Texas Credit Union Meeting Commission Results

On Friday, June 10, 2022, the Texas Credit Union Commission (the Commission) met at the Texas Credit Union Department (TCUD) building in Austin, Texas. Following is a summary of the meeting.

Big News!

Commissioner John Kolhoff has announced his resignation effective July 15, 2022. The Commission will promptly begin a search for his replacement. During Commissioner Kolhoff’s tenure, Cornerstone staff and Texas state credit unions enjoyed working with the Commissioner as we quickly learned to appreciate his depth of experience and guidance. He will be sorely missed.

We are happy to announce that Texas Governor Greg Abbott has appointed Texas Trust Credit Union CEO Jim Minge to serve as the chairman of the Texas Credit Union Commission. As a widely respected credit union veteran, Minge will no doubt serve the industry well in this new position.

Additionally:

• Sherri Merket will continue to serve as the vice chair
• Rules Committee Members: David Shurtz (Chair), Liz Bayless, Beckie Cobb
• Audit Committee Members: Kay Rankin-Swan (Chair), Liz Bayless, David Bleazard
• Policy Review Committee Members: David Bleazard (Chair), Karyn Brownlee, David Shurtz

TCUD Fiscal Year 2022 Budget and Financial Performance

• No action taken.
• In 2020, the Commission adopted the strategic plan for fiscal years 2021-2025.
• The FY 2022 budget was approved by the Commission in June 2021 which includes the maintenance and operating budget and capital improvement budget in support of the strategic plan.
• At the end of the April 2022, total expenditures where approximately 22% less than budgeted projections. Below budget items predominately represent travel-related savings due to the pandemic and personnel savings due to vacancies.
  

TCUD’s Operating Plan and FY 2023 Budget

• The Commission voted to adopt the proposed budget assumptions and parameters for FY 2023 as recommended by staff.
• Finance Code Section 16.003 gives the Commission the exclusive responsibility for approving the Department’s budget each year.
• Consistent with the Budget Assumptions approved by the Commission in March 2022, the Commission detailed a proposed budget for FY 2023 of $4,894,832, which represents a 3.32% increase from the FY 2022 budget.
• The proposed budget includes strategic initiative funding for the costs related to establishing an internal audit function ($62,000); compensation program performance and equity-based amendments ($129,761); additional examiner positions ($264,578); and a legal support budget ($20,000). The budget also includes a capital improvement funding of $25,000 to repair the roof and $30,000 to maintain the internal network infrastructure.
  

Status of the State Credit Union System

• No action taken.
• The overall financial performance of Texas credit unions was strong during the first quarter of 2022.
  
• Capital strength was sound, with earnings and asset quality performance ratios reaching their strongest levels over the last seven years for the second consecutive quarter.
• There has been a slight dilution of capital ratios over the last several years tied to stimulus deposits and flight to safety. It is anticipated that deposit and asset growth will be controlled in 2022 and will result in a strengthening of net worth positions.
• As of March 31, 2022, there were 174 Texas state-chartered credit unions, down two charters from the prior 12 months. Assets in these credit unions increased by $4.35 billion since March 31, 2022, for an annualized growth rate of 8.1%. The aggregate net worth is 10.39%, up from 10.04 twelve months ago. Loans are at an annualized growth rate of 10.5%. Shares increased 7.7% since 3/31/22. Average loan delinquency ratio has declined significantly to 0.44% as of March 31, 2022 compared to .58% as of March 31, 2021.
• Twenty-seven state-chartered credit unions reported year to date losses of $2.56 million, while the remaining 147 credit unions reported aggregate net income of $172.63 million. 
• As of March 31, 2022, 22 credit unions were assigned a composite CAMELS rating of 3 or higher. These institutions represent 12.6% of charters or 1.57% of assets under supervision.
  

Rulemaking Matters

(1) Adoption of the Rule Review of 7 TAC, Part 6, Chapter 95, Subchapters A (Insurance Requirements), B (Liquidating Agents), C (Guaranty Credit Unions), D (Disclosure for Non-federally Insured Credit Unions), and Re-adoption of Rules

• The Commission adopted the rule review as the reasons for these rules to continue to exist.
• The Texas Government Code requires a state agency to review and consider for readoption each rule not later than the fourth anniversary of the date on which the rule took effect and every four years after. The agency must consider whether the reason for adopting the rule(s) continue to exist.

(2) Adoption of Proposed Amendments to 7 TAC, Part 6, Chapter 91.720 (Small-Dollar, Short-Term Credit)

• The Commission voted to adopt proposed amendments to 7 TAC 91.720, Small-Dollar, Short-Term Credit.
• The amendments to 7 TAC 91.720(b) increase the defined maximum for small-dollar, short-term credit loans to $2,000 (from $1,000) and extended maximum maturity to 12 months (from six months).
• The amendments to the rule permit Texas credit unions to be more competitive in the marketplace to help steer consumers away from predatory payday lenders.
• The amendments adjust for inflation the maximum lending limit. The $1,000 limit found in (b) was established in 2010 and has not since been adjusted.
• The maximum lending limit and maturity found within the current rule is less than maximum maturities of similar loan products authorized for FCUs under the Payday Alternative Loans program authorized by the National Credit Union Administration.

(3) Adoption of Proposed Amendments to 7 TAC, Part 8, Chapter 153 (Home Equity Lending)  

• The Commission voted to adopt proposed amendments to 7 TAC Part 8, Chapter 153, Home Equity Lending.
• The amendments clarify the definition of “business day” and make technical corrections.
• Home Equity rules are administered by the Joint Financial Regulatory Agencies consisting of the Texas Department of Banking, Department of Savings and Mortgage Lending, Office of Consumer Credit Commissioner, and the Texas Credit Union Department.

(4) Proposed Amendments to 7 TAC, Part 6, Chapter 91.515 (Financial Reporting)

• The Commission voted to approve for publication and comment the proposed amendments to the rule on financial reporting.
• The purpose of the proposed amendments is to provide additional flexibility for small state-chartered credit unions. The amendments would align state and federal regulatory requirements relating to small institutions implementation of Generally Accepted Accounting Principles (GAAP). NCUA’s rule enables FCUs of $10 million in assets or less to determine their charges for loan losses outside of GAAP but not requiring implementation of CECL. This amendment would raise the current threshold for small Texas state-chartered credit unions to utilize an accounting methodology outside of GAAP from the current maximum asset size of $5 million to $10 million.

(5) Proposed Amendments to 7 TAC, Part 6, Chapter 91.901 (Reserve Requirements)

• The Commission voted to approve the proposed amendments to the rule for publication and comment.
• The purpose of the proposed amendments is to amend the states reserve requirements relative to institutions whose net worth falls below 7% to align with requirements recently amended by NCUA. 
• The amendments would require such institutions to increase “net worth” instead of the current “net worth reserves” simplifying the calculation of the amount of required earning retention by providing only a quarterly measurement regardless of the period the credit union pays dividends.

(6) Proposed New Rule 7 TAC, Part 6, Chapter 97.208 (Vendor Protests)

• The Commission voted to approve the proposed rule for publication and comment.
• The purpose of the proposed rule is to set forth TCUD’s procedures for resolving vendor protests relating to purchases as required by Texas Government Code Section 2155.076, adoption of the procurement rules of the Texas Comptroller of Public Accounts pursuant to Texas Government Code Section 2156.005(d) and the negotiation and mediation of a claim for breach of contract as required by Texas Government Code Section 2260.052(c). 
• The Commission proposes this new rule to replace any formal or informal policies or procedures governing resolution of contract disputes and to carry out the requirements of the Government Code.

Update Regarding Pending Litigation: Credit Union Department v. Ken Paxton, Attorney General of Texas; Cause No. D-1-GN-21-007168

• No action taken.
• Session closed to the public.
• The litigation is related to a Texas Public Information Act request where TCUD believes certain requested information to be confidential while the Attorney General’s office disagrees.

Commissioner Policy, Responsibilities, Communications Amongst Commission Members, Commissioner and General Counsel

• No formal action taken.

Resolution of Appreciation for Outgoing Commission Member Steve Gilman

• The Commission voted to approve the resolution in appreciation of Gilman’s service to the Commission.

Future Commission Meetings: Agenda Items, Arrangements, and Dates

• The next regular meeting of the Commission is scheduled for Sept. 16, 2022.