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Hey everyone, this is Mark Treichel with
another episode of With Flying Colors.

It is I was going to say January.

It feels like it's due to be
January, but it's June 15th.

And this is going to be a podcast on an
action NCUA took yesterday, which was

a conservatorship action, which doesn't
happen probably on average more than

one, two, or three, four times a year,
depending on the year when things get

more challenging economically, they tend
to increase, and I want to talk a little

bit about the conservatorship action that
NCUA published on its website yesterday.

In a press release yesterday, NCUA said
First Choice Credit Union conserved.

Accounts remain protected
by share insurance fund.

Member service uninterrupted.

The NCUA today placed First
Choice Credit Union in Atlanta,

Georgia into conservatorship.

This action was taken in
consultation with the Georgia

Department of Banking and Finance.

Member deposits at First Choice
Credit Union remain protected by the

NCUSIF, administered by the NCUA.

The insurance fund insures individual
accounts to, at First Choice,

up to 250, 000, and a member's
interest in all joint accounts

combined is insured up to 250, 000.

It goes into more
details on the insurance.

It indicates member service
will continue uninterrupted.

Member services will continue
uninterrupted at both of the

credit unions branches in Atlanta.

Members can continue to conduct normal
financial transactions, deposit and access

funds, make loan payments, and use shares.

The offices are open Monday
through Friday, 8 30 to 4.

If you have questions, You
can call the credit union.

It shows links to the frequently
asked questions page on their website.

It shows links to share insurance coverage
on NCUA's website and at mycreditunion.

gov.

First Choice Credit Union is a federally
insured, state chartered credit union.

With 6, 709 members and
assets of approximately 38.

6 million.

According to the credit union's most
recent call report, first choice credit

union serves employees of Grady hospital,
Morehouse school of medicine, faculty,

Emory university school of medicine,
faculty, Southside healthcare, Atlanta

life insurance company, South Fulton
community development corporation,

credit union staff, and family members.

All right.

So 38 million, they workers conserved
on a Friday back in the day.

I would only do
conservatorships on Friday.

Why is that?

You want to take the credit union over
at the end of the day so that you could

count cash and work over the weekend.

See what might come out of the
woodwork because stuff always

comes out of the woodwork if
you're doing a conservatorship.

If you had five reasons to conserve
it, after you conserved it, you

find out there were 10, 15, or 20.

If there was just one reason you find
out there were five, 10, 15, or 20.

It's a complicated process.

NCUA does very well.

It's a high octane type weekend where
you bring in a team of NCUA's best and

brightest, and they scrub the books so
they can get an understanding of what the

true risk is to the insurance fund is.

If you look at their most recent
FPR, which the press release

referred to, they were at 38.

6 million.

They had 26 million in loans.

They had total shares of 35
million and they lost 150, 000

in the first quarter of 2024.

I'm sure if we go over to the
income and expense, we're going to

see that probably had something to
do with provision for loan loss.

Let's see.

Provision for loan loss they had 137,
000 in provision for loan loss in

March and 400, 000 the previous year.

They've lost 150, 000.

So their expenses are high.

And you wonder why does a
credit union get conserved?

Their key ratios show that they had 8.

5 percent net worth.

If they had 8.

5 percent net worth and it was real
and NSWG wasn't concerned about the 8.

5% they would not have been conserved.

It's difficult to conserve a credit
union with a lot of capital, which

means there are either accounting
issues that are going to erode

that, or there are loan issues.

Delinquent loans are at 10%, which is in
the 99th percentile, meaning they have

higher delinquency than 99 percent of
the credit unions in their peer group.

Their rolling 12 month charge off is
2%, the peer average is 40 basis points,

and they're in the 96th percentile,
meaning 96 percent of credit unions in

their peer group have less charge offs.

They are losing money in 2024.

So there's a question as to that net
worth now, could there be other issues,

if that net worth has to be less than
that, in my opinion, if they're going

to conserve or they think it might be
less than that, meaning that there are

accounting issues or there's a concern
in some way, shape or form about fraud.

A lot of small credit unions
that are conserved end up being,

having done so because of fraud.

I'm not saying that I know that.

I'm not saying that
anybody has told me that.

I'm not saying it's necessarily true here.

However, when small credit unions with
98 percent net worth get conserved,

usually net worth evaporates either
by loan losses, accounting losses.

Fraud write offs that happened
shortly after conservatorship.

Now I'll be recording a podcast
later this week for distribution.

In the future with Todd Miller
and Steve Farr of my team, we're

gonna talk about uas cease and
desist orders and conservatorships.

It is likely that NCUA felt in order to
minimize loss to the insurance fund and to

protect the interest of the credit union,
that they felt that there was no other

choice but to conserve this credit union.

By the way, NCUA has a, there's a
redacted version of NCUA's enforcement

manual, by the way, which was written
by Steve Farr of my team which is an old

document it's there, Instruction 4820.

If you go to that document, that public
document, it says the Federal Credit

Union Act empowers the NCUA Board to
appoint itself or another, such as a

state official, as conservator of any
federally insured credit union, when

grounds established in the Act are met.

This includes circumstances where the
board determines that such action is

necessary to conserve the assets of
any insured credit union or to protect

the NCUSIF or the interests of the
members of such insured credit union.

Any insured credit unions, by a
resolution of its board of directors,

consents to such an action by the board.

The Attorney General of the United
States notifies the board in writing

that an insured credit union has been
found guilty of a criminal offense.

There is a willful violation of a cease
and desist order, which has become final.

There is concealment of books, papers,
records, or assets of the credit union,

or refusal to submit books, papers,
records, or affairs of the credit

union for inspection to any examiner
or to any lawful agent of the board.

And board in this is with a capital
B, meaning it's the NCUA board.

The credit union is significantly
undercapitalized as defined under

the Federal Credit Union Act.

By the way, they always skip doing
it under PCA because it's simpler to

do it under their other authorities.

Please A conservatorship does not
require an administrative hearing.

However, the credit union may
challenge the action in US District

Court within 10 calendar days of the
NCA, placing it into conservatorship.

Now, by the way, if they do contest it,
they have to do with their own funds.

They are no longer officials
of the credit union.

They cannot hire an attorney and
expect them to be paid by the credit

union because they don't no longer
represent the credit union and COA.

Serves as the insurer and NCUA serves
as the board of directors of the credit

union under conservatorship until such
time that they decide to return it to the

field of membership, which they would pick
a board, they'd have an advisory board

to get them off the ground and running.

And then ultimately the NCUA board
would have to vote to return it to

the members or NCUA decides it's
in the best interest to merge it

or have a purchase and assumption
liquidation into another credit union.

Or NCWA decides that the credit union
simply just needs to be liquidated.

All right.

So one other thing that caught my eye is
I looked at the notice of the profile.

Let's see the profile of the
credit union and what it's a low

income designated credit union.

It's a minority depository
institution designates itself as such.

Had grants from the National Federation
of Community Development Credit Unions.

In 2014 the Department of Health and
Human Services in 2018 from the National

Federation of Community Development
Credit Unions in 2020, and those

three combined total 48, 58, 61, 000.

But the big ticking item here
is a Community Development

Financial Institution grant of 1.

8 million in August of 2021.

Lots of interesting data here
just looking at the their profile,

looking at their financial statement,
which shows that they're healthy,

but clearly they're not if NCUA
decided to pursue a conservatorship.

Also note that the press release
talked about that they consulted

What were the words they used?

I remember these words.

The action was taken in
consultation with the Georgia

Department of Banking and Finance.

That means either Georgia Bank,
Department of Banking agreed with

it, or Georgia became aware of
something and asked NCUA to do it.

Or if they didn't agree with it,
NCUA board would have to have a vote

and give them a few days advance
notice before NCUA took that action.

So that preserves a little bit
of the state's rights for a

state chartered credit union.

But it's clear that both the
banking department and felt

this action was necessary.

It'll be interesting to
see how this plays out.

Does the credit union survive?

Does it not survive?

Are there any prohibitions related to it?

And what actually, now you won't find that
out until SUA does a postmortem, if they

do a postmortem publicly on this matter.

But because there was a grant from the
CDFI, other government agencies may be

interested in seeing how this plays out.

All right interesting times
with this conservatorships.

That's all I've got for you on this
short one single credit union topic.

First Choice Credit Union,
conserved by NCUA, what that means

for the members, what it means
for credit unions in general.

By the way NCUA I've
had a lot of questions.

Recently about what are NCUA's
authorities to remove officials.

When NCUA does remove officials,
it's just like they did here.

They conserve it.

They take the whole place over.

They do have the legal authority to do it
under other portions of the federal credit

union act, which have certain requirements
where if they wanted to remove a CEO,

they could, but the the requirements
for that to meet that threshold,

I'll cover that in another podcast.

They could remove particular board
members, but historically NCUA goes

straight to the finish line and conserves
the credit union, gets rid of all the

officials instead of using a rifle, they
use a shotgun, and one of the reasons

they do that are the the threshold
for actually conserving is easier to

prove than the threshold for doing an
individual, but I'll talk more about

that coming up in other podcasts that
we have outlined for later this year.

I hope you have a wonderful Father's
Day for those of you who are a

father, for those of you who are
going to visit your father it's One

of my favorite holidays, if not my
most favorite holiday of the year.

And I got a chance to see my
daughter and granddaughter today.

And tomorrow we'll get a chance
to see our other daughter

and our other granddaughter.

So it's a great weekend for family.

I hope you spend time with yours.

And stay tuned on more on administrative
actions, more on conservatorships

and more on this particular
conservatorship down the road.

I appreciate you listening.

Mark Treichel signing
off with Flying Colors.

Thank you for joining us on this episode
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