NCUA Supervisory Priorities for 2019

2019 Examination Program

Dear Board of Directors and Chief Executive Officer:

This letter outlines the NCUA’s primary areas of supervisory focus for 2019, and is intended to assist you in preparing for your next NCUA examination.

Regarding the examination cycle and procedures to be employed, the extended exam cycle introduced in 2017 will be fully implemented in 2019.¹ Consistent with 2018, agency examiners will continue using the streamlined small credit union exam program procedures for most credit unions that have assets under $50 million. For all other credit unions, examiners will conduct risk-focused examinations, concentrating on the areas of highest risk, new products and services, and compliance with federal regulations.

In 2019, NCUA examiners will have increased flexibility to conduct suitable examination work offsite. In the agency’s Flexible Examination Program (FLEX) pilot, examiners were able to conduct as much as 35 percent of examination time offsite.² The NCUA expects this increased flexibility will reduce the time impact on credit unions, save on travel costs and increase staff productivity.

Supervisory Priorities for 2019

The following are the NCUA’s primary areas of supervisory focus for 2019.

Bank Secrecy Act Compliance

Examiners will perform more in-depth reviews of credit unions’ Bank Secrecy Act and anti-money laundering policies, procedures, and processes to assess compliance with regulatory requirements for customer due diligence and for identifying and verifying beneficial owner(s) of legal entity members. New Customer Due Diligence regulations for Financial Institutions (31 CFR 1010.230) became effective May 11, 2018. Examiners began assessing credit unions’ efforts to comply with the new regulations during the second half of 2018.

For more information about this supervisory priority, see the NCUA Letter to Credit Unions 18-CU-02, Examination Guidance for Bank Secrecy Act Customer Due Diligence and Beneficial Ownership Compliance and the NCUA’s Bank Secrecy Act website.

Concentrations of Credit

Examiners will have a continued focus on large concentrations of loan products and concentrations of specific risk characteristics. Concentration risk is defined as any single exposure or group of highly correlated exposures that have the potential to produce losses large enough to threaten a credit union’s health or ability to maintain its core operations. Excessive credit concentrations are a common cause of financial losses. If excessive levels of credit concentration risk are identified, examiners will work with credit union management to identify strategies to mitigate the risk.

For more information, see the NCUA Letter to Credit Unions, 10-CU-03, Concentration Risk.

Consumer Compliance

As in 2018, examiners will continue to perform limited reviews of Home Mortgage Disclosure Act (HMDA) quarterly Loan/Application Registers, or full-year Loan/Application Registers when applicable. The reviews will evaluate federal credit unions’ good faith efforts to comply with 2018 HMDA data collection and reporting requirements. These reviews will account for the statutory partial exemptions that took effect on May 24, 2018. You can find information on the changes in the Consumer Financial Protection Update 18-01, Information about the Bureau of Consumer Financial Protection's 2018 HMDA Interpretive and Procedural Rule.

The NCUA will continue to focus on Military Lending Act (MLA) compliance, and examiners will evaluate credit unions’ efforts to comply with the MLA. For more information on this supervisory focus, see NCUA Regulatory Alerts 16-RA-04, Guidance on Regulatory Changes Affecting Military Lenders and 16-RA-06, Department of Defense’s Interpretive Guidance on Military Lending Act Limitations on Terms of Consumer Credit Extended to Service Members and Dependents.

Examiners will review credit unions’ compliance with Regulation B’s notification requirements following adverse action taken on consumer credit applications. They will also review overdraft policies and procedures for compliance with Regulation E. For additional consumer compliance tools and resources, visit the NCUA’s Consumer Compliance Regulatory Resources website.

Current Expected Credit Losses (CECL)

While the CECL requirements may continue to evolve in 2019, examiners will inquire about efforts a credit union has taken to prepare for the new accounting standard, and whether a credit union has performed analysis for how CECL would alter the Allowance for Loan and Lease Losses funding needs. In June 2016, the Financial Accounting Standards Board (FASB) issued the new accounting standard introducing the current expected credit losses methodology for estimating allowances for credit losses, with an effective date of January 1, 2022 for most credit unions.³

For more information about this topic, see NCUA Letter to Credit Unions 17-CU-05, Frequently Asked Questions on the New Accounting Standard on Financial Instruments - Credit Losses and NCUA Letter to Credit Unions 16-CU-13, Frequently Asked Questions on the New Accounting Standard on Financial Instruments - Credit Losses.

Information Systems and Assurance

Examiners will continue conducting information security maturity assessments with the Automated Cybersecurity Examination Toolbox (ACET). Examiners will use the ACET to assess credit unions with over $250 million in assets that have not previously received an assessment. The security, confidentiality, and integrity of credit union member information remains a key supervisory priority for the NCUA.

Two additional areas of supervisory focus for 2019 are the assessment of credit union IT risk management to ensure it effectively identifies, remediates, and controls inherent risks to appropriate residual risk levels, and oversight of service provider arrangements to ensure credit unions implement effective risk-based supply chain management. These areas of focus were established as a result of historical examination analysis, emerging threat trends, and sample results of ACET maturity assessments to date.

For more information, visit the NCUA’s Cybersecurity Resources website.

Liquidity and Interest Rate Risks

Examiner will assess liquidity and interest rate risk management, including the following:

• The potential effects of rising interest rates on the market value of assets that affect changes to net worth and borrowing capacity;
• Member preference shifts to shares with more market sensitivity; and
• Credit union management’s ability to meet liquidity needs given the increased competitive pressures that affect share balances.

An effective liquidity and interest rate risk management program is a key component of a credit union’s safety and soundness. The projected economic fluctuations in 2019 make this an increased area of emphasis. When rates rise, it puts pressure on credit unions to raise deposit rates in order to maintain deposit account volume. Also, enhanced mobile and internet banking applications and non-bank financial technology may result in greater challenges to retain low cost core deposits compared to prior interest rate cycles.

Resources and guidance on interest rate and liquidity risk can be found in the online version of the NCUA’s Examiner's Guide.

If you have any questions about the agency’s supervisory priorities or 2019 examination program, please contact your NCUA regional office.

Sincerely,

J. Mark McWatters Chairman

Join us in Clearwater Beach FL 10/1-4/2019

Firefighters First Credit Union has announced it is paying a year-end bonus to members of $2 million.

LOS ANGELES–Firefighters First Credit Union has announced it is paying a year-end bonus to members of $2 million.

Since 1981, the credit union has returned more than $46 million to members.

Firefighters First Credit Union said it rewards its members for having a strong engagement with the credit union, saying deeper membership engagement via investment accounts, insurance policies and business loans is greatly welcomed and an active growth strategy. “It is rare to find an organization today that shares any percentage of their profits. However, at Firefighters First Credit Union, this is part of our foundation. While many credit unions have ceased sharing their profits, we feel strongly about giving back to our members to help improve the financial lives of our Fire Family,” said President/CEO Dixie Abramian. “At the discretion of the board of directors, it is an important part of our tradition. The payouts vary based on member relationships – if you have a mortgage or a money market with us, your member payout will be much higher than if you have only an auto loan.”

Firefighters First said it continues to focus on providing terrific service to members, especially with a national expansion strategy now underway. The credit union currently serves approximately 544 fire departments nationwide.

Payouts represent a rebate on the interest paid on loan accounts and a bonus on the earning on savings accounts, the credit union said.

More information on the payout, including a video, can be found at: www.firefightersfirstcu.org/payout

Join us in Clearwater Beach FL 10/1-4/2019

Will the Fed raise rates in 2019?

NEW YORK–How many times will the Fed raise interest rates in 2019? It’s a question of keen interest to credit unions, and the answer according to many investors is zero—the Fed will not act.

The current Fed funds rate is set to a range between 2.25% and 2.5%.The reason, according to analysis by the Wall Street Journal, is declining confidence in U.S. economic expansion, which is expected to slow over the next year even as the economy remains strong.

The Federal Open Market Committee voted to raise rates at its December meeting, finishing the year with a slow but steady effort to nudge rates upward. The rate increases have been met with criticism by President Trump.  Many analysts, including inside credit unions, had predicted the Fed would raise rates twice more in 2019. Now, some are saying not so fast.

Fed Funds Futures Flat

“Fed-funds futures, which investors use to bet on the direction of Fed policy, on Wednesday showed a 91% probability that the central bank’s policy makers will finish the year with interest rates at or below their current level,” the Journal reported. “That is a reversal from early November, when futures prices indicated a 90% probability that rates would end 2019 higher than they are now. Futures even show a small chance that rates will fall this year—raising the possibility of a market shock or economic downturn by year’s end.”

The yield on the 10-year Treasury note also recently fell below 3%.

“In the two weeks since Fed officials last met, stocks have fallen, yields on corporate debt have widened relative to those on safer government bonds and other measures of financial conditions have tightened considerably,” the Journal reported. “By raising costs for businesses and households to borrow and invest, tighter conditions could slow growth more than central-bank officials anticipated.”

CUToday.com

Join us in Clearwater Beach, FL
10/1-4/2019

Credit unions doing what they do best during the shutdown.

WASHINGTON–As the partial federal government shutdown stretches on, more credit union have announced offers of assistance.

The U.S. Office of Personnel Management, which handles human resources for the government's civilian workforce, has advised thousands of employees who won't be paid during the government shutdown to reach out to creditors in order to work out alternative payment schedules. OPM has even released sample letters it suggests federal workers affected by the shutdown use to ask for help from mortgage lenders and landlords.

The latest to offer help to members missing paychecks due to the shutdown include:

• AmeriCU Credit Union in Rome, N.Y., which is offering interest-free furlough loans, fee refunds, and penalty-free certificate withdrawals. "We want to help alleviate the financial stress that a shutdown like this could cause our members,” Ron Belle, chief experience officer for AmeriCU, told local media. “We’re doing everything we can to make sure we’re here for our members with the right assistance and services when and where they need it.”
• Mid Oregon Credit Union in Bend, Ore., which reported it has several hundred members who are employees of the Deschutes National Forest, Ochoco National Forest, the Fremont-Winema National Forest, BLM and US Fish and Wildlife Service. Mid Oregon is offering short-term loans, “skip-a-pays,” as well as a willingness to work with members on mortgage and auto loan payments.
• Vermont State Employees Credit Union is offering a Member Emergency Loan (MEL), with a low rate on amounts  up to $1,500. “It’s a frightening prospect to suddenly lose income at any time of the year, but winter in Vermont is an especially difficult time to find yourself suddenly without funds,” Valerie Beaudin, head of Consumer Residential Lending, told local media.  Members may be eligible for the MEL if they have been in good standing with the credit union for at least six months and have proof of federal employment/furlough status. Loan applications can be completed online at www.vsecu.com or at any of VSECU’s nine branch locations.
• In Michigan, Traverse Catholic Federal Credit Union has partnered with the local Bayside Market to help members of the Coast Guard and their families with free groceries. An account into which people can make donations to cover the costs of the groceries has been set up at the credit union.
  • In Riverdale, Utah,America First Credit Union is providing a special Furlough Assistance Loan. The personal loan of up to $4,000 will be made available to federal employees who have been furloughed due to the recent government shutdown. Additionally, America First, which has more than 988,000 members, is also offering members no-cost counseling services, loan extensions and numerous free and low-cost benefits. To be eligible for the Furlough Assistance Loan, individuals must be America First Credit Union members and have missed a paycheck due to the shutdown, the CU said. The Furlough Assistance Loan will be available one-time only and offers terms up to seven months, with one-month interest free. The loan has a zero percent interest rate for the first 30 days and then a 4.99% interest rate that begins to accrue on day 31.

Other Offers of Help

• Radcliff, Ky.-based Fort Knox FCU, which is offering affected members a personal loan with no payments due for the first 90 days, or the option to withdraw up to $10,000 of certificate deposits early without penalty by visiting their local branch. FKFCU is also offering the opportunity to extend the payment due date on their current loans by 30, 60 or 90 days, depending on need as determined by the credit union, or applying for a new low-rate VISA credit card or instant cash line of credit to ease financial stress during the shutdown.
• Keesler FCU in Biloxi, FCU., which is offering a payday advance for members who have federal payroll direct deposit established with the credit union. 
• In Maine, Northeast Credit Union has announced the availability of several special programs to assist federal workers, including deferments for up to three months on NECU consumer loans, a special low-rate on a 12-month Signature Loan with deferred payments, and continuation of direct deposit pay at the member’s request.
• In Chantilly, Va., Justice Federal Credit Union is offering special assistance in the form of an unsecured, low interest rate loan and deferred payments to members of the Department of Justice and the Department of Homeland Security and other members furloughed as a result of a shutdown. Members with a minimum of six months of membership with Justice Federal may apply for a Special Assistance Loan up to member’s net pay, not to exceed $3,000 at an annual low rate of 2.94% for 24 months. The actual loan amount is based on the member’s net pay deposit, with direct deposit required. Members may opt to defer their first loan payment for up to 90 days. In addition, existing members in good standing with a Justice Federal consumer loan, or credit card may request to defer payments, and request assistance with a Justice Federal First Mortgage Loan.
• In Massachusetts, Hanscom FCU, which serves Hanscom Air Force Base, said some of its members are eligible for a “LifeLine loan” during the time the government is shut down and paychecks are not being issued.  In addition, Hanscom FCU said it  will waive penalties for premature withdrawals on term share certificates and allow qualified members to skip consumer loan payments with no fee. Members whose paychecks are affected by a shutdown or a furlough are also able to apply for a 0% APR LifeLine loan with a 60-day term, up to 100% of one’s net monthly pay or $5,000, whichever is less. For those needing more than 60 days to repay, the loan will be converted into installment payments over a 12-month term at a low fixed rate of 8.49% APR.
• The world’s largest credit union, Navy FCU, has announced a plan to cover direct deposit for eligible members during the government shutdown. Coverage for this loan begins if a shutdown extends into the next pay period and pay is interrupted. The credit union is offering assistance to Federal government employees and active duty members of the Coast Guard whose pay has been disrupted by the shutdown, and have an established direct deposit account. Navy Federal will also continue to accept registration for the program until three days after the scheduled pay day.
• CUToday.com

Go West and MembersFirst Mortgage has done just that!

PLANO, Texas.—Member First Mortgage has launched its Western Division.  The new division is led by Executive Vice President Linda Clampitt.

Clampitt and her management team bring more than 100 years of combined experience partnering with credit unions and assisting them in providing a superior mortgage experience for their members, the CUSO said.

“The Western Division will help expand the national footprint of Member First Mortgage by offering multiple partnership levels designed to utilize state of the art origination and digital marketing technology enabling credit unions to increase their market share, their income, and to help as many of their members as possible achieve the American Dream of home ownership,” the Grand Rapids, Mich.-based company stated.

“We are thrilled to join Member First Mortgage and bring new, innovative mortgage solutions to credit unions,” said Clampitt in a statement. “Member First Mortgage has an excellent culture committed to credit unions and the members they serve. We have an excellent opportunity to grow Member First into the premier provider for credit unions nationwide.” The CUSO said its leadership team and board are ready to bring “new and revolutionizing ideas to mortgage lending, allowing credit unions to be on the cutting-edge of home finance.

“We have exciting plans to make digital marketing and streamlined approval processes the new standard for credit unions,” said Clampitt. “The end result will be superior service to members with profitable results for credit unions.”

‘Perfect Time’

“It is the perfect time to add Linda and her team,” said President and CEO Jerry Reed. I sensed a shared synergy, drive, determination, strong work ethic the first day I met the Texas team.”

The company said it has been built on the credit union philosophy of People Helping People, and serves the home financing needs of credit union members as well as non-members.

Member First Mortgage is a full-service Fannie Mae, Freddie Mac and Ginnie Mae seller/servicer with an experienced staff offering expertise in every area of mortgage lending—from purchase, to refinance, conventional, jumbo, government and construction lending, the company noted.

In the 1940's and early 1950, there was a very popular "gather 'round the radio with your family" program called "Firefighters"

Provided from "FirefightersCloseCalls.com

The Firefighters radio program had a total of 140 fifteen-minute episodes that aired on early primetime WCPO radio during the late 1940's and ended in 1950.

As you will soon hear, it was a first class radio production heard across the country that was syndicated in over 225 markets in the United States and Canada... and it outranked national network radio shows like Lone Ranger and Sky King in its region.

"Firefighters" dramatized actual case histories of real Fire Departments. It is authentic in every detail, from Fire Department "welcoming" of new members to the ranks, to responses to the "latest" firefighting techniques and equipment.

During its run, the "Firefighters" show followed the heroic adventures of the rookie Firefighter, Tim Collins, who completed firefighter training after returning from World War II. Each episode focused on a particular fire emergency that Tim and his fellow firefighters had to face. At the end of each episode the character, Fire Chief Bob Cody spoke to listeners directly about fire safety.

Thanks to the Cincinnati Fire Museum (a beautiful museum well worth a visit) here is a link to all 140 of the 15 minute episodes, all for your listening enjoyment.
https://www.cincyfiremuseum.com/the-radio-program/

Join us in Clearwater Beach, FL 10/1-4/2019

The coming changeover to a new Windows operating system for ATMs is forcing many credit unions to take a hard look at their capital expenditure options this budget season, says Dolphin Debit.

That transition, coupled with aging machines, is driving decisions about whether to choose an expensive software upgrade to Windows 10 or to choose the even more expensive alternative, buying new ATMs, according to Gary Walston, president of Dolphin Debit.

“Like so many things in life, it’s all about the timing,” said Walston. “While the recent EMV upgrades forced credit unions to spend money upgrading their ATMs, the last big event at the ATM was in 2012, when so many credit unions bought new machines in order to be compliant with the Americans with Disabilities Act (ADA). That was a major event in which a large turnover of old ATMs was a boon for ATM manufacturers. Fast forward almost seven years, and many of those once shiny new ATMs are now in their final lifecycle stage.”

The Cost of Upgrades

For the machines that can be upgraded, the cost of outfitting them with the new Windows 10 operating system will run anywhere from $6,000 to $12,000 per ATM, said Walston.

“But many of those older machines simply can’t be upgraded, and that’s going to mean buying new ones that can range from three to five times the price to upgrade, depending on ATM type and functionality,” he explained.

A credit union needs to make those decisions now, Walston emphasized, in order for a credit union to be sure that their upgrade—or their new machine—is in place in time for Jan. 14, 2020.

“That is the official date when Microsoft stops supporting the current Windows 7 operating system and ATMs need to be running on the Windows 10 system,” he said. “There is no real advantage to be gained by delaying a year before making the budget decisions, so the pressure is on.”

A Common Scenario

Walston said Dolphin Debit is seeing a common scenario in its discussions.

“A credit union has five or six ATMs, all right about six to eight years old. There is still some book value left in those machines, as they are being depreciated at seven or 10 years. The credit union’s challenge is to balance the few thousand dollars of book value left in those aging machines against the price of the $6,000 to $12,000 upgrade expense. Does the credit union want to have that much invested—and on the books—in a seven-year-old ATM that is likely on the downhill side of its useful life?”

Walston said that’s when buying new machines starts to look like a better—though far more expensive—option.

Gary Walston

“But then the likely $200,000-plus capital expense for that fleet of five or six ATMs is a significant hurdle in light of the credit union’s many other 2019 budget priorities,” he said.

Walston suggested an alternative that credit unions are turning to in growing numbers.

The Alternative

“That alternative is outsourcing, turning ownership and operation of the ATM fleet over to a management company,” said Walston, whose company provides such a service. “In the short run, this strategy eliminates the need for a capital budget allocation for 2019. As the management company takes over the machines, it also takes on all the burdens of making sure machines are upgraded in time for 2020 or—if they’re too old or otherwise not upgradable—providing a new one.”

In the long run, outsourcing transfers all the compliance and management responsibilities to the service provider. All the maintenance, repair, network issues, and concerns over future machine upgrades or new ATM regulations are no longer the credit union’s worry, Walston said.

“Every year, more and more credit unions are making the choice to outsource some or  all of their ATMs,” he said. “They find that being free of all the management hassles connected with ATMs is liberating, and allows them to dedicate more resources to other forms of member service. Credit union executives are realizing they don’t want to be in the ATM business when they can outsource to the experts and focus on the credit union’s core competencies.”

Walston added one other benefit of outsourcing.

“And when it comes around to each budget season, the subject of ATMs never needs to come up for them, regardless of any new laws, regulations, compliance issues, or technology advances,” he said.

Dolphin Debit 

Joe Woods

SVP, Director of Sales

jwoods@dolphindebit.com

M-Phone 614-378-0367

See you in Clearwater Beach, FL 10/1-4/2019