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Board Action Bulletin

Board Expands Regulatory Flexibility with Final Rules on TIPS and Rural Districts

ALEXANDRIA, Va. (Feb. 21, 2013) – The National Credit Union Administration (NCUA) Board convened its second scheduled open meeting of 2013 at the agency’s headquarters here today. Board members unanimously approved two items as part of the agency’s Regulatory Modernization Initiative:

• A final rule increasing the investment options of federal credit unions by allowing purchases of Treasury Inflation Protected Securities.

• A final rule updating the “rural district” definition to enhance the ability of certain federal credit unions to provide access to affordable financial services.

The Board also received an update on the performance of the National Credit Union Share Insurance Fund (Share Insurance Fund) and the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund). The Share Insurance Fund ended 2012 in a strong position due to growth in industry assets and declines in insurance and guarantee program liabilities. The overall condition of the Stabilization Fund remains stable.

 

Share Insurance Fund Trends in Positive Direction in 2012
The Share Insurance Fund ended 2012 with a 1.30 percent equity ratio. NCUA calculated the ratio on an insured share base of $839.4 billion, compared to $795.3 billion at the end of 2011, a growth of 5.5 percent.

 

Additionally, the net position of the Share Insurance Fund improved by 4.6 percent for the year, to $11.3 billion at the end of 2012 from $10.8 billion at the end of 2011.

 

“Protecting the Share Insurance Fund is a top priority for NCUA, and the 2012 year-end results show that NCUA’s prudent management and effective regulatory policies are working well,” NCUA Board Chairman Debbie Matz said. “Notably, the performance statistics related to the Share Insurance Fund continue to trend in the right direction. For example, the number of federal credit unions with CAMEL codes 3, 4 and 5 dropped significantly during 2012, as did the exposure level of potential losses.”

 

Year over year, the Chief Financial Officer reported that:

• The total number of CAMEL code 3, 4 and 5 credit unions dropped 9.8 percent, to 1,940 at year-end 2012 from 2,150 in 2011.

• Assets of CAMEL code 3 credit unions decreased to $119.3 billion at the end of the fourth quarter of 2012, a 16.3 percent drop from $142.5 billion on Dec. 31, 2011.

• Assets of CAMEL code 4 and 5 credit unions fell 35.4 percent, to $19 billion at the end of 2012, down from $29.4 billion for 2011. 

Overall, the amount of assets in CAMEL Code 3, 4 and 5 credit unions have decreased 32.7 percent since reaching a high in September 2010. The continuation of these positive trends and other factors resulted in a net decrease of $194.1 million, or 32 percent, in the Share Insurance Fund’s reserve for insurance losses during 2012.

 

During 2012, there were 22 credit union liquidations and assisted mergers. The total amount of losses associated with these failures was $206.9 million.

 

The Chief Financial Officer also reported on the Stabilization Fund’s operations, based on preliminary and unaudited information. For 2012, the total net position of the Stabilization Fund improved by nearly $1.8 billion. The Stabilization Fund had $5.1 billion in outstanding borrowings with the U.S. Treasury on Dec. 31, 2012.

 

When the Stabilization Fund has outstanding borrowings from the U.S. Treasury, the Federal Credit Union Act requires NCUA to make a distribution from the Share Insurance Fund if the Share Insurance Fund has an equity ratio above the normal operating level of 1.30 percent at year’s end. As a result, NCUA transferred $88.1 million to the Stabilization Fund. This transfer will reduce future cash needs of the Stabilization Fund. Before the transfer, the Share Insurance Fund equity ratio had risen to 1.31 percent.

 

NCUA did not assess a Share Insurance Fund premium in 2012. At the Board’s open meeting in November 2012, Chairman Matz announced a projected Share Insurance Fund premium range between zero and five basis points for 2013.

 

TIPS Final Rule Gives Credit Unions New Investment Option
Federal credit unions will now have an additional risk-management tool with the Board’s approval of a final rule (Section 703.14) adding Treasury Inflation Protected Securities (TIPS) as a permissible investment.

 

“The idea of permitting TIPS came up during one of my Listening Sessions last year,” Chairman Matz said. “NCUA’s research and analysis showed these securities could be a valuable tool for federal credit unions if properly managed, so we’ve acted to prudently provide greater regulatory flexibility.”

 

TIPS are securities issued by the U.S. Treasury Department that differ from other types of securities by providing protection against inflation. The principal increases or decreases with inflation, as measured by the Consumer Price Index. When TIPS mature, holders are paid the adjusted principal or the original principal, whichever is greater. Previously, federal credit unions could not invest in TIPS because the Consumer Price Index is generally a prohibited index for variable-rate securities.

 

The Board noted investing in TIPS may not be appropriate for every federal credit union, and that sound due diligence and a demonstrated ability to manage this risk should precede a decision to purchase TIPS.

 

 

The final TIPS rule will be effective 30 days from the date of publication in the Federal Register. NCUA will also end the TIPS investment pilot program at that time.

 

Updated “Rural District” Definition Provides Flexibility and Expands Access
The Board bolstered the ability of certain federal credit unions to expand services in rural areas by approving a final rule (Section 701.1) to modify the definition of “rural district” in the agency’s Chartering and Field of Membership Manual.

 

The new definition sets the maximum population of a rural district at 250,000 or three percent of the population of the state in which the majority of the district is located, whichever is greater. Previously, the population limit was 200,000, regardless of the population of the state with the majority of the rural district.

 

“This change, another part of our Regulatory Modernization Initiative, responds to the needs of credit unions and consumers,” said Chairman Matz. “This new rule expands the viability of rural credit unions in all states and upholds the spirit of the Credit Union Membership Access Act, providing federal credit unions serving rural areas greater flexibility to improve access to consumers who otherwise might not have access to affordable financial services.”

 

Forty-three federal credit unions currently have a rural district charter. The new definition allows rural districts of up to 250,000 people in all states, and larger rural districts for federal credit unions seeking rural district community charters in the 11 most populous states.

 

The rule does not change the other elements required to designate an area a rural district. As with all community charters, federal credit unions serving rural districts must develop business and marketing plans demonstrating how they will serve their entire community.

 

The final rule will be effective 30 days from the date of publication in the
Federal Register.

 

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. NCUA also live streams, archives and posts

videos of open Board meetings online.

Board Action Bulletin

NCUA Board Also Approves Community Charter for Cinfed Federal Credit Union

ALEXANDRIA, Va. (March 14, 2013) – The National Credit Union Administration (NCUA) Board convened its third scheduled open meeting of 2013 at the agency’s headquarters here today. Board members unanimously approved two items: 

• A proposed rule to streamline NCUA’s fixed assets regulation to make the rule easier for credit unions to understand.

• A community charter conversion application for Cinfed Federal Credit Union (Cinfed) to expand and serve nearly 1.2 million residents in the Cincinnati, Ohio, area.

Fixed Assets Rule Clarified as Part of Regulatory Modernization Initiative
NCUA’s current fixed assets rule (Section 701.36) allows federal credit unions to purchase, hold and dispose of property necessary or incidental to their operations. These fixed assets include office buildings, branch facilities, furniture, computer hardware and software, and ATMs.

 

Credit unions should find it easier to follow NCUA’s fixed assets regulation under a proposed rule approved by the Board. The proposed rule does not make substantive changes to the regulation or impose new requirements for fixed assets.

 

“At NCUA, we continually review our rules to find ways to make them clearer and easier to understand,” NCUA Board Chairman Debbie Matz said. “The latest product of my Regulatory Modernization Initiative is the proposed rule on fixed assets, which Board Member Fryzel suggested we clarify. By reorganizing the rule, adding definitions and using the principles of plain writing, we’re making it easier for credit unions to follow the rule.”

 

In keeping with the Plain Writing Act of 2010, the proposed rule revises the regulation for clarity and readability, including:

• Amending regulatory text using plain language;

• Adding an introduction to define the scope and application of the regulation; and

• Clarifying the processes for obtaining regulatory waivers.

The proposed rule also reorganizes existing definitions and adds new definitions for the terms “partially occupy” and “unimproved land or unimproved property.” The changes will help clarify a potentially confusing aspect of the current regulation.

 

The Board issued the proposed rule with a 60-day comment period, once published in the
Federal Register.

 

With Community Charter, Cinfed Diversifies Field of Membership
The Board approved the conversion of Cinfed, headquartered in Cincinnati, Ohio, from a multiple common-bond charter to a community charter, giving the credit union a potential field of membership of 1,171,241, according to the 2010 U.S. Census.

 

“Cinfed is seeking a community charter for all the right reasons,” Matz said. “The conversion will allow the credit union to diversify membership, grow earnings and strengthen safety and soundness. Cinfed also has plans to reach the Latino community and to provide affordable financial services for the underserved, like full-service checking with only a $5 deposit, credit rebuilder loans, and rate reductions for members once they establish payment history.”

 

The credit union’s field of membership will now cover Boone, Campbell and Kenton counties in Kentucky and Hamilton County in Ohio. The four counties are part of the Cincinnati-Middletown Metropolitan Statistical Area.

 

Originally chartered in 1934, Cinfed currently has 29,791 members and assets of $312.9 million. The credit union had a very high penetration rate of 74.5 percent in its former field of membership.

 

NCUA Board approval is required for community charters to serve a population of more than 1 million potential members.

 

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. NCUA also live streams, archives and posts

videos of open Board meetings online.

Board Action Bulletin

The NCUA Board unanimously approved the merger of Central Corporate Credit Union into Alloya Corporate Federal Credit Union.

The NCUA Board unanimously approved Landmark Credit Union’s Purchase and Assumption of Hartford Savings Bank, subject to final approval from the FDIC.

The NCUA Board considered two requests under Section 205(d) of the Federal Credit Union Act that remain confidential at this time.

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. NCUA also live streams, archives and posts

videos of open Board meetings online.

Member Deposits Protected up to $250,000; Consumer Service Hotline Open

ALEXANDRIA, Va. (March 15, 2013) – The National Credit Union Administration (NCUA) today liquidated Pepsi Cola Federal Credit Union of Buena Park, Calif. NCUA made the decision to liquidate Pepsi Cola Federal Credit Union and discontinue operations after determining the credit union was insolvent and had no prospect for restoring viable operations.

Member deposits are federally insured by the National Credit Union Share Insurance Fund up to $250,000. NCUA’s Asset Management and Assistance Center will issue correspondence to individuals holding verified share accounts in the credit union within one week.

Members with additional questions about their insurance coverage may contact NCUA’s Consumer Assistance Center toll free at 800-755-1030. The Center answers calls Monday through Friday between 5 a.m. and 2 p.m. Pacific. Individuals may also visit the MyCreditUnion.gov (opens new window) website at any time for more information about their insurance coverage.

Pepsi Cola Federal Credit Union served 558 members and had assets of approximately $652,000, according to the credit union’s most recent Call Report. Chartered in 1956, Pepsi Cola Federal Credit Union served employees of the Pepsi Cola Bottling Company for 57 years.

Pepsi Cola Federal Credit Union is the fourth federally insured credit union liquidation in 2013.

Member Deposits Protected up to $250,000; Consumer Service Hotline Open

ALEXANDRIA, Va. (March 15, 2013) – The National Credit Union Administration (NCUA) today liquidated I.C.E. Federal Credit Union of Inglewood, Calif. NCUA made the decision to liquidate I.C.E. Federal Credit Union and discontinue operations after determining the credit union was insolvent and had no prospect for restoring viable operations.

Member deposits are federally insured by the National Credit Union Share Insurance Fund up to $250,000. NCUA’s Asset Management and Assistance Center will issue correspondence to individuals holding verified share accounts in the credit union within one week.

Members with additional questions about their insurance coverage may contact NCUA’s Consumer Assistance Center toll free at 800-755-1030. The Center answers calls Monday through Friday between 5 a.m. and 2 p.m. Pacific. Individuals may also visit the MyCreditUnion.gov (opens new window) website at any time for more information about their insurance coverage.

I.C.E. Federal Credit Union served 942 members and had assets of approximately $3.4 million, according to the credit union’s most recent Call Report. Chartered in 1939, I.C.E. Federal Credit Union served employees of the City of Inglewood and their immediate family members.

I.C.E. Federal Credit Union is the third federally insured credit union liquidation in 2013.

Former I.C.E. Members Will Have Access to Accounts Beginning March 20

ALEXANDRIA, Va. (March 20, 2013) – Former members of I.C.E. Federal Credit Union will again have access to a credit union under a purchase and assumption agreement with Kinecta Federal Credit Union (Kinecta) of Manhattan Beach, Calif., the National Credit Union Administration (NCUA) announced today.

The new members of Kinecta should experience no further interruption in services. The National Credit Union Share Insurance Fund will insure members’ accounts at Kinecta up to $250,000. Administered by NCUA, the Share Insurance Fund has the backing of the full faith and credit of the U.S. Government.

Through the agreement with NCUA, Kinecta purchased and assumed former I.C.E. Federal Credit Union’s assets, shares and membership. The former members of I.C.E. Federal Credit Union will soon receive information by mail from Kinecta and NCUA’s Asset Management and Assistance Center.

Chartered in 1940, Kinecta has more than 242,000 members and assets of approximately $3.2 billion, according to its most recent Call Report. Kinecta serves individuals who live, work, worship or attend school in the central Los Angeles area, as well as select employer groups and members of the Consumers Cooperative Society of Santa Monica.

NCUA liquidated I.C.E. Federal Credit Union March 15 and discontinued its operations after determining the former credit union was insolvent and had no prospect for restoring viable operations.

Member Deposits Protected up to $250,000; Consumer Service Hotline Open

ALEXANDRIA, Va. (April 12, 2013) – The National Credit Union Administration (NCUA) today liquidated Shiloh of Alexandria Federal Credit Union of Alexandria, Va.

NCUA made the decision to liquidate Shiloh of Alexandria Federal Credit Union and discontinue operations after determining the credit union was insolvent and had no prospect for restoring viable operations. 

Member deposits are federally insured by the National Credit Union Share Insurance Fund up to $250,000. NCUA’s Asset Management and Assistance Center will issue correspondence to individuals holding verified share accounts in the credit union within one week.

Members with additional questions about their insurance coverage may contact NCUA’s Consumer Assistance Center toll free at 800-755-1030. The Center answers calls Monday through Friday between 8 a.m. and 5 p.m. Eastern. Individuals may also visit the MyCreditUnion.gov website at any time for more information about their insurance coverage.

Shiloh of Alexandria Federal Credit Union served 624 members and had assets of approximately $2.4 million, according to the credit union’s most recent Call Report. Chartered in 1993, Shiloh of Alexandria Federal Credit Union served the members and employees of Shiloh Baptist Church, their immediate family members, and an underserved area within the City of Alexandria, Va.

Shiloh of Alexandria Federal Credit Union is the fifth federally insured credit union liquidation in 2013.

Board Action Bulletin

Assets of CAMEL Code 3, 4 and 5 Credit Unions Fall for 10th Straight Quarter

ALEXANDRIA, Va. (April 18, 2013) – 
The National Credit Union Administration (NCUA) Board convened its fourth scheduled open meeting of 2013 at the agency’s headquarters here today. The Board received updates on the performance of the National Credit Union Share Insurance Fund (Share Insurance Fund) and Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund) for the first quarter of 2013.

 

“The Share Insurance Fund and the Stabilization Fund reflect an improving economy, a resilient credit union industry, continued prudent financial management, and common-sense regulation,” NCUA Board Chairman Debbie Matz said. “Assets at risk in credit unions with CAMEL codes 3, 4 and 5 have dropped for 10 straight quarters and with that, so has our level of exposure to potential losses. While we cannot predict the future with certainty, the growing strength of credit unions as a whole is a very positive sign.”

 

At the end of March 2013, credit unions with CAMEL codes 3, 4 and 5 held 12.6 percent of the industry’s assets—down significantly from the high of 21.9 percent at year-end 2010.

 

Share Insurance Fund Trends Continue in Positive Direction
NCUA’s Share Insurance Fund ended the first quarter of 2013 with net income of $9.4 million and an equity ratio of 1.31 percent, exceeding the statutory normal operating level of 1.30 percent. The equity ratio is calculated on the year-end 2012 insured base of $839 billion.

 

For the first quarter, investment and other income was $50.7 million, operating expenses were $32.3 million, and insurance loss expenses were $9.0 million, respectively.

 

Also for the first quarter, the Chief Financial Officer reported:

• The number of CAMEL code 4 and 5 credit unions dropped 8.1 percent to 339. More than half were credit unions with less than $10 million in assets.

• Assets of the CAMEL code 4 and 5 credit unions fell 11.6 percent, to $16.8 billion from $19.0 billion at the end of 2012.

• The number of CAMEL code 3 credit unions dropped to 1,558 during the quarter from 1,571 at the end of 2012. Approximately half were credit unions with assets less than $10 million.

• Assets of the CAMEL code 3 credit unions fell by 4.1 percent, to $114.4 billion from $119.3 billion at the end of 2012.

Four federally insured credit unions failed in the first quarter of 2013. The total amount of losses associated with these failures is $75,000.

 

The reserve balance for the Share Insurance Fund was reduced from $412.5 million to $330.4 million during the first quarter.

 

Stabilization Fund Stays Steady
The Chief Financial Officer also reported on the Stabilization Fund’s operations. Overall, the financial condition of the Stabilization Fund remains consistent with year-end 2012.

 

The Stabilization Fund had $5.1 billion in outstanding borrowings with the U.S. Treasury on March 31, 2013. The total net position of the Stabilization Fund was a deficit of $3.5 billion, a slight improvement from year-end based on net income of $14.4 million in the first quarter.

 

The March 31, 2013, financial statements for the Share Insurance Fund and the Stabilization Fund are preliminary and unaudited.

 

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. NCUA also live streams, archives and posts

videos of open Board meetings online.

Member Deposits Protected up to $250,000; Consumer Service Hotline Open

ALEXANDRIA, Va. (May 3, 2013) – The National Credit Union Administration (NCUA) today liquidated Lynrocten Federal Credit Union of Lynchburg, Va.

NCUA made the decision to liquidate Lynrocten Federal Credit Union and discontinue operations after determining the credit union was insolvent and had no prospect for restoring viable operations. 

Member deposits are federally insured by the National Credit Union Share Insurance Fund up to $250,000. NCUA’s Asset Management and Assistance Center will issue correspondence to individuals holding verified share accounts in the credit union within one week.

Members with additional questions about their insurance coverage may contact NCUA’s Consumer Assistance Center toll free at 800-755-1030. The Center answers calls Monday through Friday between 8 a.m. and 5 p.m. Eastern. Individuals may also visit the MyCreditUnion.gov (opens new window)website at any time for more information about their insurance coverage.

Lynrocten Federal Credit Union served 1,068 members and had assets of approximately $13.8 million, according to the credit union’s most recent Call Report. Chartered in 1936, Lynrocten Federal Credit Union served the employees of Rock-Tenn Company and their immediate family members.

Lynrocten Federal Credit Union is the sixth federally insured credit union liquidation in 2013.

Board Action Bulletin

Board also Approves Amendments to Agency Regulations

ALEXANDRIA, Va. (May 16, 2013) – The National Credit Union Administration (NCUA) Board convened its fifth scheduled open meeting of 2013 at the agency’s headquarters here today. The Board unanimously approved:

• A proposed rule giving well-managed federally insured credit unions with more than $250 million in assets limited authority to purchase specified derivatives to manage interest-rate risk upon agency approval.

• A series of technical amendments, including the transfer of authority under the Dodd-Frank Act for rulemaking for certain consumer protection laws to the Consumer Financial Protection Bureau.  

Board members also received a briefing on a proposed supplemental interagency rule amending a recently issued rule concerning appraisals for higher-priced mortgages. The supplementary rule creates new exemptions for existing manufactured homes, certain refinancings and transactions of $25,000 or less. The current interagency rule, issued Jan. 18, 2013 and effective Jan. 18, 2014, requires creditors issuing higher-priced mortgages to obtain an appraisal or appraisals meeting certain specified standards.

 

Rule Allows Derivatives as Interest-Rate Risk Hedge in Limited Circumstances

As part of its strategy for helping credit unions manage interest-rate risk, the NCUA Board proposes allowing certain well-managed credit unions with assets above $250 million, and with appropriate safeguards in place, to purchase limited amounts of simple derivatives—interest rate swaps and interest rate caps—as a hedge against that risk.

 

Board Chairman Debbie Matz explained the agency’s action comes after years of careful analysis and several advance notices of proposed rule-making seeking public comment. Currently, derivatives are among the instruments specifically prohibited by NCUA.

 

“Working with credit unions to manage interest-rate risk exposure is a top priority for NCUA,” Matz said. “The negative impact on balance sheets when rates rise, especially if they rise rapidly, will significantly reduce the earnings and net worth of exposed credit unions. NCUA urges credit unions to prepare for this event. After careful evaluation, the NCUA Board is proposing to allow eligible credit unions, which hold nearly 80 percent of industry assets, to purchase simple types of derivatives with certain safeguards to hedge interest-rate risk.”

 

NCUA has been evaluating pilot programs for limited derivatives use since 1999. That evaluation process satisfied the Board that certain credit unions can operate a limited derivatives program to hedge interest-rate risk in a safe and sound manner, provided they have sufficient experience, management capacity and infrastructure in place before beginning such a program. The Board proposes to allow the use of external service providers in limited ways when credit unions meet particular conditions and observe particular restrictions. NCUA coordinated with representatives of state credit union supervisors to develop the proposed rule.

 

Eligible federally chartered credit unions must apply and obtain approval from NCUA through their applicable Regional Director or the Office of National Examinations and Supervision. Eligible credit unions that are federally insured and state-chartered and are located in states that permit these investments must obtain approval from NCUA and their state supervisory authority. Credit unions applying for the authority must demonstrate how derivatives will be part of an overall interest-rate risk mitigation plan.

 

Credit unions may apply for one of two levels of authority under the proposed rule. The levels differ in the amount of transactions permitted, the expertise and systems requirements associated with operating a derivatives program, and certain application requirements. Only credit unions with a CAMEL code of 1, 2, or 3 and a management component of 1 or 2 may apply. Credit unions seeking Level II authority must demonstrate why Level I authority is insufficient to meet their interest-rate risk mitigation needs.

 

The Board is requesting specific comment on whether to institute a fee structure for credit unions that take advantage of this rule once it is finalized. Total program costs will vary based on the number of applications received, which NCUA initially estimates will range between 75 to 150 credit unions for 2014. NCUA estimates a program cost range for 2014 between $6.25 million and $10.75 million, reflecting one-time start-up costs and costs of qualifying, processing and supervising a variable number of credit unions seeking derivatives authority. Thereafter, program costs are projected to decline in 2015 to between $2.05 million to $3.85 million.

 

 

The Board issued the proposed rule with a 60-day comment period, once published in the Federal Register.

 

Regulatory Review Yields Amendments; New NCUA Structure Formalized

Board members approved a rule making technical amendments to several NCUA regulations as part of the agency’s three-year rolling review process.

 

The rule makes a number of nomenclature changes to NCUA’s regulations to reflect changes to NCUA’s office structure, including the transfer of duties and the creation of the new Office of National Examinations and Supervision. Finally, consistent with the transfers of authority to the Consumer Financial Protection Bureau (CFPB) made under Title X of the Dodd-Frank Act, the rule removes certain provisions of NCUA’s regulations that have been republished by the CFPB and includes updated cross citations to the republished regulations.

 

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. NCUA also live streams, archives and posts videos of open Board meetings online.