Managing Risk Federation Annual Conference September 23, 2015

Transcription

1 Larry Fazio, Director Office of Examination and Insurance National Credit Union Administration 2015 Federation Annual Conference September 23, 2015

2 State of the Industry Key Areas of Risk Small Credit Union Examination Program Community Development Credit Unions Assessing Credit Risk Management 2

3 STATE OF THE INDUSTRY 3

4 Billions State of the Industry Credit Union Assets 1,400 2,500 1,200 2,000 1, , , Dec Dec Dec Dec Dec Dec Dec Dec Dec Jun-15 Non-LICUs LICUs # of LICUs - 4

5 State of the Industry 9.0 Median Loan Growth LICUs All FICUs CDFIs Note: CDFI trend uses a retroactive population based on certified CDFIs charter number as of July 31, certified CDFIs are in the population as of July 31, 2015 compared to 246 as of December 31,

6 State of the Industry Median Share Growth LICUs All FICUs CDFIs Note: CDFI trend uses a retroactive population based on CDFIs as of July 31, certified CDFIs as of July 31, 2015 compared to 246 as of December 31,

7 State of the Industry As of June 30, 2015 All FICUs LICUs CDFIs * Number of Units 6,159 2, Total Assets (billions) $1,168.3 $288.8 $51.3 Median Asset Size (millions) $25.6 $21.0 $54.4 Net Worth 10.92% 10.85% 10.29% Return on Average Assets % 0.85% 0.87% Delinquency 0.74% 0.84% 1.12% Charge-Offs % 0.49% 0.53% * List of certified CDFIs obtained from cdfifund.gov as of July 31, Data includes active, federally insured credit unions. 1 Annualized 7

8 State of the Industry As of June 30, 2015 All FICUs LICUs CDFIs * Operating Expenses / Gross Income 66.39% 70.27% 70.73% Median Asset Growth % 5.26% 6.06% Median Loan Growth % 2.32% 5.55% Median Deposit Growth % 5.56% 6.74% Average shares per member $9,762 $8,388 $7,561 Average loan balance $13,451 $12,345 $11,833 * List of certified CDFIs obtained from cdfifund.gov as of July 31, Data includes active, federally insured credit unions. 1 Annualized 8

9 Credit Union Industry Risks KEY AREAS OF RISK 9

10 Key Areas of Risk Cybersecurity Risk Interest Rate Risk Bank Secrecy Act Compliance Risk Credit Risk 10

11 Key Areas of Risk Credit Unions of all sizes are vulnerable to internal and external cybersecurity threats. FFIEC Cybersecurity Self-Assessment Tool Identify potential risks and vulnerabilities Assess cybersecurity preparedness Exposure to interest rate risk remains a primary concern. Interest Rate Risk Resource webpage on ncua.gov 11

12 Key Areas of Risk Compliance with Bank Secrecy Act recordkeeping and reporting requirements detect money laundering, financial crimes, and terrorist activity. NCUA continues to assess compliance with the Bank Secrecy Act, with a focus on relationships with Money Services Businesses. Credit unions have begun to offer new loan products and services and must balance the opportunity to serve members with adequate due diligence and credit risk management. 12

13 SMALL CREDIT UNION EXAMINATION PROGRAM 13

14 Small Credit Union Examination Program A defined-scope exam approach Reallocation of staff time for more efficient and effective examinations Includes more transaction testing Exam is focused on primary areas of risk for small credit unions Internal Controls Recordkeeping Lending 14

15 Small Credit Union Examination Program Type of Examination (FCUs) Asset Size CAMEL Rating Type of Examination 1,2, or 3 Defined-Scope Exam Less than $30 Million 4 or 5 Defined-scope exam at a minimum, plus additional reviews as necessary to appropriately supervise risk $30 - $50 Million More than $50 Million 1,2, or 3 Region has discretion to choose defined-scope exam or risk-focused exam 4 or 5 Risk-focused exam All Risk-focused exam 15

16 Characteristics and Considerations COMMUNITY DEVELOPMENT CREDIT UNIONS 16

17 Community Development Credit Unions Well-Managed Credit Union Characteristics Maintains sound internal controls Retains skilled and dedicated staff to service members Maintains up-to-date, accurate records 17

18 Community Development Credit Unions Well-Managed Credit Union Characteristics Develops, follows, and adjusts comprehensive strategic, business and budget plans to meet credit union and members needs Communicates regularly with membership 18

19 Community Development Credit Unions Well-Managed Credit Union Characteristics Implements financial education and counseling, as applicable, for members as part of the lending process Identifies and documents compensating factors supporting loan decisions, especially if: Income verification is difficult Credit history is limited, negative, or non-existent 19

20 Community Development Credit Unions Strategic Risk Considerations Ensure risk exposure reflects strategic goals established by management Define acceptable levels for risk in different areas of operation that are compatible with business plan objectives and work to stay within those boundaries Perform due diligence and set limits and interim targets for new products and services 20

21 Community Development Credit Unions Credit Risk Considerations Higher concentrations of loans made to members with lower credit scores Use of non traditional lending products, procedures and services to provide access to financial services Strong collection programs are essential Maintain credit risk within acceptable levels 21

22 Community Development Credit Unions Considerations Financial Analysis Beyond the Ratios Availability of different funding sources and effects on the balance sheet Higher operating costs because of nature of field of membership Higher delinquency rates do not automatically translate proportionally into charge-offs 22

23 Community Development Credit Unions Considerations Examiners ensure the credit union s risk management efforts are commensurate with its size and complexity. NCUA considers the unique characteristics of LICU and CDCU members when evaluating loan portfolios and products and services. 23

24 Managing Credit Risk in CDCUs ASSESSING CREDIT RISK 24

25 Assessing Credit Risk New Lending Review Process Environmental Analysis Analysis of Lending Strategy Analysis of Risk Management Methods Select and Review a Sample of Loans Analysis of Loan Portfolio Performance 25

26 Contact Us Feel free to contact me with questions or comments (703)