NCUA Board Approves 2017–2018 Budget with Exam Flexibility Initiative Recommendations

During its November meeting, the NCUA Board unanimously approved two items:

  • Operating budgets for 2017 and 2018 to fund NCUA’s essential activities and strategic priorities, including implementing the recommendations of the Exam Flexibility Initiative.
  • A final rule making technical changes to the agency’s Community Development Revolving Loan Fund regulation to improve transparency, organization and ease of use by credit unions.

Additionally, the Board received three briefings on:

  • The performance of the National Credit Union Share Insurance Fund in the third quarter;
  • The Share Insurance Fund’s equity ratio projections and the recommended 2017 premium range of 3 to 6 basis points for credit union budgeting purposes (see article on page 1); and
  • The 2017 overhead transfer rate.

Budgets Reflect Reduced Staffing Levels, Maintain Critical Agency Capacity

The NCUA Board-approved operating budgets for 2017 and 2018 maintain critical agency capacity and reflect reduced staffing levels.

“This is an historic budget,” NCUA Board Chairman Rick Metsger said. “It is more transparent than any previous budget, it provided more opportunities for stakeholder input than any previous budget and it represents a change in direction. It also incorporates major changes in our supervision and examination process and maintains the principle of regulatory independence while being responsive to legitimate stakeholder concerns. Finally, it is a non-partisan budget, an example of genuine partnership and how government should run.”

The Board-approved budgets adopt the 10 recommendations contained in the report of the Exam Flexibility Initiative. The recommendations provide greater examination efficiency, greater flexibility for credit unions and the agency and improved coordination with state supervisors.

The 2017 operating budget is 1.6 percent lower than the 2017 budget approved by the Board in November 2015 and 2.5 percent higher than the 2016 budget. The 2018 operating budget represents a 4.7 percent increase over the 2017 budget.

While NCUA staffing will decrease in 2017 and 2018, all reductions will come through attrition. Total NCUA staffing will fall by 1.4 percent in 2017 and 1.8 percent in 2018.

The Board’s actions are summarized in the table below:

Board Action 2017 2018
NCUA Operating Budget $298.2 million $312.1 million
Maximum Full-Time Equivalent Staffing Levels 1,230 1,208
Temporary Corporate Credit Union Stabilization Fund Budget $4.1 million $4.2 million
Capital Budget $15.8 million $15.4 million
 

The adoption of the budgets for 2017 and 2018 follow an Oct. 27 budget briefing.

“Last month’s budget briefing with stakeholders proved to be a significant step in making NCUA’s budgetary process more efficient, effective, transparent and accountable,” NCUA Board Member J. Mark McWatters said, “And to further increase budget transparency, NCUA has worked to post considerable information online in recent years. I am pleased we were ultimately able to develop an operating budget that took into account industry comments and, as a result, included some further expense reductions.”

“While we have made steps in the right direction, the budgetary process remains a work in progress,” McWatters said. “The next step will involve considering recommendations for the overhead transfer rate methodology early next year, and we should consider further changes at the mid-session budget review.”

NCUA staff will make recommendations to the Board about the overhead transfer rate early next year. The Board also plans to continue its practice of performing a mid-year budget review, which will be presented at the Board’s July 2017 open meeting.

Detailed information about NCUA’s operating budgets for 2017 and 2018, including office budgets and agency fact sheets, is available on the agency’s online budget resource center at http://go.usa.gov/x8T2f.

Operating Fee Scale Increases for Federal Credit Unions

The Chief Financial Officer reported that the 2017 operating fee will increase 25.5 percent for natural-person federal credit unions, and the corporate federal credit union operating fee scale will not change.

NCUA uses the operating fee to pay for the costs of regulating federal credit unions. The agency will charge the fee in March 2017, and payments will be due April 17, 2017. Consistent with recent practice, federal credit unions with assets of less than $1 million will not be assessed an operating fee.

In all, federal credit unions will fund 67 percent of NCUA’s 2017 operating budget, while state-chartered credit unions will fund 33 percent.

More information on the operating fee is available online at http://go.usa.gov/x8T2f.

Overhead Transfer Rate Declines

The Office of Examination and Insurance reported the overhead transfer rate will decline to 67.7 percent in 2017 from 73.1 percent in 2016.

The overhead transfer from the Share Insurance Fund covers expenses associated with NCUA’s insurance-related activities. The rate is calculated annually through a methodology adopted by the Board in 2003.

In January 2016, the NCUA Board approved publishing a request for comments on that methodology in the Federal Register. The agency received 40 comment letters addressing a broad range of issues requiring additional research. NCUA staff is reviewing options for the Board to consider to improve the overhead transfer rate methodology and plans to deliver a report with recommended changes to the Board by Jan. 31, 2017.

More information on the overhead transfer rate methodology, including a history of how the rate is calculated, is available online at http://go.usa.gov/x8T2f.

Share Insurance Fund Has Net Income of $12.1 Million in Third Quarter

The third quarter of 2016 saw consistent trends in income and operating expenses for the Share Insurance Fund, due to recoveries on assets from failed credit unions.

For the third quarter of 2016, the Share Insurance Fund had a net income of $12.1 million. The fund ended the quarter with an equity ratio of 1.27 percent. The equity ratio is calculated on an insured share base of $999.9 billion and includes the recently billed capitalization deposit adjustment.

Third-quarter investment and other income was $57.1 million. Operating expenses were $56.7 million. The provision for insurance losses was reduced by $11.7 million.

Overall, the amount of assets in CAMEL code 3, 4 and 5 credit unions has decreased 52 percent since reaching a high of $205.6 billion in September 2010. Assets of credit unions rated CAMEL code 4 or 5 were 0.8 percent of federally insured credit union assets for the third quarter.

For the third quarter of 2016, the Chief Financial Officer reported:

  • The number of CAMEL code 4 and 5 credit unions declined 13.7 percent from the third quarter of 2015, from 233 to 201. More than half were credit unions with assets of $10 million or less.
  • Assets of CAMEL code 4 and 5 credit unions were $9.7 billion, a 14.1 percent increase from the third quarter of 2015.
  • The number of CAMEL code 3 credit unions declined 10.3 percent from the third quarter of 2015, from 1,297 to 1,164.
  • Assets of CAMEL code 3 credit unions were $88.7 billion, a 5.3 percent decline from the third quarter of 2015.

One federally insured credit union failed during the third quarter. In all, 12 credit unions have failed this year. Total losses associated with failures through the third quarter were $8.5 million.

The third-quarter Share Insurance Fund figures are preliminary and unaudited.

Board Streamlines Community Development Revolving Loan Fund Rule

The process for applying for funding from the Community Development Revolving Loan Fund will become more transparent, flexible and easier to navigate with the NCUA Board’s approval of a final rule (Part 705) amending the agency’s regulations.

The final rule is identical to the proposed rule and removes from the regulation the $300,000 aggregate limit for loans to individual credit unions, which provides NCUA with greater flexibility in designing loan programs. The final rule also makes the application process less burdensome by removing the former requirement that federally insured, state-chartered credit unions obtain approval from their state regulators before submitting a loan application.

The final rule does not change the general guidelines for Community Development Revolving Loan Fund loan and grant programs.

The final rule goes into effect Dec. 27. For more information, go to http://go.usa.gov/x8Rbs.