1. NCUA Regulatory Update
Cherie L. Freed, Region V Director
National Credit Union Administration
NCUA Regulatory Update
Utah 2017 Executive CEO Summit
May 24, 2017

2. Credit Union Total Assets Are Growing
$12.5 billion
12/31/16: $1.29 trillion

3. More Members - Fewer Credit Unions

4. Median Asset Growth
12/31/16 #s

5. Share and Deposit Growth

6. Median Annual Loan Growth

7. Median Loans to Shares

8. Median Delinquency

9. Median Return on Assets

10. Share of CUs with Positive Income

11. State Dashboard

12. Region V Composition Areas Supervised State # FICUs FICU Assets # FCUs
FCU Assets
# FISCUs
FISCU Assets
California
315
$159,215,726,912
190
$61,261,664,179
125
$97,954,062,733
Washington 90
$31,237,279,880 36
$3,462,205,556 54
$27,775,074,324
Utah 68
$22,776,885,953 34
$21,074,853,955
$1,702,031,998
Oregon 61
$20,429,459,313 40
$3,435,396,958 21
$16,994,062,355
Arizona 43
$16,205,156,207 24
$8,793,663,264 19
$7,411,492,943
Hawaii
$10,610,105,896 $0
Alaska 12
$9,428,445,140 11
$8,436,232,662 1
$992,212,478
Idaho 28
$7,487,750,035 13
$2,911,777,480 15
$4,575,972,555
Nevada 10
$2,205,378,876 7
$536,297,278 3
$1,669,081,598
Guam 2
$480,739,119
Total
690
$280,076,927,331
418
$121,002,936,347
272
$159,073,990,984

13. Region V Delinquency Rates
Nation AK AZ CA GU HI ID NV OR UT WA
Total
0.8%
1.3%
0.6%
0.4%
1.0%
0.7%
0.5%
Real Estate
2.0%
1.1%
0.2%
0.9%
0.3%
Credit Card
MBL
1.6%
0.1%
Auto
Indirect
0.0%
The columns highlighted show states which have higher than average delinquency rates by product type, compared to the national average as of December 31, Utah is lower than the national average in all loan types.

14. Utah Credit Unions

15. Utah Credit Unions

16. Utah Credit Unions
Utah credit unions have higher than average loan/assets.

17. Utah Credit Unions
Utah credit unions continue high growth in other real estate loans.

18. Utah Credit Unions
Utah credit unions are experiencing high growth in participation loans.

19. Utah Credit Unions

20. Utah Credit Unions

21. Utah Credit Unions
Utah credit unions achieved a return on average assets ratio well above regional and national averages. This is due in large part from the high gross income to average assets ratio of 5.6 percent, which is 103 basis points higher than the regional average.

22. Issues on Our RADAR… Cyber Threats Interest Rate Risk Operational Risk
Bank Secrecy Act

23. Cyber Threats Cyber Thieves Cyber Terrorists
Target: Large Institutions
Tactic: Attack Individual Systems
Objective: Steal Money
Cyber Terrorists
Target: Vulnerable Entry Points (Small Credit Unions)
Tactic: Infiltrate Interconnected Systems
Objective: Cripple or Destroy the U.S. Economy

24. Interconnectivity Expansion

25. Cyber Security – What Can You Do?
Ensure your CU systems are secure.
Implement risk mitigation controls: vendor due diligence, strong password policies, proper patch management, employee training, and network monitoring.
Get educated.
Share cyber-security best practices.
Participate in local, state and national information-sharing forums.

26. Questions to Ask about Cyber Security
What are the potential vulnerabilities of hackers using the credit union as an entry point to gain access to larger interconnected systems?
Year-End 2009
Year-End 2010
3RD Qtr. 2012
Has staff done due diligence to evaluate the cybersecurity of every vendor and every payment system with which the credit union has a digital relationship?
How could the credit union change cybersecurity protocols based on guidance from FFIEC?
How could the new national cybersecurity standards further protect the credit union and members?

27. Interest Rate and Liquidity
Interest Rate Risk
Interest Rate and Liquidity
Long-Term Assets, Short-Term Funding
Earnings at Risk When Rates Rise
Contingency Funding Arrangements

28. New IRR Guidance Interest Rate Risk Effective January 1, 2017
Net Long Term Asset ratio, 17/4 test, and supervisory interest rate risk threshold no longer considered in assessment of risk
Developed new Interest Rate Risk Review Procedures Workbook
Updated Interest Rate Risk tolerance thresholds in the NEV Supervisory Test
Created an estimated net economic value tool for credit unions with total assets of $50 million or less

29. about Interest Rate Risk
Questions to Ask
about Interest Rate Risk
How is the credit union measuring interest rate risk exposure?
What has been learned from shock testing?
Year-End 2009
Year-End 2010
3RD Qtr. 2012
What changes should be considered in the credit union’s balance sheet, product pricing or investment strategy to avoid excessive interest rate risk?
How should the CU’s interest rate risk policy be updated to reflect the new Fed interest rate forecast?
What internal controls ensure the CU will follow the board’s interest rate risk policy?

30. CAMEL(S) CO, CT, ID, MA, ME, MI, MS, MT,
NE, NH, NV, TX, UT, VT, WA, WI
“S” = Sensitivity to Market Risk
Treats Interest Rate Risk / Asset-Liability Management separately from (L)iquidity component.
16 States have adopted the “S”
NCUA likely to add “S” with next-gen AIRES

31. New Risks Require Enhanced Internal Controls
Operational Risk
New Risks Require Enhanced Internal Controls
Deter Fraud
Detect Fraud Earlier / < Losses
Detect / Reduce Errors
Detect Other External Threats
Reduce Reputation Risk
Strong Audits are a Must!!

32. Operational Risks – Fraud Hot Spots
Poor Accounting Controls/Un-reconciled Books
Ensure clean timely records and effectively monitor financial activity
Fictitious and Fraudulent Loans
Monitor new loans, charged off loans, due dates, subsidiary vs control account
Un-cleared Overdrafts
Ensure timely bank reconcilements, review general ledger, access controls and override reports
Dormant/inactive share accounts
Monitor and clear inactive accounts
Control reports
Unrecorded shares
Segregate activity and limit access control
Monitor bank activity
False Expenditures
Unsupported expenditures
Budget/financial statement monitoring

33. Bank Secrecy Act
Continued Emphasis on Proper Risk Monitoring and Controls
Money Service Businesses – Proper Due Diligence Expected
Many large vendors are not catching suspicious activity – onus on CU

34. NCUA Initiatives in Process
Specialists
Improved examiner training
Call Report Modernization
Enterprise Solutions Modernization
Loan, Investment, Shares and ALM Analytics
Value added analytics reports available to CUs
Better coordination in pre-exam process = less time onsite
Secure coordination and communication portal
Update of Examiner’s Guide

35. Exam Flexibility Initiative
Adopted 10 Recommendations
Established Federal Credit Union eligibility criteria for extended examination cycle
Adjusted examination cycle for all other Federal Credit Unions
Continued enhanced examinations at small Federal Credit Unions
Enhanced coordination of Federally Insured, State-Chartered Credit Union examinations
Established a joint NCUA-State Supervisor working group
Establish applicable provisions for all Federally Insured Credit Unions
Enhanced planning and notice procedures
Reinstitute optional credit union survey
Reduce NCUA’s onsite presence
Improve consistency of examiner training

36. Cherie L. Freed Regional Director
Contact Information
Cherie L. Freed
Regional Director
Region 5