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NCUA Board Removes Calendar-Year Exam Requirement, Adopts New Strategic Plan

July 2016
NCUA Board Removes Calendar-Year Exam Requirement, Adopts New Strategic Plan

Board Action Bulletin

2016 Mid-Session Budget Review Projects $2.7 Million in Reduced Spending

ALEXANDRIA, Va. (July 21, 2016) – The National Credit Union Administration Board held its seventh open meeting of 2016 at the agency’s headquarters here today and unanimously approved one item: 

  • The agency’s 2017–2021 Strategic Plan, which updates NCUA’s performance goals for measuring annual examinations and describes the agency’s strategic goals in the areas of safety and soundness, consumer protection and financial literacy, and workforce development and diversity.

The Board also received briefings from the Chief Financial Officer on the revised 2016 agency budget estimates and the performance of the National Credit Union Share Insurance Fund, which grew to more than $13 billion in the second quarter of 2016.

Strategic Plan Fulfills Commitment to Provide Examination Flexibility

NCUA’s 2017–2021 Strategic Plan, approved unanimously by the Board, updates the agency’s performance goals for examinations. The plan is part of NCUA’s overall efforts to modernize the examination process.

“The agency’s new strategic plan prioritizes continual quality improvement to make our operations both more efficient and effective, rather than the adoption of new rules 

and regulations,” NCUA Board Chairman Rick Metsger said. “We will focus on upgrading our technology, systems and processes to improve the quality of our examinations and supervision, while simultaneously reducing the onsite burden on credit unions and improving the quality of life for our examiners.”

In adopting the plan, the Board retired two agency performance goals requiring the examination each calendar year of all federally insured, state-chartered credit unions with more than $250 million in assets and every federal credit union. The Board then established an interim goal of completing an efficient and effective federal and state examination process through the end of 2016.

“This change will give our regional offices greater flexibility to schedule exams when they are needed, and when they make the most sense, rather than basing them on an arbitrary calendar-year requirement,” Metsger said. “This change alone does not extend the examination cycle. How and whether we further change the exam cycle will be determined by the Board after we have received recommendations from the Exam Flexibility Initiative.”

In May, Chairman Metsger established an internal working group known as the Exam Flexibility Initiative to obtain stakeholder feedback and evaluate the agency’s examination and supervision program. The Board expects to receive recommendations from the working group in September.

The new strategic plan also summarizes internal and external factors affecting the agency and the credit union system, evaluates NCUA programs and risks and provides goals and objectives. The agency’s three strategic goals described in the five-year plan are:

  • Ensuring a safe and sound credit union system;
  • Promoting consumer protection and financial literacy; and
  • Cultivating an inclusive, collaborative workplace that maximizes productivity and enhances impact.

Copies of the 2017–2021 Strategic Plan, as well as previous strategic plans and annual performance plans, are available online here.

2016 Mid-Year Budget Review Estimates $2.7 Million in Less Spending

NCUA’s Chief Financial Officer reported that agency expenditures are projected to decline by approximately $2.7 million for 2016, based on current projections of the agency’s needs.

“This agency continues to be a good steward of its funds and a leader in budget transparency,” Metsger said. “We provide more information, more often, on our website than any other federal financial institutions regulator. We never stop looking for ways to economize. While there is always more to do, we have a record to be proud of.”

While the agency projects a reduction in 2016 spending, several open obligations from prior years affect the amount of cash needed. Because the Operating Fee is partially determined by the agency’s cash needs, staff therefore recommended no reduction in Operating Fee collections for 2017 at this time.

NCUA’s revised estimate for its 2016 operating budget will be $288.2 million, including decreases in every major budget category. The largest change in the estimate comes from $1.9 million in lower employee pay and benefits expenses associated with vacant positions. The revised costs are based on current projections of staffing trends through the end of the year.

Travel costs and administrative costs are reduced by $323,000 and $234,000, respectively. Rent, communications, and utilities costs are reduced by $30,000. Contracted services costs are reduced by $191,000.

Board members approved a rolling two-year budget at their November 2015 open meeting, a return to former agency practice. The 2017 budget is scheduled to be reviewed at the Board’s open meeting in November. Before the Board votes on the 2017–2018 budget in November, the agency will host a budget briefing for stakeholders in October.

As part of its ongoing commitment to transparency in the budget process, NCUA continues to make extensive budget information available online here.

Share Insurance Fund Maintains Consistent Trends

Because of continued improvement in the performance of federally insured credit unions, the second quarter of 2016 saw consistent trends in income and operating expenses for the Share Insurance Fund.

During the second quarter, the Share Insurance Fund had a net loss of $21.8 million. Despite the quarterly loss, the fund had $2.2 million in net income for the first half of 2016.

As of June 30, 2016, the calculated equity ratio, based on estimated insured shares of $993.5 billion, dropped to 1.24 percent. When the next one-percent deposit capital adjustment is collected in October for all federally insured credit unions with assets of $50 million or greater, the equity ratio is estimated to be 1.27 percent, consistent with the agency’s expectations, but the ratio may differ if loss patterns change. NCUA will invoice for the adjustment in September.

Second-quarter investment and other income was $56.9 million. Operating expenses were $52.8 million. The provision for insurance losses increased by $25.9 million. Overall, the amount of assets in CAMEL code 3, 4 and 5 credit unions has decreased 54 percent since reaching a high of $205.6 billion in September 2010.

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

  • The number of CAMEL code 4 and 5 credit unions declined 16.7 percent from the second quarter of 2015 from 251 to 209. More than half were credit unions with assets of $10 million or less.
  • Assets of CAMEL code 4 and 5 credit unions were $9.5 billion, a 16.7 percent decline from the second quarter of 2015.
  • The number of CAMEL code 3 credit unions declined 10.1 percent from the second quarter of 2015 from 1,336 to 1,201.
  • Assets of CAMEL code 3 credit unions were $85.2 billion, a 9.5 percent decline from the second quarter of 2015.

Six federally insured credit union failed during the second quarter. Fraud was a contributing factor in all six failures.

For the first six months of 2016, there have been a total of 11 failures. The total losses associated with failures through the second quarter were $8.5 million.

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

NCUA tweets all open Board meetings live. Follow @TheNCUA on Twitter, and access Board Action Memorandums and NCUA rule changes at NCUA also live streams, archives and posts videos of open Board meetings online.

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