Samantha: This is Samantha Shares.
This episode is the actual audio from the N C U A May Board meeting.
But first a few words from our sponsor.
Hey everyone.
This is mark Treichel.
And this is a different type of podcast.
It is going to be an audio of the entire into a board meeting from 2024.
There was only one agenda item.
The insurance fund.
Briefing.
And there is also an interesting discussion.
Between the two board members that were present again, chairman Todd Harper missed
this meeting due to back surgery and is going to be out, until further notice,
that'd beginning of this discussion.
Kyle Helpmann talks about his displeasure on how the overdraft data gathering
project at NCUA has been going.
The fact that he.
He has been ignored in the process.
, and then, , board member, democratic board member, Tanya Otsuka goes
on to explain her, take on it.
And then they pivot into the insurance fund , which shows a camel code threes.
Insured dollars went up.
I'll have more on those topics, , next week, but I wanted to put
up the entire audio of the board meeting about 35 minutes long and
a good discussion on overdrafts.
A good discussion on camel codes.
And I will be cross posting this on.
Both.
By podcasts.
Have a great Memorial day and.
Give, thanks to those who served.
Speaker: Good morning, everyone and welcome.
I call this meeting of the board to order.
In addition to those joining us in the boardroom today, I want to note that
for the record today's meeting is open.
To the public through a live webcast as well.
For anyone watching online, if you'd like to view the closed captioning
of the meeting, please click on the little CC icon located in the lower
left corner of the WebEx window.
You may also change the layout to one of your choosing by
clicking the layout option on the top right side of your screen.
Our recommended viewing option for this meeting is the stack view.
Before we begin the formal agenda, we have a couple things to mention.
This Most importantly, we all wish Chairman Harper well on
his recovery from back surgery.
We look forward to his return to regular duties in July.
There are only two board members participating in today's meeting.
This has happened before for various reasons, and I'm
sure it will happen again.
While out on medical leave, Chairman Harper, like the rest
of us, did get some good news.
NCUA Tide for number nine is the best places to work in the federal
government for mid sized agencies, and I believe there's like 30 of them.
This is based on the Federal Employee Viewpoint Survey produced by the
Partnership for Public Service with Boston Consulting Group.
In particular, NCUA's Office of the CFO, who is presenting today at the board
meeting, place number five in the best places to work subcomponents department
and there are a lot more of those So well done to Eugene and your team.
All I want to say is you're number five you get one more spot to go
Eugene got his name in the Washington Post Uh, about that ranking after the
Silicon Valley Bank collapse 2023, Eugene Sheed and his team assessed how a similar
exposure could impact federal credit unions and how they would ensure money
was available if a credit union did fail.
It was an exercise they say they handled easily because the team
had reorganized themselves to share workloads better after the pandemic.
She listened to their suggestions and put more emphasis on shortcuts
and automations to ease the workload.
There's no magic innovation.
He said it was just going through having discussions.
Uh, but to me, that is good management and, um, leaders of these
agencies, just like politicians, sometimes get too much credit.
And credit.
And so you gotta take the wins while you're there.
Uh, chairman Harper, even though he is recovering, uh,
he is the leader of the agency.
So this was good news for him, uh, while he was out.
So congratulations to you guys and, uh, we hope to see Todd, uh, uh, fairly soon.
I know he's recovering well.
Board member SKO would like to say a few things.
Speaker 3: Yes, thank, thanks.
Vice Chair Hopman.
Um, I wanna echo Vice Chair Attman's, uh, points on that.
We're sending chair Harper all, you know, all the well wishes as he recovers, and
we're looking forward to his return.
And I also wanna.
I'd like to share my congratulations, um, for the NCUA's receipt of the
award as one of the top ten best mint sized government agencies to
work for, and the Office of the Chief Economist for fifth best sub component,
which is really an accomplishment.
Um, Eugene and Melissa, and Melissa's going to be presenting today, later, uh,
this is a testament to your leadership and your team's dedication to our mission.
Um, and everybody at the agency has helped make the NCUA a place where people
are proud to come to work every day.
While there's always more work to be done to improve and grow as an agency,
and we will continue to do that work, and as so many of you know, that work
for an organization is always ongoing, um, it is still great to be recognized,
and I congratulate the dedicated staff of the agency, um, on this achievement.
So thank, thank you everyone.
Thanks, Scott.
Speaker: Okay.
We have one other thing to mention before we get into the,
uh, agenda with the CFO's office.
Uh, I'd like to mention, uh, the changes to NCUA's all report.
So I wanted to use this meeting, uh, to talk about NCUA's recent decision
to require credit billions with assets over one billion to publicly
publish their revenue from overdraft fees and fees for insufficient funds.
So no one likes paying these fees.
Uh, I paid them myself.
But anytime you wake up and you have, and you owe X dollars that day.
But you have less than X available.
There are only a series of bad options.
We are pressuring credit units to limit what is often the least bad option
for members under financial stress.
The reason for making the comments today is, uh, we haven't discussed
these changes at a board meeting.
And, uh, we don't have to.
But because every time I go to an event, I can't go anywhere
without hearing the same questions.
Why are you doing to this, doing this to us?
Do you realize how harmful it is to members?
So my answers are, I wish NCUA was not doing it, especially on such short notice.
And finally, yes, I understand how harmful it is to consumers,
uh, and to credit unions.
I found out about this burdensome requirement in January.
In lieu of repeal, I have suggested several ways to make it less
damaging to both credit unions and to our transference fund.
For example, the same data could be collected in a manner where
it's available to NCUA examiners.
But published in aggregates.
We could also listen to those pleading for adequate time to
prepare and not publish the data.
We could collect it now, but not publish it until next year.
Especially since it's been harder than expected by myself and others.
Harder than expected to figure out what numbers are to use for each category.
Uh, my, all of my ideas were rejected.
Credit unions will now face reputational risk for data that neither they
nor the MQA knows to be correct.
So, it appears we're another agency mathematically incentivizing institutions
to avoid serving low income people.
This policy is very clear, don't serve the underserved.
It's not that most low income people
have a lot of balanced checks, but most people who have overdraft are low income.
That makes sense.
We're now working against the Federal Credit Union Act, which
mentions credit unions are to create credit for those of modest means.
Well, it's not the rich that are going to worry about overdraft
protection being removed.
It's not those with secure, high paying jobs.
They're going to suffer from further reduction in offers
for free checking accounts.
Make no mistake, N2A's requirement is designed to pressure those fees
downwards, since one of the main reasons credit unions want more time to comply
is to lower those fees and try to raise revenue from other people and to overall
re evaluate their business model.
We've seen this movie before.
The bill had a provision on debit cards that contained government price setting, a
provision that mathematically made it less profitable to serve low income people.
The outcome was as painful as it was predictable.
Free checking fell away significantly as new requirements kicked in for direct
deposits, higher minimum balances, etc.
Anyone who can't meet those requirements has to pay monthly account fees or lose
access to the banking system and become
unbanked.
It doesn't seem odd for anyone to support regulations that make it infeasible to
serve low income people and then talk about financial inclusion and lament the
millions of Americans who are unbanked.
Reminds us of a story about the guy that killed his own parents and asked
for leniency because he's an orphan.
Can we guarantee the SIF is better off because of this?
Nope.
And yet we're adding a regulatory burden.
Two beneficiaries of this misguided interference are two interest groups.
One, those who benefit politically, and two, members of the media who get to
write clickbait articles that are often devoid of financial or business literacy.
We've already seen this happen.
It goes without saying that none of the people supportive of these
policies will be out there with their own money to offer you a better deal
when you're a few bucks short and desperately want to avoid a 500 leak
fee to the government, which I've paid.
And that's what's going to happen.
Just like in 2010, it's a mathematical certainty.
Overdraft protection in particular will become less common.
Overdraft is when a credit union pays part of your bills for you when
your account doesn't have enough.
Anyone in a banking institution will tell you the most distraught
customers are not those whose bills were paid for overdraft and paid a fee.
Uh, as much as they don't like that 30 fee.
Now, the most distraught customers are those upset that a bill wasn't
paid due to insufficient funds, forcing them to pay much higher costs.
Anyone would rather pay a 30, would rather pay 30 than a 500 government fee.
What about someone in my position who owed 4, 000 to my state
government and it's a 1, 000 fee?
The next day, if I didn't pay that day, right, uh, DC is 25 percent
automatically, then they add interest charges from there, okay?
If I had a 3980 in my account, I would desperately want that to be paid.
I paid the $30 fee instead of a thousand bucks.
If my, you know, account was a few bucks short of 4,000, would I rather
pay $30 overdraft or be forced to pay the extra thousand to the government?
Remember, I was short of cash to start with.
The thousand dollars fee didn't help.
Uh, remember years ago I was living in an expensive city, LA uh, on $27,000 a year
salary while paying my student loans.
Went to go to work one morning and saw my car was gone.
I called the police.
Turns out it wasn't stolen, it was towed for late registration.
Back then, I was constantly juggling payments, trying to avoid
the highest costs of being broke.
The highest costs were, and are, invariably charged by the same governments
that lecture the private sector.
Governments charge fees and use coercive tactics that are significantly worse
than anything labeled a junk fee.
And yet, we rarely hear, about government's fees and actions from self
proclaimed consumer protection advocates.
Anyway, about my car that was towed, I wound up paying six times total
the registration fee after paying the government for impound costs,
other charges, but I was lucky.
I had a salary job, at least, and I could call work and say
I wasn't coming in that day.
Millions of Americans in that situation would lose a day's pay.
Then there are those whose government had towed their car or put a boot in it, and
their car's gone, or they can't use it.
And they're late to work, which is a parole violation.
Of course you would pay 30 to avoid that.
That is the real world reality that people live in every day.
Anyone whose account is slightly short of money would rather pay a 30 overdraft
than miss the child support payment that is the only way they can get
visitation to see their child that year.
That's the real world.
I do agree there are only bad choices for anyone short of cash.
There may be policies to make life more affordable and less inflationary.
Uh, one thing Senator Schatz from Hawaii often says is, uh, he quotes a
study that up to a third of late fees, credit cards and late fees overdraft,
up to a third of them would go away if we had faster settlement, meaning
all the money coming your way was already accessible in your account.
Okay, so faster, but there are ways to alleviate this issue and I, and I sure
both policies and the private sector create those, but there is a real world
people live in, and there's only bad choices when you don't have enough money.
But NCWA's recent policy and overdrafts and NSC fees.
People will say I'm going to move, uh, back, and I say, But I'm going
to do something else for you.
They're going to ask you, Well, what are you doing?
Uh, I'm going to ask you to bring me that thing.
I'm going to go back and I'm going to do something else for you.
So I'm going to go back and I'm going to say, All right, I've got
that thing and I'm going to do this.
I'm going to say, Okay, good.
No regulation or law passed by government repeals the law laws of economics.
That's it board member.
Oh, it's good Would you like to make a few remarks?
Speaker 3: Thank you vice chair Hoffman so, you know, I I also wanted
to speak a little bit about the the Uh, the overdraft and NSF fees.
Um, so, you know, I think the NCOA has a responsibility to make
sure that we have a safe and sound system of cooperative credit.
And we also have a mandate to ensure that credit unions are
following all applicable laws.
And I agree that credit unions.
The purpose of credit unions are to serve those of modest means.
I, I would like to see more credit unions serve more low income
people, more underserved people, more people of modest means.
The action that NCOA has taken over the years with respect to overdraft
fee income Overdraft and fee income is consistent with those responsibilities.
It's important for the NCUA to understand the data both at the
institution level and system wide.
We need to make sure that it is transparent for credit unions,
credit union members, and the public.
Overdraft practices and fees should already be disclosed to members and
in compliance with applicable laws.
An over reliance on overdraft and NSF fees adversely affects both
members and their credit unions.
So, institutions that rely more on fee income can have greater concentration
risk, and that is a significant concern.
NCUA supervisory priorities over the years have included overdrafts.
Uh, in 2018 and 2019, NCUA examiners reviewed credit union overdraft
practices, including opt in disclosures and conducted transaction testing.
To verify that credit unions were complying with the applicable regulatory
provisions in 2022, examiners requested information about a credit union's
policies and procedures governing its overdraft programs in 2023, and CUA
examiners started conducting reviews of overdraft website advertising,
balance calculation methods, settlement processes, um, and more,
excuse me, for federal credit unions with assets of 500 million dollars.
Uh, or more.
And I think that, again, that, that, you know, focus on both the safety
and soundness side of the, side of things and the consumer protection
side of things are equally important.
Over the years, I have heard from so many consumers, including credit union
members, about Overdraft practices and, and, and fees and, you know, Vice Chair
Hottman did raise a lot of good points about how when you are struggling to make
ends meet, you may need to overdraft.
But I've also heard from a lot of consumers about excessive overdrafts,
overdrafting over and over and over again, pushing their account even further.
into the red.
And so there needs to be some recognition that, that our agency has
a responsibility to make sure that those practices are not happening.
With respect to the reporting of the data on fee income, I think it's
really important not to prejudge.
We can't assume a narrative before assessing the data in aggregate.
And I think that The public does have a right to know.
Members have a right to know what that fee income looks like.
The agency needs to know from a system wide safety and soundness perspective.
And I know our staff is, is looking at that.
But I do think it's important not to prejudge.
I've heard a lot of concerns about What this means, you know, whether there
is going to be risk for institutions or not about the perception of their,
their overdraft programs, a lot of that information is already disclosed.
And again, members, members should know member owners, right?
This is, this is important for member owners.
There's also many credit unions who do not charge overdraft fees and who also
are able to serve low income people.
I think really here.
My focus is on how this is going to help members, and how this is
going to help us as an agency make sure that we can keep a safe and
sound system of cooperative credit.
And this is not, there is nothing that, in this, that will, you know,
we are requiring a ban on overdraft.
But, um, you know, I've also heard that These changes may have an
impact on what credit unions do.
Each credit union has a very different overdraft program,
as, as you all know, as I know.
Um, but in the financial services sector over the past five or so
years, many institutions have started to get rid of overdraft.
And so the market forces are already in play as well.
Um, so again, you know, I, I just, I want to emphasize that I don't
think we should prejudge the data.
Um, I think we should see what the lay of the land looks like, and I, I look forward
to reviewing it to get a better sense of what it looks like from a safety and
soundness perspective and from a consumer protection standpoint, um, and I look
forward to working with my fellow board members and with members of the public,
um, on whether any additional steps are necessary, but, um, You know, I think,
I, I think it would be, it's a, it's a helpful exercise and one that I think our
agency has a responsibility to look into.
So thanks, Vice Chair Hoffman.
Yes, uh, thank you for those
Speaker: remarks, uh, and I, uh, completely agree on there are some
unsavory practices out there, ordering of payments, racking up fees, uh,
that didn't have to happen, purposely structuring your transactions and running
badges so that on a given day you got more fees incurred than you had to.
I 100 percent agree on that.
Um, I do, uh, if the market is changing and I have heard of that, well, that's
just a reason to say we shouldn't have to force or pressure people to
if the market's already doing it, you can't have both opinions at once.
Um, and, but the market will change and better, like we said, faster
payments, the financial system will change for the better as it has
for the last, you know, 100 years.
Uh, I do believe that the ones who say we don't want to charge overdrafts,
they just return more items.
Uh, they just don't pay them, uh, if you're short.
Um, no one else is going to pay my bills for me.
Indefinitely, without some kind of compensation.
So they just return more.
Uh, so those examples that I gave, uh, would be there.
Plus, if you're going through the mortgage process, the last thing
you need, right, when you're about to buy, when you're trying to buy
a home, is a ding on your credit.
Like a late payment, you know.
Uh, so instead of overdraft though, just do, uh, return your credit card payment.
And now you have a late payment that can cost you a quarter point.
In D.
C.
that'd be 35, 000 on the average mortgage, uh, over the life of it.
Um, I appreciate those remarks.
Let's now invite Melissa up here for the one official item of the day.
Uh, we are going to get a report on the Share Insurance Fund.
The staff presenting is Melissa Loudon, Deputy Chief Financial Officer.
Melissa, this is the first time you've That
Speaker 4: this is the first time I've presented the share insurance fund
quarterly I've been at the board table before but I usually have a co presenter.
So it's a little
Speaker: Yeah, you are the rather name on the marquee, all right, let's do it.
Good morning.
What's up begin whenever you're ready
Speaker 4: Okay, thanks.
Good morning, Vice Chairman Hoffman and Board Member Oskar.
I'm pleased to present the 2024 First Quarter Statistics
for the Shared Insurance Fund.
Before I begin, I'd like to mention the NCUA released its
2023 Annual Report, which is published on our agency's website.
The report was again recognized with a Certificate of Excellence
in Accountability Reporting.
I want to thank our OCFO team, our partners in the Office of External Affairs
and Communications, and other staff in the agency who contributed to making
this an informative report on NCUA's programs, performance, and finances.
Slide two.
This table shows the funds, revenue, and expense for the first quarter of 2024.
For the quarter that ended March 31st, the fund recorded a net income of 68.
1 million.
A few highlights are as follows.
Total income was 133.
7 million for the quarter, mainly from investment income of Treasury securities.
Investment income increased 6 percent compared to the prior quarter
and increased 47 percent compared to the first quarter of 2023.
Operating expenses were 59.
7 million for the quarter, primarily due to the overhead transfer
for agency operating expenses.
The provision for insurance losses reserve expense increased by 8.
1 million during the quarter.
Slide three.
Thank you.
This table shows the funds balance sheets as of March 31st, 2024,
compared to the previous quarter.
As of March 31st, total assets were valued at 21.
6 billion, of which 98 percent were funds held with the U.
S.
Treasury in cash, overnight investments, and long term Treasury notes.
A few highlights to take away from this slide.
are that the fund recognized the capitalization deposits receivable of 212.
3 million.
In addition, accounts payable and other liabilities include a refund of 238.
8 million to credit unions with declining insured shares.
This resulted in a net refund of about 26.
5 million and reflects the net decline in insured shares
during the second half of 2023.
Cumulative results of operations increased by 8.
3 million due to 68.
1 million in net income offset by an unrealized loss on investments of 59.
8 million.
Slide four.
The fund records an insurance program liability comprised of
general and specific reserves.
This is a contingency to cover anticipated future losses resulting
from insured credit union failures.
Each quarter, we assess the reserve needs for potential and actual credit
union failures to make a reasonable estimate of potential losses.
During the first quarter, the reserve balance increased by 8.
5 million, primarily due to the increase in general reserve.
The reserve balance totaled 217.
5 million and is comprised of 7.
3 million for specific reserves and 210.
2 million for general reserves.
Slide 5.
Through the first quarter of 2024.
There were no credit union failures that incurred losses to the fund.
Slide six.
As of March 31st, 2024, the fund had over 22.
2 billion at par value invested in Treasury securities with
maturities until May 2030.
The weighted average life of securities held by the fund is 2.
2 years.
The weighted average yield of the securities increased 10 basis points
from the last quarter to 2.43%.
During the first quarter of 20 24, 4 Treasury notes matured for $650 million.
These securities had yields ranging from 0.2% to 2.26% as of last night.
The portfolio balance invested in overnights now stands at 5.6 billion
at a rate of 5.37 basis points.
Slide seven.
The equity ratio is updated on a semiannual basis.
As of December 31st, 2023, the equity ratio was 1.
30 percent and was calculated using an insured share base of 1.
7 trillion.
The blue line across the chart represents the normal operating level.
This was last set and approved by the board in December 2021, and the
current level remains unchanged at 1.
33%.
Slide 8.
The projected equity ratio for June 30th, 2024 is 1.
24%, a decrease of 6 basis points from the current equity ratio.
The projected decline is due primarily to the forecasted insured share growth.
The projected equity ratio is calculated on the same basis as the actual
equity ratio and the formula and calculation are shown on this slide.
Slide 9.
This slide shows the percentages of insured shares by CAMELS codes from
2019 through the first quarter of 2024.
In the graph, the dark blue represents CAMELS coded 4 or 5, the gray represents
CAMELS coded 3, and the light blue represents CAMELS coded 1 or 2.
During the quarter, the percentage of insured shares at credit unions
Camel's Coded 3, 4, or 5 increased, while Camel's Coded 1 or 2 decreased.
The table below the graph shows the number of credit unions by Camel's Codes.
The total number of credit unions as of March 31st was 4, 578.
This is a decrease of 44 credit unions from the prior quarter.
Slide 10.
This slide compares credit unions CAMELS code by asset size.
The CAMEL code 4 or 5 credit unions are shown on the left hand side and
CAMELS coded 3 credit unions are shown on the right hand side of the graph.
Looking at the 125 credit unions Camels coded 4 or 5, most of these
credit unions continue to have assets of 100 million or less.
For those with assets greater than 100 million, there were two additional credit
unions in the 100 to 500 million range.
For those greater than 500 million, There was one more credit union
from December 2023 to March 2024.
During the quarter, both assets and insured shares for credit unions
CAMELS coded 4 or 5 increased.
Considering that 760 credit unions CAMELS coded 3, 92 percent of these credit
unions have assets less than 500 million.
During the quarter, there was a decrease in credit unions with assets less than
100, 000, 000 and an increase in credit unions with assets in the 100, 000, 000
to 500, 000, 000 and greater than 500, 000, 000 ranges for Campbell's Coded III.
During the quarter, both assets and insured shares for credit unions
Campbell's Coded III increased.
Slide 11.
The supplemental slides provided with this presentation include
more investment information to help interested parties better
understand the operations of the fund.
Thank you for your time.
This concludes my presentation and I'm happy to answer your questions.
Speaker: Thank you, Melissa.
Well done for your first in any year, or any time.
Uh, so rewind back to 2022, the NCOA increased its share of investments
in overnight funds with a goal of at least 4 billion in overnight funds.
Uh, last year at this time, we'd gotten 2.
4 billion in overnight funds, at that time earning over 5%.
And today, we've got over 5.
5 billion in overnight funds, earning about 5.
4%.
And looking forward, you know, we saw the Fed at its latest meeting.
Kept rates steady again at its range of five and a quarter to five and a half.
The stuff was easier before the financial crisis when they just picked
one number, right, to talk about.
The big change in the last few months is that expectations for industry cuts have
So, for those selling money, i.
e.
rent to get out to the U.
S.
Treasury, that brings some good news.
Industry rates are the price of money.
And the share insurance fund is solely a seller of money.
So, like any seller of anything, high prices are good.
So, that's the part of the numerator.
In our equity ratio, and while the Fed seems to be done hiking interest
rates, credit unions continue to deal with balance sheet challenges to the
last few years of rapid rate hikes.
The percentage of insured shares in credit unions with Campbell's four
and five, that's our lowest two ratings, uh, inched higher to 0.
35 percent from 0.
28.
The if we throw in Campbell rating three and worse, we're go from 7.
8 up to 8.
6.
These do not seem like.
But, uh, historically, they do usually mean something.
But credit unions have continued to form well.
Uh, they are resilient.
They have been resilient.
In 2023, there were only three credit union failures that cost
the SIF money, totaling just 1.
4 million in losses.
And as of this report, there have been no credit union
failures that cost money in 2024.
But of course, the insurance business is about unpredictable events.
Share insurance, like any insurance, is there for the chaotic times.
That often follow years of calm.
So today, we heard from the CFO's office, they project
the CIFS equity ratio to be 1.
24 when we recalculated in June.
That's the projection, although as we sit here today, the ratio remains at 1.
30.
So why is it falling?
As my colleague so ably explained, much of that downward move is to the projected
5 percent growth in insured shares.
So that's the denominator getting bigger, which is In general, it is a good thing.
We at NCUA like to see steady growth at credit unions.
That is to say, uh, steady growth is good as a stand alone variable.
We're aware that the quality of growth, uh, matters a lot.
Credit union liquidity continues to be an issue.
I'd like to remind everyone that credit unions can and should have access to a
range of liquidity sources, including NCUA's central liquidity facility.
So, the small credit unions out there that may not have liquidity
options set up, I strongly encourage those institutions to do so.
You can talk to your examiner, you can talk to your league, talk
to your corporate credit union.
There are ways to handle a short term liquidity challenge and
survive to fight another day.
If you could see a liquidity crisis coming, because if you could
see a liquidity crisis coming, it wouldn't be called a crisis.
For I conclude my remarks.
I've got one question.
So Melissa, we're pleased that the fund has taken advantage of high
short term rates, all that money in overnight's other short term
paper, but obviously the pendulum swings the other direction someday.
How do we prepare for possible rate cuts, Butterfed?
Speaker 4: Sure.
Thanks for the question.
Um, the aim of the Funds Investment Committee is to pursue
safety, liquidity, and yield.
Um, the portfolio is comprised of readily available overnight
funds and term investments that mature at regular intervals.
Um, the committee does not try to time the market, and instead
we rely on a ladder strategy.
Um, in the current quarter, the committee reinvested all maturities
back into the treasury ladder.
Sure.
These longer maturities create added earning stability and lock
in higher yields if rates decline.
That concludes my response.
Speaker: Thank you.
I appreciate the comment about not timing the market.
Far more money has been lost by trying to time the market than has ever been gained.
That concludes my remarks.
Over to Board Member Oldsco.
Speaker 3: Thank you.
And thanks, Melissa, for the briefing.
Um, so NCO's job is to protect members shares at credit unions,
and we can't fulfill that mission of protecting our system.
Of cooperative credit without an adequately funded share insurance fund.
So I'm encouraged by the strong performance of the share insurance fund.
We continue to see a trend of fewer failing credit unions combined with the
higher yields, which have resulted in substantial net income for the fund.
Year over year, our investment income has grown by approximately 40 million
dollars in the fourth quarter of 2023.
The fund had its highest yield in the decade at 2.
33 percent, and this quarter surpassed that at 2.
43 percent.
Our investment strategy of investing in a 10 year treasury ladder that
distributes our net income evenly and investments with varying maturities
continues to be prudent and successful.
This will provide balance to the weighted average life of the fund and ensure more
stable returns in the future, particularly if, if interest rates fall over time.
Um, however, I still have some concerns that the chair insurance
fund has been below the normal operating level since June, 2019.
So my question, one of my questions is, Melissa, can you, um.
Can you speak to what contributes to the downward pressure on that equity
ratio and why, why the projected number, um, can sometimes be different than
the actual ratio we calculate in June?
Speaker 4: Sure.
Yeah.
Thanks for the question.
So the decline between the year end equity ratio of 1.
30 percent and the June projection of 1.
24.
Thanks.
percent reflects historical trend.
The June equity ratio is typically lower than the year end equity ratio
because projected insured share growth is usually more robust earlier in the year.
With steady earnings and few losses to the fund, the main driver with the equity
ratio calculation will be insured shares.
Um, the June 2024 projection is based on an estimated 5 percent
um, increase in insured shares.
And all other things equal, if the actual insured share growth
falls short of 5%, the actual June 30 equity ratio may be higher.
This concludes my response.
Speaker 3: Thank you.
Thank you for that.
And I think I mentioned this last quarter as well.
But another concern is the percentage of insured shares held
by the camels code 3 credit unions.
Um, this percentage has more than triple between 2021 and 2023, more
than doubled from 2022 to 2023.
And the trend continues into this quarter.
Um, So, you know, this percentage of share is held by, uh, CAMEL 3 credit unions is
almost, has grown almost a full percentage point, um, in first quarter 2024 alone.
Even though we did see a decrease in the number of credit unions rated
as a three over the last quarter.
So, you know, there's a bit of fluctuation going on, but it
still seems like it's a concern.
Um, do you see any implications for the fund if this trend continues?
Speaker 4: Um, sure.
Thanks for the question.
Uh, To calculate general reserves, the NCOA uses an econometric reserve
model, and the model uses external economic predictors and also
individual credit union specific data, call report data, camel's code
data, to predict the probability of failure and estimated expected loss.
So, based on the information that we get from that model, the SIF records
an insurance program liability.
Uh, increasing percentages of insured shares in CAMELS coded 3, 4, 5, um,
could pose higher risk in the system and increase SIF reserve needs.
That concludes my response.
Got
Speaker 3: it.
Thank you.
Um, well, there's many signs that show stability and growth of the
share insurance fund now is the time as opposed to during a crisis.
Uh, to think about what can go wrong and how to safeguard against those scenarios.
I think Vice Chair Hoffman shared a similar sentiment, uh, about preparing
for, for the, the crisis situation when, when there's good times.
So it's important we, as the board, continue to balance the
short term and long term needs of the fund to ensure credit union
members are ultimately protected.
Um, so thanks, Melissa.
to you and the team for your work on this.
Um, and I have no further questions.
Although I did.
One thing, Vice Chair Hoffman, that you mentioned in our overdraft
discussion was, um, faster settlement.
Um, you know, I know, I agree, I think faster settlement is really important.
Um, I know there's a lot of credit unions that are, um, currently trying to, you
know, try to take advantage of FedNow and some of the, some of the work there.
So, um, you know, I'd love to, I'd love to talk more about that.
And I, you know, to the extent that credit unions want to, um, you know, Become
members of FedNow and and use that that service to increase the settlement times.
I think that's a really great development So ha you know open
to further discussion on that.
Speaker: Mm
Speaker 3: hmm.
Speaker: I mentioned that For all the hype and abuse the crypto world gets
and it deserves a lot of it Stable coins instant settlement 24 hours a day
are one of the main actual legit use cases that are used all over the world
Remittances people use them constantly.
It's a 24 7 Actual sediment.
It is pretty cool.
Uh, that is the end of our agenda today.
That being no further business