions close or acquired than successfully emerge, said Geoff Bacino, a consultant and former NCUA board member.
Larger credit unions are often sold off or the NCUA puts a CEO in place for a workout, Bacino said. For privately insured, state-chartered credit unions, the regulator often works with the credit union to try to nurse them back to health.
“Take Silver States Schools in Las Vegas — American Share Insurance
Municipal got a second chance because it's a relatively large credit union, Bacino said. And going forward, the NCUA may choose to attempt work-out plans with other troubled credit unions.
“The agency's focus obviously has to be safety and soundness, but they also can work with problem CUs and not just buy out the problem,” he said.
No clear path
A credit union in conservatorship has one of three fates: It could fail, it could be merged into another institution, or it could recover.
The agency March 4 announced that it shuttered the $5 million-asset
The NCUA always tries to return a credit union to its members after a conservatorship, but most times the losses are so devastating to the credit union that it cannot be restored and must be merged, said Dennis Dollar, a credit union consultant and a former NCUA chairman.
Larger credit unions are harder to merge because of the lack of credit unions with the sufficient scale to take on their losses. So whenever possible, the NCUA will manage the credit union as a conservator for a period of time, downsize it to mitigate the risks on the balance sheet, assume some of the losses in the share insurance fund, build enough capital to make it self-sustaining with the downsized asset base and return it to the members.
“That is always the best solution from a conservatorship as it protects the member-owned institution, but often the losses and the time it would take to turn the credit union around are such that an emergency merger is the most appropriate solution for both the NCUA and the members of the conserved credit union,” Dollar said. “It is one of the toughest challenges facing a regulatory agency — when and how to conserve a regulated institution.”
Markland said Municipal has been able to achieve recent success due to the strength of its membership, the initiatives prioritized in its departure plan in joint coordination with New York regulators and the NCUA as well as the commitment and determination of its employees.
“We’ve found that through charting a path forward, focusing our energy and commitment on the core purpose of our organization — serving New York’s everyday heroes — has enabled us to deliver maximum value and quality service to our members,” he said.
