Removing Barriers Blog

NCUA Board Meeting Summary - July 23, 2015
Posted July 24, 2015 by Chandler Schuette

The NCUA issued a final fixed assets rule and a final stress testing rule at the July open Board meeting.  The Board was also briefed by agency staff on the condition of the Temporary Corporate Credit Union Stabilization Fund and the share insurance fund, and received a mid-year budget update.   

  • Final Rule – Ownership of Fixed Assets

The final rule eliminates the 5% aggregate limit on investments in fixed assets that is currently in place for federal credit unions with $1,000,000 or more in assets. This is a change that CUNA has advocated in our comment letters on the 2014 and 2015 proposals. Instead of applying the current aggregate limit, ownership of fixed assets will be monitored through the supervisory process and guidance.  The final rule also establishes a single six-year time period for partial occupancy of premises and discontinues the 30-month requirement for partial occupancy waiver requests.  We expect NCUA will issue supervisory guidance soon to help credit unions comply with the rule.  The final rule will be effective 60 days after publication in the Federal Register.

  • Final Rule – Stress Testing

The Board approved a final rule amending the regulation governing capital planning and stress testing for federally-insured credit unions with assets of $10 billion or greater.  The final rule changes the required dates for the stress testing and capital planning cycle.  Credit unions will now be required to submit capital plans to NCUA by May 31, instead of the former deadline of Feb. 28.  NCUA will have until Aug. 31 to provide stress testing results to covered credit unions and accept or reject their capital plans.  The final rule will become effective Jan. 1, 2016.

  • Quarterly Report – Guaranteed Notes Performance Report, and Corporate Stabilization Fund Assessment Determination

Staff reported that the performance of legacy assets of five failed corporate credit unions and the NCUA Guaranteed Notes Program have led them to the conclusion that future assessments are unlikely.  This projection was based on point-in-time projections using the best available modeling techniques and assumptions.  Staff cautioned that actual results can vary due to changes in economic conditions and other factors.

Staff noted that both ends of the range of net projected remaining assets were negative.  This was due to a combination of economic recovery and the $1.75 billion in settlements with firms that sold faulty mortgage-backed securities to the five failed corporate credit unions.  The stabilization fund is currently projected to conclude in 2021 with a surplus of $700 million to $2.5 billion, and federally insured credit unions could receive a rebate after the fund expires.

  • Quarterly Report – Share Insurance Fund

NCUA staff briefed the Board on the status of the National Credit Union Share Insurance Fund (NCUSIF).  Staff noted that the NCUSIF ended the second quarter of this year with an equity ratio of 1.29% and continued to reflect stable trends in income and operating expenses.  Investment and other income was at $55.2 million, and operating expenses were at $49.9 million.  The fund also reflected a net loss for the quarter of $8.8 million.  The equity ratio, calculated on an estimated insured base of $935.6 billion, reflected an additional 1% capitalization deposit that will be billed in September.  Staff further noted that the amount of assets in CAMEL codes 3, 4, and 5 credit unions decreased 49% since reaching a high of $205.6 billion in September 2010.

The continuation of various positive trends and other factors contributed to a slight decrease of $400,000 in the Fund’s provision for insurance losses during the first two quarters of 2015, according to staff.

  • Mid-Year Operating Budget Reprogramming

NCUA conducted its annual agency-wide mid-session budget review.  As a result of the review, the agency’s mid-year operating budget represented a $1.3 million decrease in the adopted budget for fiscal year 2015.

The capital budget saw an increase of $1.61 million, $1.3 million of which was due to the NCUA requiring enhanced data center facility capabilities and more secure services for sensitive information and mission-critical applications. Equipment and safety upgrades also added an additional $310,000.

A number of NCUA areas saw savings, however, offsetting the $1.61 million with approximately $2.945 million in savings.

Those include savings in:

  • Employee pay and benefits ($1.422 million): Vacant positions led to a savings of $1.9 million, but the recently signed collective bargaining agreement (CBA) will require an additional $76,000 increase in the health benefits subsidy, $56,000 in costs due to alteration of pay bands and $300,000 through a modification to the travel nights compensation program;
  • Travel ($428,000): Lower travel costs and ongoing vacancies in regional offices led to $475,000 in  lower costs, while an additional $47,000 in costs are required through the new CBA due to participation in the Transportation Security Authority’s pre-check program;
  • Rent, communications and utilities ($348,000): Reduced rental expenses and lower facility support costs, as well as tax reductions in central office rent;
  • Administrative: ($159,000): Vacancies, reduced materials and supply costs, as well as a lower-than expected Federal Financial Institutions Examination Council assessment; and
  • Contracted services ($588,000): Central offices identified $1.5 million in contract cost reductions, but expansion of internal cybersecurity and monitoring expenses ($746,800) and other costs offset those savings.

When the 2015 budget was proposed in November, board member J. Mark McWatters highlighted a list of 11 items he wanted to see present in future agency budgets.  During Thursday’s meeting, NCUA Chair Debbie Matz said the agency had completed eight of those items - one is in the planning stage and two did not seem relevant to the budget.  Despite Matz’s comments, McWatters cast the dissenting vote for the budget reprogramming which passed on a 2-1 vote.

If you have any questions regarding these issues, please do not hesitate to contact Lance Noggle, Andy Price, or Elizabeth Eurgubian