2020 Alabama Advocacy Conference
The Alabama advocacy conference held on March 3, 2020, featured H. Greg McClellan, the Administrator of the Alabama Credit Union Administration. The event provided an overview of state-chartered credit unions in Alabama, highlighting significant statistics as of December 31, 2019. Proposed regulations from the ACUA aimed to enhance loan policies, appraisals, and risk management, positioning Alabama credit unions for continued growth and member service across all 67 counties.
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Presentation Transcript
League of Southeastern Credit Unions 2020 Alabama Advocacy Conference March 3, 2020 H. Greg McClellan, Administrator Alabama Credit Union Administration
Overview State Chartered Credit Unions Statistics at 12/31/2019 Proposed 2020 ACUA Regulations (Comment Period Ends 3/30/2020) ACUA Regulatory/Examination Focus Questions/Comments 2
Alabama State-Chartered Credit Unions System is strong statewide. Serve over 1 million members across all 67 counties through 61 credit unions as of 12/31/2019. Total Assets at 12/31/19 were $15.651 billion. Increase of 3.31% over 12/31/18. 0.97% growth from 12/31/17 12/31/18. Median size of an AL state-chartered credit union is $67.331 million. Largest CU is APCO with $3.007 billion in assets and smallest is Dixie Craft with $1.667 million in assets. 3
2020 Proposed Regulations Loans 1. Board approved loan and appraisal policies; annual review of policies; 2. Loan policy must address: adequate determination of value of collateral offered; monitoring all variable rate loan changes; expands monitoring measures for indirect lending; comply with 701.21(h) of NCUA s Rules & Regulations; expands subprime underwriting and monitoring measures to include limits by risk grades; adherence to laws/regulations for overdraft privilege programs and underwriting standards; and, address loan workouts and nonaccrual standards 3. Adhere to NCUA R&R Part 722 on Appraisals 4. Commercial and member business loans governed through NCUA R&R Part 723 4
2020 Proposed Regulations Participation Loans - Adhere to NCUA Regulation Part 701.22 CUSOs - New section on CUSO s addresses recapitalization of investments in CUSO s which may result in less than adequately capitalized state-chartered credit union Limits of Indebtedness & Concentrations of Credit - Describes closely related interest - Limits by loan type Cover in policy - Addresses limits of total loans to a member by type
2020 Proposed Regulations Reserves; Surplus - Requires Board approved annual Capital Preservation Plan; - Requires submission no later than November 1stbeginning November 1, 2020 for CY 2021; and, - Authorizes transfers to regular reserves and authorizes ACUA to reduce transfers, if warranted Minimum Fidelity Bond Requirements - New section to comply with NCUA Regulation Part 713
ACUAs Regulatory Focus for 2020 Examination emphasis on: Asset Quality, Corporate Governance, & Oversight Auto lending; unsecured consumer lending; commercial lending. Extension practices; policies; monitoring Charge offs in accordance with NCUA Letter to Credit Unions #03-CU-01 Adequacy of the Allowance for Loan & Lease Losses Adjustable Rate Loan Monitoring New emphasis Information Security Corporate Governance 7
Overall Consumer Lending Focus Underwriting deficiencies income verification, adequacy of debt service ability, high loan-to-value trends, trade in deficiency escalation, etc. Adequacy of quality control reviews of new loan programs or rapidly growing programs Concentration and growth trends Board oversight of growth trends in new loan programs Adequacy of loan policies and monitoring: expect to see limitations on new programs until the program is seasoned, monitoring of 1stpayment defaults & enhanced collection practices Adequacy of indirect programs monitor by dealer, credit quality, delinquency by dealer, yields, losses, etc. 8
ACUA Examination Focus Auto Lending Auto Lending Programs Loan growth above and beyond usual could indicate an issue High Risk Lending Practices will receive more scrutiny Loan maturities of over 7 years; High loan to value loans; Borrowers with near or subprime credit; and, Indirect lending programs. 9
ACUA Examination Focus Auto Lending Ensure that your credit union is underwriting auto loans for add- ons such as warranties, insurance products, etc. and income of the borrower is verified Ensure that you monitor auto loans by dealer or source Monitor for trends in title delays, first payment defaults and skips take immediate action to mitigate risk 10
Extensions Board approved extension policy in place including hardship reason(s) for the extension. (Reference U. S. Code, Title 18) Loan officer/employee training related to extension policy for consistent application Management should monitor data processing extension reports monthly to ensure compliance with the Board approved policy Report extensions to the board 11
Timely recognition of loan charge offs Timely and consistently applied board approved Charge Off policy for uncollectible loans Tailor the Charge Off policy for size and complexity of the credit union and one that meets standards addressed in NCUA Letter to Credit Unions 03-CU-01 Management is responsible for identifying, monitoring, measuring and controlling the risk in the loan portfolio 12
Adequacy of the Allowance for Loan and Lease Losses GAAP requires written documentation to support the amount of the ALLL and the provision for loan and lease losses reported in the financial statements ALLL Methodology should provide an ALLL sufficient to cover necessary charge offs Consider a 3rdparty validation of the ALLL periodically Implementation of Current Expected Credit Losses methodology (CECL); New Questionnaire required. Effective date for reporting is January 1, 2023 for most credit unions. CPAs should assist 13
Adjustable Rate Loan Terms Renewed emphasis and testing by examiners on rate adjustment processes (ARMs and Home Equity) Review management s procedures for processing interest rate changes and notifications in timely and accurate manner Recent issues noted in some CUs Need to be in compliance with stated terms Indexes, margins, change dates, & rate change / payment change notices Correctness of rate adjustments and notifications (Reg Z)
Some Recent Observations Failure to adjust interest rates due to technical error or oversight Applying the same date each month to determine the current index on multiple loan products (ARMs & HELOCs) Rate change notices not consistently provided ARM loans acquired by merger not adjusting Loans interest rates not adjusted correctly in accordance with loan documents: (examples) Rate not changed on loan after the initial change date Interest rate not rounded to the nearest stated % per the loan agreement Rates not changed on the stated change date Rates on loans outside of the floor rate stated in the loan agreement
Member Information Security The Credit Union s Information Security Program should include at a minimum: Risk assessment: Identify foreseeable internal and external threats Assess the likelihood and potential damage from the threats identified A written information security program to control identified risk Provide training to staff Test key controls, systems, and procedures of the program. (Consider Phishing tests) Procedures to properly dispose of member information Incident response plan Board report, review and approval ANNUALLY (12 CFR Part 748 Appendix A )
Corporate Governance Active Board (not just attendance) Active Supervisory Committee Updated Bylaws to comply with state law Ongoing review of board-approved policies and updates to procedures Training for officials and employees 17
Closing ACUA will work diligently with you to maintain a sound and healthy state-chartered credit union system that can adapt to members changing needs. ACUA welcomes comments and feedback on examinations, laws and regulations. We are always looking for ways to further enhance our approach to examining and supervising Alabama state-chartered credit unions. Questions / Comments? 18
Alabama Credit Union Administration 100 North Union Street, Suite 650 Montgomery, Alabama 36104 334-353-5770 www.acua.alabama.gov 19
