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Board Action Bulletin

NCUA adopts 2011 budget of $225.4 million

The NCUA Board approved a 2011 operating budget of $225.4 million. The budget increased by $24.5 million or 12 percent over 2010. It includes 78 additional staff positions and accommodates program adjustments to ensure the successful execution of the agency’s safety and soundness mission.

 

The most significant increase in personnel relates to the annual examination program, which was started in 2010. This program adds 60 field positions to the regions and incorporates more frequent onsite contact for all federal credit unions. Increased examiner resources are required for examination of every federal credit union every year, and problem code credit unions are more closely monitored.

 

The $24.5 million increase is split between baseline changes and program changes. Baseline changes, which total $14.3 million, represent funds needed to maintain the agency’s current level of services. Program changes, which total $10.2 million, represent program initiatives. An approved $2.5 million capital budget includes $1.3 million primarily for maintaining information systems and $1.2 million for ongoing renovation to the agency’s 18-year old headquarters.

 

Chairman Debbie Matz mentioned during the budget discussion that current Office of Small Credit Union Initiatives Director Tawana Y. James has been selected to lead the new Office of Minorities and Women Inclusion (OMWI) effective January 21, 2011. The agency’s new OMWI was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

 

 

FCU operating fee scale declines 2.86 percent

The NCUA Board reduced the 2011 natural person federal credit union operating fee by 2.86 percent while maintaining Operating Fund cash reserves and contingency funds based on predicted NCUA operating costs.

 

Assets of natural person federal credit unions are predicted to increase approximately 3.40 percent during 2010; thus, the asset level dividing points for the 2011 operating fee scale is increased by 3.4 percent. Operating fees are due by Friday, April 15, 2011.

 

 

Overhead transfer rate set

The NCUA Board approved a 58.9 percent overhead transfer rate (OTR) for 2011 based on federal and state examination and supervision workload, staff time spent on insurance related duties, and the increased cost of NCUA resources and programs.

 

The National Credit Union Share Insurance Fund (NCUSIF) covers agency expenses associated with insurance-related functions of NCUA operations. In addition to federal credit union operating fees, the OTR is a funding source for the NCUA budget; however, it does not affect the amount of the budget, which the Board approves separately. The OTR is applied to actual expenses incurred each month.

 

The method used to calculate the OTR, which is detailed in the Board Action Memorandum, was evaluated by an independent, expert firm. Initial draft reports indicate NCUA’s OTR methodology is equitable and has no material weaknesses.  

 

 

Interim rule addresses technical corrections

The NCUA Board approved an interim final rule that includes three technical corrections to clarify the intent of the new, Part 704, corporate credit union rule published in the Federal Register in October.

 

The interim rule revises the definition of collateralized debt obligation, investments now prohibited for corporate credit unions. The revised definition excludes the following types of permissible investments – commercial mortgage-backed securities, securities fully guaranteed by the U.S. government or government-sponsored enterprises, and securities collateralized by government guaranteed securities.

 

The interim rule also corrects the list of investments exempt from single obligor limits and credit rating requirements in §704.6; and it corrects Model Form “H” instructions, clarifying that the form is only for use on or after October 20, 2011. Effective January 18, 2011, the interim final rule was issued with a 30-day comment period.

 

Corporate amendments proposed

The NCUA Board issued proposed amendments to Part 704 as a follow-on rulemaking to the recently approved final rule on corporate credit unions (corporates). The proposals would require corporates to establish new internal control reporting requirements and establish an enterprise-wide risk management committee staffed with a risk management expert, conduct all board of director votes as recorded votes, and disclose certain CUSO compensation received by employees who are dual employees of corporates and corporate CUSOs. The proposed amendments also provide for the equitable sharing of Temporary Corporate Credit Union Stabilization Fund expenses among all members of a corporate and permit a corporate to charge reasonable one-time or periodic membership fees. In addition, the proposal would amend 12 C.F.R. Parts 701 and 741 to limit natural person credit unions to membership in one corporate at a time.

 

The amendments were issued with a 30-day comment period, and a final is expected in early 2011.

 

NCUSIF, TCCUSF reports

The National Credit Union Share Insurance Fund (NCUSIF) equity ratio was reported at 1.29 percent as of October 31, 2010. The increase from the September 30, 2010, equity ratio of 1.18 percent was due to invoicing the semi-annual capitalization deposit adjustment and the 0.1242 percent premium assessment, which are due November 22, 2010.

 

Year-to-date, the fund is reporting net income of $323.5 million. Through October, the fund recorded $694.4 million in insurance loss expense, bringing the month-end reserve balance to $1.21 billion.

 

At October 31, 2010, 378 federally insured credit unions, with assets of $44.4 billion, and shares of $39.1 billion, were designated as CAMEL codes 4 or 5. Additionally, there were 1,774 CAMEL 3 credit unions with assets of $160.3 billion and shares of $141.4 billion. Nearly 23 percent of all assets are in CAMEL code 3, 4 or 5 credit unions.

 

Through October, 27 federally insured credit unions have failed in 2010 — 17 liquidations and 10 assisted mergers.

 

The Temporary Corporate Credit Union Stabilization Fund reported a total liabilities and net position of $4.37 billion, up from $370 million reported as of September 30, 2010. The change reflects the $4 billion borrowed from the U. S. Treasury and loaned to Western Bridge Corporate Federal Credit Union. The Stabilization Fund also reported revenue of $554,000.

 

Financial data reported for both the Share Insurance Fund and the Temporary Corporate Stabilization Fund are preliminary and unaudited.

 

Assessment predictions in 2011

A combined NCUSIF premium and Stabilization Fund assessment are projected to range between 20 and 35 basis points and cost between $1.5 and $2.7 billion in 2011.

 

The NCUSIF premium is based on variables that include insured share growth, investment income, insurance loss expense and the NCUSIF equity level. The Stabilization Fund considers borrowed funds, cash flows and affordability.

The NCUA tweets all open Board meetings live. Follow @TheNCUA (opens new window) on Twitter, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives and posts videos of open Board meetings online.

 

NCUA Liquidates Constitution Corporate Federal Credit Union 

ALEXANDRIA, Va. (November 19, 2010) — NCUA has announced that on November 30, 2010, Constitution Corporate Federal Credit Union (Constitution) will be liquidated. Constitution was placed into conservatorship by the NCUA Board on September 24, 2010, as part of the agency’s overall corporate resolution efforts. Liquidation is the next step in gaining control of the mortgage-backed securities on Constitution’s balance sheet to facilitate the securitization of those assets. This is the same process that was undertaken at four other corporate credit unions with significant investments in distressed securities.

 

As part of NCUA’s commitment that payment processing and other critical services for Constitution’s members continue uninterrupted, NCUA is transferring Constitution’s operations to Members United Bridge Corporate Federal Credit Union (Members United). NCUA made this decision after determining it was in the best interest of Constitution’s members and the NCUSIF.

Member accounts are federally insured, service to members continues uninterrupted

ALEXANDRIA, Va. (December 14, 2010) — The National Credit Union Administration (NCUA) today was appointed liquidating agent of Beehive Credit Union of Salt Lake City, by the Utah Department of Financial Institutions (DFI); and Security Service Federal Credit Union of San Antonio, Texas, immediately purchased and assumed Beehive’s assets, liabilities and members.

The new Security Service Federal Credit Union members will experience no interruption in credit union service, and their accounts remain federally insured up to at least $250,000 by the National Credit Union Share Insurance Fund (NCUSIF). Security Service Federal Credit Union is a large, full service institution with $5.9 billion in assets and 785,000 members.

At closure, Beehive had approximately $145 million in assets and served 18,000 members. The credit union was established in 1954 to serve employees of Utah state government. This is the 18th federally insured credit union liquidation in 2010.

Board Action Bulletin

Final rules adopted to protect members

The NCUA Board approved, by a 2-to-1 vote, final amendments to Parts 701, 708a and 708b to better protect credit union member rights and ownership interests. Effective 30 days after publication in the Federal Register, the rule amendments: (1) create new §701.4 to address fiduciary duties of FCU directors; (2) create new subpart C of Part 708a to address credit union to bank mergers; and (3) revise existing rules on charter and insurance conversions in Parts 708a and 708b.

 

New fiduciary duty rule §701.4 requires all FCU directors to carry out their duties in good faith, in a manner reasonably believed to be in the best interests of the membership of the credit union, and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances, and within six months to learn to read and understand the credit union’s balance sheet and income statement. Also, §701.33 is amended to prohibit FCUs from indemnifying officials or employees for liability associated with misconduct that is grossly negligent, reckless, or willful in connection with a decision that adversely affects the fundamental rights of members. The credit union may, however, purchase liability insurance and/or advance funds to a director if the director needs the funds to prepare a legal defense and the credit union believes the director will not be found liable.

 

New subpart C of Part 708a establishes procedural and substantive requirements for converting a credit union to a bank through merger. New requirements for merger valuation, regional director approval, member disclosure, and member participation are intended to ensure that members’ interests are protected during the process of converting to a non-credit union charter. The new requirements apply to direct mergers as well as transactions where the credit union first converts to a mutual savings bank (MSB) and then merges with another bank without operating as a stand-alone MSB.

 

Finally, the proposed amendments to Parts 708a and 708b revise existing rules to enhance the secrecy and integrity of the voting process in MSB and insurance conversions and require additional disclosures to members about the cost and effect of charter conversions.

 

More flexible low-income qualification proposed

The NCUA Board issued proposed qualification criteria that would enable federal credit unions to add the option of using sample data from loan files or a member survey to meet low-income designation requirements.

 

Issued with a 60-day comment period, the section 701.34 amendment would permit a federal credit union to rely on a sample of membership income data drawn from loan files or a member survey. The FCU must demonstrate the sample is a statistically valid, random sample by submitting, along with data, a narrative describing the sampling technique and evidence supporting validity of the analysis, including actual data used in the analysis.

 

A low-income designation authorizes FCUs to accept non-member deposits, raise supplemental capital, apply for NCUA grants, and earn an exception to the member business lending cap.

 

Low-income definition amended

The NCUA Board amended the definition of “low-income members” in §701.34 to clarify that, when comparing credit union data on member income with Census Bureau data to determine if a credit union qualifies as low-income, the comparison must be between like data categories. The rule was previously issued as an interim final rule, which became effective on publication August 5, 2010, and is being published now as a final rule without change.

 

Federal insurance statement proposed for advertising

The NCUA Board issued, by a 2-to-1 vote, a proposal to revise provisions within the advertising rule to require the official NCUA advertising statement appear in all radio and television advertisements, annual reports, and statements of condition required to be published by law. The verbal statement can be as brief as “Federally insured by NCUA.” The Part 740 proposal, issued with a 60-day comment period, also defines the term “advertisement” and clarifies size requirements for the official advertising statement in print materials.

 

Insurance unlimited on noninterest-bearing transaction accounts

The NCUA Board issued a proposed rule amending Part 745 to clarify the insurance protection provided by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

 

The Dodd-Frank Act provides that through December 31, 2012, the NCUA Board, in addition to insuring member accounts up to at least $250,000, shall fully insure the net amount that any member or depositor at an insured credit union maintains in a noninterest-bearing transaction account.

 

While this insurance protection is self-implementing and already in place, this proposed rule would: (1) clarify the definition of the term “noninterest-bearing transaction account;” (2) provide that this new insurance coverage is separate from, and in addition to, other coverage provided in NCUA’s share insurance rules; and (3) impose certain notice and disclosure requirements. The proposal was issued with a 60-day comment period.

 

NCUSIF equity holds steady

The National Credit Union Share Insurance Fund (NCUSIF) equity ratio of 1.29 percent at November 30 remained unchanged from the prior month.

 

The NCUSIF reported year-to-date net income of $329 million as of November 30.

No insurance loss expense was recorded in November, and the provision for credit losses (reserves) for natural person credit unions remained $1.21 billion.

 

As of November month end, 372 federally insured credit unions, with assets of $43.4 billion and shares of $38.3 billion, were designated as CAMEL code 4 or 5. In addition, there were 1,792 CAMEL 3 credit unions with assets of $158.2 billion and shares of $139.7 billion. Overall, 22.3 percent of all credit union assets are in CAMEL code 3, 4 or 5 credit unions.

 

Through November, 27 federally insured credit unions have failed in 2010 — 17 liquidations and 10 assisted mergers.

 

The Temporary Corporate Credit Union Stabilization Fund (TCCUSF) total liabilities and net position remained unchanged at $4.37 billion.

 

Financial data reported for both the Share Insurance Fund and the Temporary Corporate Credit Union Stabilization Fund are preliminary and unaudited.

 

Chief Economist added to NCUSIF Investment Committee

The NCUA Board approved revisions to the National Credit Union Share Insurance Fund investment policy that add the chief economist to the NCUSIF Investment Committee and identify the chief economist’s role on the committee.

 

FOM appeal denied

The NCUA Board denied the field of membership expansion appeal of Tri-State Federal Credit Union to add members of the YMCA of East Liverpool, Ohio. NCUA approved adding the employees of the local YMCA, but found that the proposed membership group does not meet the common bond requirements for an associational group contained in the NCUA Chartering and Field of Membership Manual.

 

CLF modifies expense reimbursement allocation

The NCUA Board approved a change to the calculation the Central Liquidity Facility uses to reimburse the NCUA Operating Fund for certain indirect expenses. The change will be retroactive to January 1, 2010.

 

The FCU Act empowers the NCUA Board to determine the amount of expenses that will be assessed to the CLF. CLF reimburses the Operating Fund quarterly for direct expenses such as salaries and benefits of CLF staff and CLF’s portion of space rental. CLF reimburses annually for indirect expenses such as Board and Central Office staff, supplies, postage, printing and telephone. Congress has set a maximum CLF budget of $1.25 million.

The NCUA tweets all open Board meetings live. Follow @TheNCUA (opens new window) on Twitter, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives and posts videos of open Board meetings online.

Board Action Bulletin

The NCUA Board unanimously approved placing AEA Federal Credit Union into conservatorship.

The NCUA Board considered two supervisory matters and one personnel matter that remain confidential at this time.

The NCUA tweets all open Board meetings live. Follow @TheNCUA (opens new window) on Twitter, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives and posts videos of open Board meetings online.

Board Action Bulletin

The NCUA Board considered four supervisory matters that remain confidential at this time.

The NCUA tweets all open Board meetings live. Follow @TheNCUA (opens new window) on Twitter, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives and posts videos of open Board meetings online.

Board Action Bulletin

Truth in Savings Rule Finalized to Update Overdraft Disclosures

The NCUA Board approved final rule Part 707 clarifying provisions affecting electronic disclosures of overdraft fees, overdraft fee disclosure terminology, and retail sweep accounts.

 

The Truth in Savings Act requires NCUA to promulgate substantially similar regulations within 90 days of the effective date of Federal Reserve’s rules. The attached rule is substantively identical to the Federal Reserve’s 2010 final rule, but contains changes in nomenclature and minor editorial and reference changes. The rule is unchanged from the interim final rule the Board issued at the July 2010 Board meeting.

 

Supervisory Review Committee Authorized to Hear Grant Appeals

The NCUA Board issued an interim final Interpretive Ruling and Policy Statement (IRPS) that combines IRPS 95-1 and IRPS 02-1 and adds denials of technical assistance grant reimbursements to the list of items credit unions can appeal to NCUA’s Supervisory Review Committee.

 

This IRPS is effective when published in the Federal Register and was issued with a 30-day comment period.

 

NCUA Sets Strategic Goals for 2011

The NCUA Board approved the NCUA Annual Performance Budget (APB) 2011, which serves as the agency’s annual plan. The plan outlines NCUA objectives, strategies and initiatives for the year. It also provides guidance and serves as a tool that illustrates how staff contributes to meeting agency goals and objectives.

 

High-priority goals include monitoring risks in federally insured credit unions and continuing to stabilize the corporate credit union system.

 

A cross-agency working group developed the initial draft NCUA Annual Performance Budget 2011 using input from all offices and regions. All regional and central office leadership provided concurrence.

 

Some significant enhancements to NCUA’s APB include: a description of agency programs and offices that contribute to goals; a clearer connection between annual objectives and strategic goals, and the addition of annual measures for each objective in addition to strategic measures. Overall, the plan is an improved management tool and offers the public and staff increased transparency.

 

The NCUA Strategic Plan 2011-2016 is available in NCUA’s website at this web page. 

 

NCUSIF Ends Year with Strong Equity; TCCUSF Repays Treasury

The National Credit Union Share Insurance Fund (NCUSIF) equity ratio was 1.28 percent at December 31, 2010, based on projected collections related to the increase in estimated insured shares. The year ended with a $1.26 billion NCUSIF reserve balance — $749.1 million was added to insurance loss expense reserves over the year and $317.2 million in losses were charged against the reserve account. NCUSIF 2010 net income totaled $283.6 million.

 

At year-end, 368 federally insured credit unions, with assets of $43.8 billion and shares of $38.9 billion, were designated CAMEL code 4 or 5. In addition, 1,827 CAMEL 3 credit unions had assets of $156.7 billion and shares of $138.4 billion. Overall, 22.2 percent of all credit union assets were in CAMEL code 3, 4 or 5 credit unions.

 

Through December, 28 federally insured credit unions failed in 2010 — 18 liquidations and 10 assisted mergers. The NCUSIF cost of failures was $220.7 million during 2010.

 

The Temporary Corporate Credit Union Stabilization Fund (TCCUSF) total liabilities and net position was $373.5 million at year-end 2010. A $4 billion loan to stabilize the corporate credit union system was repaid to TCCUSF and subsequently repaid to Treasury on December 21. TCCUSF ended the year with no outstanding Treasury borrowings.

 

Financial data reported for both the Share Insurance Fund and the Temporary Corporate Credit Union Stabilization Fund are preliminary and unaudited.

The NCUA tweets all open Board meetings live. Follow @TheNCUA (opens new window) on Twitter, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives and posts videos of open Board meetings online.

Board Action Bulletin

The NCUA Board considered one personnel matter that remains confidential at this time.

The NCUA tweets all open Board meetings live. Follow @TheNCUA (opens new window) on Twitter, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives and posts videos of open Board meetings online.

Members Now Served by Western Federal Credit Union

ALEXANDRIA, Va. (February 4, 2011) — The National Credit Union Administration (NCUA) today was appointed liquidating agent of Oakland Municipal Credit Union of Oakland, by the California Department of Financial Institutions (DFI); and Western Federal Credit Union of Manhattan Beach, California, immediately purchased and assumed Oakland Municipal’s assets, liabilities and members.

 

The new Western Federal Credit Union members will experience no interruption in credit union service, and their accounts remain federally insured up to at least $250,000 by the National Credit Union Share Insurance Fund (NCUSIF). Western Federal Credit Union is a large, full service institution with $1.5 billion in assets and 148,000 members. Western Federal Credit Union will continue to serve members of Oakland Municipal Credit Union at the existing branch office located at 150 Frank H. Ogawa Place.

 

At closure, Oakland Municipal had approximately $88 million in assets and served 7,800 members. The credit union was established in 1964 to serve employees of Oakland area federal, state, and local government. This is the first federally insured credit union liquidation in 2011.

Member accounts are federally insured, member service continues uninterrupted 

ALEXANDRIA, Va. (February 15, 2011) — The National Credit Union Administration (NCUA) today placed Family First Federal Credit Union of Orem, Utah, into liquidation and Security Service Federal Credit Union of San Antonio, Texas, purchased and assumed Family First’s assets, liabilities and members.

The new Security Service Federal Credit Union members will experience no interruption in credit union service, and their accounts remain federally insured up to at least $250,000 by the National Credit Union Share Insurance Fund (NCUSIF). Security Service Federal Credit Union is a full-service institution with $6 billion in assets and 800,000 members.

NCUA assumed control of operations at Family First Federal Credit Union on July 30, 2010, with a goal of continuing credit union service to the members at a safe, sound credit union.

At closure, Family First had approximately $119 million in assets and served 18,000 members. The credit union was established in 1947 to serve employees of the Geneva Steel Company. This is the 2nd federally insured credit union liquidation in 2011.