NCUA suspends onsite exams indefinitely.

Dear Boards of Directors and Chief Executive Officers:

The NCUA is monitoring the impact of the COVID-19 pandemic and will continue to update its examination and supervision approach to help ensure the safety of personnel and the safety and soundness of the credit union system.

In March 2020, the NCUA provided information on our examination and supervisory priorities during the COVID-19 pandemic in Letter to Credit Unions 20-CU-05, Offsite Examination and Supervision Approach. While our priorities remain the same as outlined in that guidance letter, the agency has updated its approach for conducting examinations offsite. This letter provides information on changes to the NCUA’s examination and supervision approach, effective June 1, 2020.

The key components of our updated approach include continuing offsite work and a return to issuing examination reports.

Conducting Work Offsite

The NCUA’s offsite policy for all employees and contracted support staff will remain in effect until further notice.¹ Generally, NCUA staff will not schedule onsite examination work until further notice. However, the NCUA may conduct onsite work at a credit union if necessary to address serious or time-sensitive matters.

Since the implementation of our offsite policy, we have been conducting examination work offsite when credit unions are able to provide documentation. The response and cooperation from credit unions has been positive. While we understand that not all credit unions are able to accommodate offsite work, we appreciate those that have facilitated offsite examinations and supported NCUA’s efforts to ensure a safe and sound credit union system.

Since March 16, 2020, examiners have conducted offsite examination work at over 100 credit unions, with a median asset size of $56 million. At most of these credit unions, NCUA staff were able to perform substantial examination procedures and complete the examination. While the NCUA can conduct the majority of examination work offsite, there remain a few areas that are difficult to complete offsite. Credit union staff and examiners have also noted that completing an examination offsite may take longer than an onsite examination.

Examiners will continue to work with credit unions to conduct examination work offsite if the credit union is able to accommodate offsite reviews. Examiners will also be mindful of the impact information requests may have on a credit union experiencing operational and staffing challenges associated with the COVID-19 pandemic. Generally, credit unions will not be required to provide information to conduct offsite work.² The more information a credit union can provide for offsite reviews, the more likely the NCUA will not have to return to the credit union until the next examination cycle.

Regional offices will continue to coordinate with the state supervisory authorities on examination and supervision efforts for federally insured, state-chartered credit unions.

Issuing Examination Reports

The NCUA will issue examination reports for examinations completed offsite. However, the NCUA understands that credit unions need to focus on providing uninterrupted service to their members. Any corrective actions issued to a credit union will consider the impact of the COVID-19 pandemic on the credit union’s operations and financial condition and will be prioritized appropriately.

Consistent with long-standing practices, examiners will consider the extraordinary circumstances credit unions are facing when reviewing a credit union’s financial and operational condition and assigning CAMEL and risk ratings. An examination report may acknowledge that the full effects of the COVID-19 pandemic on a credit union’s financial condition and operations remain unknown.

NCUA examiners will not criticize a credit union’s efforts to provide prudent relief for members when such efforts are conducted in a reasonable manner with proper controls and management oversight. However, examiners will consider whether such efforts elevate, or reduce a credit union’s risk exposure. If a credit union has taken on additional risk, even if done prudently, this may be reflected in the credit union’s applicable CAMEL and risk ratings.³

Examiners will continue to be flexible and reasonable when working with credit unions that have outstanding corrective action items (including Document of Resolution items, Letters of Understanding and Agreement, and Preliminary Warning Letters). To ensure our approach to addressing COVID-19 related matters remains consistent, the NCUA has instituted an enhanced internal review process for all examination reports. A credit union should work with its examiner and supervisory examiner if it requires flexibility in meeting deadlines or has concerns about its examination report.

The NCUA will continue to reevaluate our offsite posture through the duration of the COVID-19 pandemic and as national, state, and local guidance is updated. We will notify credit unions of changes to procedures or examination expectations as our examination and supervision approach continues to evolve. If you have questions or would like more information about the NCUA’s offsite examination and supervision approach, please contact your NCUA regional office.

Sincerely,

/s/

Rodney E. Hood
Chairman

Moving away from LIBOR Are you ready for the change?

The London Interbank Overnight Rate (LIBOR) is still on course to sunset at the close of 2021, or is it?  There are a number of uncertainties that currently cloud a successful exit strategy, like The onset of COVID -19, a need for the evolution of the Secured Overnight Financing Rate (SOFR) term structures, lack of clear direction on the index, and concerns over SOFR being controlled by a small population of money centers. These uncertainties may lead to an extension of LIBOR beyond 2021.

Currently, COVID-19 is the central focus globally and domestically. The situation is consuming vast resources both monetarily and intellectually. Legislators, regulators, and industry leaders are focused on combating the health and financial fallout from the crisis with LIBOR being placed on the back burner.

The current crisis has highlighted SOFR’s weakness in addressing the credit component needed to hedge risk. The current disconnect between funding cost and replacing maturing debt can be hedged through LIBOR-based derivatives – which respond to volatility changes due to its inherent credit component. However, with SOFR indexed derivatives, there would be no such market value change in the derivative contract due to its lack of an inherent credit component. Therefore, funding costs would increase without the ability to appropriately hedge credit risk due to lack of available hedging options.  As of now, there is no readily available solution to address this issue.

Many financial institutions are still waiting for a clear directive on the replacement for LIBOR. Outside of a defined timing of conversion, financial institutions are left to grapple with determining the financial implication with the conversion. How does a financial institution deal with the lack of a credit component required for hedging, a lack of uniformity around one index, and will the index be representative of the financial sector as a whole and not predicated by the money centers?

The uncertainty surrounding SOFR makes planning very difficult. Concerns stem not only from implementation, but in pricing and legislation that determines a default index.  The concern around pricing is that it will not be reflective of Main Street, but predicated by the Money centers.  Many small and mid-size banks are pushing to use Ameribor instead of SOFR, as it’s unsecured, and wouldn’t require borrowers to post Treasuries, which most small and mid-size banks do not hold in large amounts.  Also, there is concern around legislation that would require SOFR as a replacement for LIBOR based contracts.  Lastly, the Alternative Reference Rate Committee (ARRC) at this time is only requesting SOFR receive a safe harbor from litigation.

The coming year will be focused on helping individual institutions plan to transition away from LIBOR. The larger institutions have begun the process, while smaller institutions are waiting to see how the index matures.  With the increased utilization of the SOFR index, the expansion of SOFR and SOFR-referencing contracts will be important in driving the industry’s conversion. The deeper those markets become the better the information. Having said this, there are significant headwinds with COVID that may extend the sunset of LIBOR.

What credit unions are doing to help their members.

WASHINGTON—New data from CUNA shows what credit unions are doing to support members’ financial well-being during the pandemic?

According to the latest CUNA/American Association of Credit Union Leagues survey:

• 95% of credit unions surveyed are offering modifications to existing loans, including loan extensions (skip-a-payment), line of credit increases, interest-only loan repayment, reduced or no-interest loans
• 80% of credit unions are offering new loan products, including deferred payment, reduced or no-interest, reduced or no-interest payroll advance
• 85% of credit unions are waiving and reducing fees to ease the burden on members, including waiving early withdrawal penalty on CDs, waiving skip-a-payment fees, waiving overdraft fees, waiving loan application fees and other waivers
• 64% of credit unions are offering financial counseling, debt consolidation or other services, including financial counseling (39%), debt consolidation (36%) and credit protection (23%)
• Credit unions originated billions of dollars in SBA PPP loans with an average loan size of $65,000
• Most credit unions are providing some support to their employees, including childcare programs, employee assistance programs and paid leave for employees who have or have a family member with COVID-19

COVID-19 Task Force

Separately, CUNA has launched an initiative aimed at providing some guidance to credit unions as they and the country work to emerge from the coronavirus pandemic.

CUNA said it has formed a Credit Union System COVID-19 Restart and Recovery Task Force, which is comprised primarily of representatives from the state leagues and credit unions themselves. Also represented are the National Credit Union Foundation and CUNA Mutual Group.

The task force will engage in dialogue to provide guidance and strategies for credit unions as they restart paused business lines and recover from the negative impacts of the COVID-19 pandemic, CUNA said.

“The purpose of this task force is to foster dialogue and facilitate understanding of the most pressing challenges and greatest opportunities facing the movement as we continue to navigate these unprecedented times,” the trade group added. 

Existing Home Sales See Biggest Plunge Since 2010

ARLINGTON, Va.—Existing-home sales tumbled 17.8% in April to a seasonally adjusted annual rate of 4.33 million units, reaching its lowest level since July 2010.

NAFCU Chief Economist and Vice President of Research Curt Long pointed out the drop is "an abrupt change from February's 13-year high."

"The COVID-19 crisis is attacking the market on all fronts, from preventing homes being shown to buyers to widespread job losses and financial institutions tightening mortgage requirements," said Long. "Spring is usually the busiest time for home sales, but there are indications that there is pent-up demand in states that are beginning to open again.

"NAFCU expects a partial recovery during the summer as pent-up demand is released, but supply shortages will continue to restrain sales," Long added.

Sales decreased in all four regions of the U.S. during the month: in the West (-25%), South (-17.9%), and Northeast (-16.9%) and Midwest (-12%).

Based on current sales levels, there were 4.1 months of supply at the end of April, up from 0.7 months in March. Analysts consider 6 months of supply to be roughly balanced between supply and demand.

The median existing-home price increased from $280,600 the previous month to $286,800 in April (not seasonally adjusted). The amount represents a 7.5% increase from the median price a year ago.

CUToday.info

Denver Fire Department Federal Credit Union (DFDFCU) Recognized as the #1 Healthiest Credit Union in the U.S.!

Denver, CO — DepositAccounts.com (a subsidiary of Lending Tree) has awarded Denver Fire Department Federal Credit Union (DFDFCU) with an A+ rating for the effective management of the following factors: Capitalization, Deposit Growth, and Loan-to-Reserve Ratios. This is the highest health grade given to financial institutions by DepositAccounts.com. Being ranked as #1 Healthiest Credit Union across the nation (2018 & 2020), is the result of the Volunteer Leadership Team working in partnership with DFDFCU Management and Team Members to ensure we continue to operate safely and soundly in the best interest of our membership.

This is not the first time that DFDFCU has been recognized. In 2018, DFDFCU was named #1 Healthiest Credit Union in the U.S. by DepositAccounts.com.

During these times of economic uncertainty, DFDFCU stands ready to serve our members and ensure we continue to provide the products and services that will aid in our member's financial success.

DepositAccounts.com evaluates the financial health of over 10,000 banks and credit unions in the United States once per quarter.

For a complete listing of the 2020 Top 200 Healthiest Credit Unions in the U.S., visit https://www.depositaccounts.com/banks/health.aspx.

About Denver Fire Department Federal Credit Union (DFDFCU)

DFDFCU is the ONLY financial institution in the State of Colorado that exclusively serves Colorado Firefighters and their immediate family members.

Trump Signs Executive Order Requiring Reductions in Regulations

WASHINGTON—President Donald Trump has signed an executive order requiring agencies to take measures to eliminate, modify, waive, or exempt burdensome regulatory requirements in efforts to help support economic recovery from the effects of the coronavirus pandemic.

The order includes independent agencies, such as the NCUA, CFPB and Federal Housing Finance Agency (FHFA), and encourages agencies to speed up the rulemaking process by moving some proposed rulemakings to interim final rules with immediate effect.

The order also directs agencies to take additional steps to provide coronavirus pandemic-related relief, practice enforcement discretion, and provide a report on their efforts to the Office of Management and Budget and others in the administration, NAFCU reported.

Additionally, the order establishes a "Regulatory Bill of Rights," 10 basic principles of fairness that will govern the administrative enforcement and adjudication process.

The time is now for contactless card strategies

May 20, 2020 CUTimesby JEREMIAH LOTZ, PSCU

The COVID-19 pandemic has not only impacted the international economy, but it has also affected all of our daily lives. Among the various ramifications to our industry, COVID-19 is changing the way that consumers transact, meaning credit unions must be prepared for what the “new normal” might look like moving forward.

Before the onset of COVID-19, cash accounted for half of the low-dollar-value transactions at the point of sale. With the heightened concerns around physical contact and the use of cash arising from the pandemic, contactless cards are now receiving more interest from consumers. Credit unions can no longer take a wait-and-see approach to contactless. Rather than a phased, natural approach to reissuing contactless cards to members now may be the time for credit unions to work with their payments processor to determine the best strategy to maintain top-of-wallet position.

Contactless is Safe, Quick and Secure

As members shift away from cash and look to other methods of payment that limit human contact, tap-and-go, contactless options are experiencing increased usage. A recent survey by Mastercard showed that 51% of U.S. consumers are now using some form of contactless payment and that perceptions of safety and convenience have led nearly a third of respondents in the U.S. to change their top-of-wallet card for a card that offers contactless. It also seems that contactless is here to stay in the post-COVID-19 world. A recent survey by PaymentsJournal reports that 70% of consumers who are new to contactless payments plan to continue using this payment method even after the pandemic.

In addition to less human contact, point-of-sale transactions conducted with contactless cards are faster than those conducted by inserting a chip card, making the purchase process at checkout quicker and more efficient. More and more merchants are also accepting tap-and-go payment methods for in-store transactions, with most of the biggest retailers haveing already enabled their near-field communication technology, including Chick-fil-A, Starbucks, Whole Foods, and Walgreens. In fact, Visa reports that 95.5% of all point-of-sale devices being shipped are contactless-enabled. There are also multiple layers of security built into the traditional credit and debit payments systems that make contactless transactions just as secure as traditional card transactions.

The speed and convenience of contactless cards has also been proven to help increase card spend, which could lead to new streams of revenue for credit unions as the impacts from COVID-19 continue to be realized. In other countries that have been issuing contactless cards for several years, most saw an increase of three to five transactions per card in the first year of contactless rollout. In the third year, they experienced between 15 and 30 incremental transactions, or an average of 10% to 30% lift per card. Overall, in markets where contactless cards were launched, countries with economies similar to the U.S. experienced between a 20% and 30% lift in the number of transactions per card.

Another key component of the contactless equation is mobile payments, as contactless card adoption tends to lead to increased use of mobile wallets. An additional tap-and-go option, mobile wallets offer credit unions a chance to provide their members with the flexibility of paying for purchases when and how they want – whether through mobile phones, smartwatches or other wearables – which is leading to top-of-wallet status.

Making the Switch

Educating credit union members is a critical part of any contactless rollout plan. Given the COVID-19 environment, careful messaging is important – credit unions should position contactless cards and mobile wallets as safe and secure ways to help, avoiding any unintended perceptions of upselling their members during these difficult times.

For some credit unions, tapping into the knowledge, expertise, scale, and value of a CUSO partner like PSCU might be a first step in establishing a contactless offering. One of PSCU’s key initiatives is enabling contactless moves for many of its credit unions over the next 18 months. In 2019, PSCU distributed more than 500,000 contactless cards to its owner credit unions. This year, the CUSO expects to produce over 3 million new contactless plastics and deliver them to more than 100 credit unions to support natural and mass reissuance strategies. PSCU also supports and enables tokenization for digital wallet payment including Apple Pay, Google Pay, and others.

While many credit unions may have viewed contactless as a potential payment option for members in the past, it has now become a necessary offering. As consumers become comfortable using contactless cards and mobile wallets and shift their behaviors in a post-COVID market to less physical contact, they are likely to remain with the financial institution that offers them this opportunity. If their credit union fails to do so, consumers’ top-of-wallet choice is likely to shift to another financial institution. The time is now for credit unions to prioritize contactless offerings.

Toss It or Tune It? By Tim Harrington and Kevin Smith

We're going to call this a "newsletter" just for this month.  Toss It or Tune It? Toss it or Tune It: Credit Union Strategic Planning in 2020 COVID has undoubtedly impacted your 2020 strategic plan. But don't fall for the Devil's easy temptation to skip planning in 2020. Planning in a time like this is far too important. You should consider though whether to  Toss it or Tune It. Toss It: throw out the original strategic plan, temporarily, and replace it with a shorter-term Tactical Plan to get you through.  Tune It: Look at your strategic plan in light of the current turmoil for what you can modify and capitalize on.  Strategically, only one thing is certain: your members have become fully digital and they'll expect their credit union to fill their digital needs. This is not a year to pull back from planning. The board and senior management still need to be on the same track with the same goals and expectations. Even if those expectations are greatly scaled back from your original 2020 plan. The TEAM Resources approach for 2020:  Think Long, Act Short, and Preserve Capital 1. Think Long: continue to focus on what is good for the credit union in the long-term;  2. Act Short: create short term solutions  to meet the urgent and important issues constantly arising, but always keep the short-term actions closely aligned to the Long-term plan; and  3. Preserve Capital: do all that you can to hold on to your Capital to Assets ratio and not allow it to sink perilously.  We can work with you virtually, or in person, like the good old days. We have done virtual planning sessions for over five years and they are a terrific way to meet and discuss the future of the credit union.  Contact us to discuss 2020 planning or to get a proposal. We look forward to working with you in 2020. READ MORE May Blog: How to Spot a Board in Trouble  (An Incomplete Listicle) By Tim Harrington and Kevin Smith This is not a comprehensive list. In fact, we'd like to hear from others the things that they've seen or what they look for. We're sure our smart readership has some things to add. This is also not a checklist. We're not suggesting that once you've identified all eight of these you've found your troubled board. (Notice that some of these are countervailing.) But these are things that show up regularly and have been present when dealing with troubles. Read more ...  Coming Soon: New Board Governance Video Series episodes Expanded online training content and videos, including options for understanding credit union financials (one of Tim's particular specialties) While you wait, check out our most recent Board Governance Video:  How are you Adapting? SEE MORE Tim Harrington, CPA CEO, TEAM Resources Kevin Smith Consultant/Publisher, TEAM Resources www.forteamresources.com

TEAM Resources, 7049 E. Tanque Verde Rd  PMB 136, Tucson, AZ 85715 SafeUnsubscribe™ ceo@ncofcu.org Forward this email | Update Profile | About our service provider Sent by tharrington@forteamresources.com in collaboration with Try email marketing for free today!

Strategy During A Crisis

By Chris Howard

CreditUnions.com 

Focusing on products and services won’t build lasting, sustainable success; mission-based strategy helps separate real opportunities from feel-good initiatives.

“Crisis produces opportunity!” It might be a cliché, but it’s true. And the credit unions best positioned to benefit from that opportunity are those driven by strategy.

In times like these, credit unions tend to focus on responding to immediate challenges, often sacrificing future potential to do so. That’s a false choice. Putting all your focus and resources toward emergency triage and first aid is missing the forest for the trees. It’s responding to the crisis but ignoring the resulting opportunity.

Doing the right thing today doesn’t guarantee better outcomes tomorrow. You need a solid plan to turn today’s goodwill into deeper, more sustainable relationships in the future. That’s why investing in strategy is now more important than ever. A long-term, actionable vision, deeply grounded in culture and mission, is what separates organizations that come out of crises with momentum from those that feel lucky to survive.  

But true strategy is hard work, even at the best of times. It requires commitment, energy, and other scarce resources. When the environment is chaotic, those things are dearer and the inevitable opportunity cost is more obvious. And, yet, it’s amid this confusion that strategy is most valuable.

More Than Anything, Members Want To Know You Care

The first job of credit unions during a crisis is to help members survive. By clarifying why you are doing this — by equipping your team with a common language that explains actions in terms of purpose and mission — mission-based strategy can empower you to meet your members’ emotional needs even as you deliver tangible help. That matters. 

People in crisis are afraid, especially if they feel their economic wellbeing is threatened. This shows up in research Gallup is conducting as part of a collaborative credit union program it offers with Callahan & Associates: Members need validation that their fears are reasonable. They need empathy as well as tangible assistance. This reassurance — knowing their credit union cares about their financial wellbeing — is what your members want above all else.

Doing the right thing today doesn’t guarantee better outcomes tomorrow. You need a solid plan to turn today’s goodwill into deeper, more sustainable relationships in the future.

Chris Howard, SVP, Callahan & Associates

Financial wellbeing is more than money, it’s confidence and security as well — your emotional relationship with money. It’s how people perceive their financial situation, express their needs, make critical decisions, and remember events. That means engaging members in these terms can be an effective risk management tool, especially in a world where someone might have to choose who to trust or which obligation to keep current.

An example of this power can be seen in research from March that showed financial wellbeing plummeting. Gallup helped credit unions participating in the collaborative program to provide emotional validation and support alongside financial relief. For those that did so, member financial wellbeing rates have rebounded to almost pre-pandemic levels.  

Turning A Corner

As we start reopening the economy, we are at an inflection point. We turn our attention from survival to sustainability, decisions become harder, and the importance of mission-based strategy only grows. It’s how leaders make the right choices, balance risk, and reward, and determine which opportunities to pursue. And tough as it is to divert scarce resources to future opportunity, there are concrete, actionable steps you can take to get started.

1. Don’t cancel strategic planning! Can’t meet in person? Do it remotely. But do it! Hire a facilitator — it completely changes the tone and productivity — and make sure your agenda specifically addresses mission and strategy. Now is a great time to reset your timeframe and talk about where you want to be 10 years from now.
2. Engage your board and management team in thinking differently.
   A strategy is a lens through which to evaluate your biggest choices: What are the long-term impacts on member engagement and wellbeing? Is this consistent with your mission? Will this decision move you closer to your long-term strategic objective? And if not, why not?
3. Think beyond your financial statements. Strategic goals are more than just numbers; they are outcomes and impact. And long-term risk and reward can’t be measured accurately on the quarterly balance sheet or next year’s projected income statement. Strategy needs to be managed for the next 12 years more than the next 12 months.
4. Invest strategically, especially where it only involves small changes to existing efforts. Research shows members want three kinds of emotional support right now:
   • “Build my hope.”
   • “Increase my peace of mind.”
   • “Reduce my stress.”
   Cross-functional teams focusing on these areas can help align emotional and financial support, improve how it’s perceived and valued by members (increasing impact while lowering cost and risk), socialize the idea of organizing around impact instead of product lines, and lay a foundation for greater member engagement and wellbeing.

It’s not enough to play it safe. Focusing on products and service won’t deliver the emotional engagement with members that builds lasting, sustainable success. For that, credit unions need a mission-based strategy to help them separate real opportunities from feel-good initiatives. 

The strategy provides a common framework for thinking and speaking, creates clarity around focus, investment, and message, and helps credit unions deliver on their mission. During times of crisis, it’s critical. Daily, existential decisions will determine member financial wellbeing, employees’ professional futures, and your long-term relevance. These stakes are too high to be left to gut, intuition, or chance.

Read more: Strategy During A Crisis | Credit Unions http://www.creditunions.com/blogs/industry-insights/strategy-during-a-crisis/#ixzz6Mt2ufAvO