Texas CU Commission regulatory meeting summary

From the Regulatory and Compliance Professionals at Cornerstone League

On Nov. 3, the Texas Credit Union Commission met at the Texas Credit Union Department (TCUD) building in Austin. Below is a summary of the meeting.

• Rules Committee Report
• The Commission approved, for publication and comment, the proposed amendments to Rule 7 TAC Section 97.113 Concerning Fees and Charges.
• Operations of the Credit Union Department are funded by assessment of an operating fee determined under rule 97.113.
• The most recent adjustment to the fee schedule was made July 12, 2009.
• According to TCUD, the current proposed amendments would:
• fund necessary additional security and operating costs,
• allow the commissioner to reduce, not simply waive, operating fees for individual credit unions,
• align the annual operating fee matrix and methodology with other financial institutions’ operating fees methodology (such as NCUA and the Texas Department of Banking), and
• realign the asset size brackets to reflect current asset growth of regulated credit unions.
• Under the proposed calculations, approximately two-thirds of Texas state-chartered credit unions (smaller asset sized) would see a decrease in their operating fees while there would be an increase in the operating fee for the 47 largest asset sized credit unions. 
• Once published in the Texas Register, the Cornerstone League will reach out to Texas-chartered credit unions for feedback in drafting a comment letter on behalf of our members.
  
  
• Commissioner Evaluation Committee Report
• The Commission met in private executive session to discuss Commissioner Michael Riepen’s performance review and remuneration.
  
  
• TCUD Fiscal Year 2023 Budget and Financial Performance
• No action taken.
• In 2022, the Commission adopted a strategic plan for fiscal years 2023–2027. The $5.0 million FY 2023 budget approved by the Commission in June 2022 includes the maintenance and operating budget and capital improvement budget in support of the strategic plan.
• At the end of August 2023, total expenditures were $737,429 or approximately 14.7% less than budgeted projections. Aggregate expenses for each major expense category ended the year below budget estimates. Due to personnel vacancies, total personnel expenses accounted for 57% of the budget variance, or $419,821. Other below-budget items include travel-related savings and professional services and fees.
  
  
• Status of the State Credit Union System
• No action taken.
• The financial performance of Texas credit unions for the first six months of 2023 remains good. Capital levels for the Texas industry continue to grow, and earnings and asset quality ratios are being maintained at some of their strongest levels over the last seven years.
• Earnings performance data for Texas credit unions reflect favorable levels of net income and, when coupled with controlled asset growth and slow deposit growth, resulted in a strengthening of net worth ratios. As a result of the dramatic increase in interest rates in the past year, deposit growth slowed considerably, as low-cost deposits left credit unions in search of higher rates. It is important to note that some of our regulated credit unions have encountered asset/liability management problems within their balance sheets, including tightened liquidity and high interest-rate risk. Generally, these trends have resulted from the placement of significant concentrations of previously liquid funds into longer-term loans and investments. TCUD is working with the operating management and officials of such credit unions as problems are identified to improve the asset/liability management structure of their balance sheets.
• While the performance outlook for the Texas industry still appears satisfactory, it remains essential for credit unions to adapt to the ever-changing economic trends (i.e., inflation, higher cost of funds, etc.), and the increasing political and warfare concerns to safeguard the financial interests of Texas credit unions and its members.
  
  
• INDUSTRY STATUS:
• As of June 30, 2023, there were 169 state-chartered credit unions in Texas, down five charters from one year ago. Total assets in these credit unions are $57.49 billion, an increase of $0.50 billion since Dec. 31, 2022, for an annualized growth rate of 0.9%. The average net worth ratio for all Texas chartered credit unions is 11.12%, a significant increase from 10.86% at year-end 2022.
  
  Loans for Texas-chartered credit unions totaled $42.32 billion as of June 30, 2023. This is an increase of $0.66 billion since June 30, 2022, for an annualized growth rate of 1.6%.
  
  Shares for Texas-chartered credit unions totaled $51.80 billion as of June 30, 2023. This is a slight increase of $0.35 billion, or 0.7% since Dec. 31, 2022.
  
  Texas-chartered credit unions average loan delinquency ratio is 0.60% as of June 30, 2023, which is consistent with the year-end 2022 level of 0.61%.
  
  On June 30, 2023, 169 state-chartered credit unions reported aggregate net income of $210.89 million; down from $281.14 million for the same six-month period in 2022. Overall, the earnings performance of Texas-chartered credit unions remains strong, as reflected by their Return on Average Assets Ratio of 0.74%. However, the reduction in total earnings over the last 12 months has been driven by increased credit loss expenses, increases in cost of funds tied to higher interest rates, and higher operating expenses.
  
  
• PROBLEM INSTITUTIONS:
• As of June 30, 2023, there were 20 credit unions assigned a CAMELS rating of 3 or higher, compared to 23 credit unions on June 30, 2022. Credit unions in this category are monitored through a combination of off-site monitoring, regular on-site or remote contacts, and ongoing reviews for compliance with outstanding Documents of Resolution and other supervisory agreements or orders.
  
  
• ENFORCEMENT ISSUES: The Department had the following administrative sanctions outstanding as of June 30, 2023: 
• Dividend Restrictions:  0
• LUAs:  0
• Determination Letters:  1
• Conservatorships:  0
• Cease and Desist:  3
  
  
• Discussion and Adoption of the Proposed Matrix for Administrative Penalties and Late Fees
• The Commission voted to approve the proposed penalty matrix.
• In its report dated August of 2020, the Sunset Advisory Commission directed TCUD to develop a penalty matrix to ensure the department has clear standards to assess administrative penalties and late fees in a fair and consistent manner.
• All existing civil money and criminal penalties under the Credit Union Act and Rules for Credit Unions were reviewed and memorialized in a table.
  
  
• Equal Employment and Workforce Plan
• The Commission approved the plan as presented.
• Finance Code Section 15.313 requires the Commission to prepare and maintain a written policy statement to assure implementation of a program of equal employment opportunity under which all personnel decisions are made without regard to race, color, disability, sex, religion, age, or national origin.
• The policy statement must be approved annually.
  
  
• Litigation Update Regarding Pending Litigation: Credit Union Department v. Ken Paxton, Attorney General of Texas; Cause No. D-1-GN-21-007168
• No action taken.
  
  
• Future Commission Meetings: Agenda Items, Arrangements, and Dates
• The next regular meeting of the Commission is scheduled for March 22, 2024.

 

Questions?

Email Suzanne Yashewski, regulatory compliance counsel, Cornerstone League.