National Credit Union Administration 2017 Annual Report

1 2017 . Annual Report . National Credit Union Administration 2017 Annual Report | National Credit Union Administration 2017 Annual Report | National Credit Union Administration About This Report About This Report The National Credit Union Administration 's 2017 Annual Report provides financial and high-level performance results for the agency and demonstrates to Congress, the President and the public the agency's commitment to its mission and accountability over the resources entrusted to it. The 2017 Annual Report focuses on the NCUA's strategic goals and performance results and details the agency's major regulatory and policy initiatives, activities, and accomplishments. It also contains financial statements and audit information for the four funds the NCUA administers: the National Credit Union Share Insurance Fund, the NCUA Operating Fund, the Central Liquidity Facility and the Community Development Revolving Loan Fund. This Report and prior NCUA Annual reports are available on the NCUA's website at To comment on this Report , email Certificate of Excellence in Accountability Reporting The NCUA's 2016 Annual Report received the Certificate in Excellence in Accountability Reporting from the Association of Government Accountants.

2 This was the agency's first time receiving the award, which is presented to federal government agencies whose Annual reports achieve the highest standards in demonstrating accountability and communicating results. The 2016 Annual Report also received a Best-in-Class Award for Best Presentation of Future Challenges and Agency Impact. i About This Report 2017 Annual Report | National Credit Union Administration ii 2017 Annual Report | National Credit Union Administration Table of Contents Table of Contents Message from the Introduction to the 7. Management's Discussion and 9. The NCUA in 9. The NCUA's Regional Organizational 11. Year in Looking Financial 38. Performance 44. Management Assurances and Compliance with Performance 55. Performance Planning and Program Evaluation and 56. Cross-Agency Priority Performance Results by Strategic Validation and Verification of Performance 79. Message from the Chief Financial Message from the Office of Inspector National Credit Union Share Insurance 86.

3 Operating Central Liquidity 151. Community Development Revolving Loan Other 179. Financial Statement Audits Management Assurances Civil Monetary Penalty Adjustment for 180. iii Table of Contents 2017 Annual Report | National Credit Union Administration Statistical Overall Net Loan Loan and Delinquency Loan and Delinquency Trends (continued).. 188. Investment Trends - Accounting Standards Share Asset-Liability Management 191. Summary of Trends by Asset National Credit Union Share Insurance Fund Ten-Year Credit Union Performance Five-Year Summary of Performance for Federally Insured Credit 203. Board of Senior Staff Reporting to the NCUA 205. NCUA Offices and 205. The NCUA's Key List of Acronyms Found in the 211. List of Hyperlinks to Additional Information by Report Contact iv 2017 Annual Report | National Credit Union Administration Message from the Board Message from the Board On behalf of the National Credit Union Administration , we are pleased to present our 2017 Annual Report .

4 In accordance with section 102(d) of the Federal Credit Union Act, this Report reviews the agency's performance in 2017 and includes the audited financial statements for the NCUA's four funds: the National Credit Union Share Insurance Fund, the NCUA. Operating Fund, the Central Liquidity Facility, J. Mark McWatters Rick Metsger and the Community Development Revolving Chairman Board Member Loan Fund. Each of these funds received an unmodified or clean audit opinion and reported no material weaknesses. In addition, the financial data contained in this Report are reliable and complete, consistent with the Office of Management and Budget Circulars A-11, A-123 and A-136, as applicable. The NCUA's mission is to provide, through regulation and supervision, a safe and sound Credit Union system, which promotes confidence in the National system of cooperative Credit . Further, the agency protects consumers, insures the deposits of more than 111 million Credit Union members, and safeguards the Share Insurance Fund from losses.

5 As outlined in the agency's 2017 2021 Strategic Plan, the NCUA's strategic goals in 2017 were: Ensure a safe, sound, and sustainable Credit Union system;. Promote consumer protection and financial literacy; and Cultivate an inclusive, collaborative workplace at NCUA that maximizes productivity and enhances impact. 1. Message from the Board 2017 Annual Report | National Credit Union Administration As Credit unions carried out their role of providing affordable financial services to their members, the NCUA engaged in a number of important initiatives in 2017 . The most significant was closing the Temporary Corporate Credit Union Stabilization Fund prior to its scheduled expiration in 2021 and transfering its assets into the Share Insurance Fund. The NCUA. also continued to improve its efficiency and effectiveness through an agency-wide realignment of its resources that will consolidate functions at the start of 2018 and will close two regional offices in 2019. Additionally, we continued to make sizable investments in new technology that will allow the agency to carry out its supervisory and examination functions in the future more efficiently and with fewer disruptions to Credit Union operations.

6 We continued to enhance the transparency and accountability of our decisions, operations, and budget. Finally, we took action to provide meaningful and significant regulatory relief to Credit unions during the year. Closing the Stabilization Fund and Merging it into the Share Insurance Fund The Stabilization Fund has been a vital tool for the NCUA to minimize the losses associated with the collapse of five corporate Credit unions during the financial crisis nearly a decade ago. It provided short-term and long-term funding to resolve a portfolio of legacy assets, including residential mortgage-backed securities, commercial mortgage-backed securities, other asset-backed securities and corporate bonds, that had to be managed as part of the Corporate System Resolution Program. Through the Stabilization Fund, the long-term costs of the failed corporates were contained within the Credit Union system. With the improvements in the value of the legacy assets from the corporates, projections that any future assessments on Credit unions will no longer be necessary, the success of our legal recovery efforts, and the repayment of $6 billion in borrowings from the Department of the Treasury in 2016, the Stabilization Fund's purpose and utility ended.

7 As a result, in September 2017 , the NCUA. Board voted to close the Stabilization Fund and to transfer its remaining assets and obligations into the Share Insurance Fund, as prescribed in the Federal Credit Union Act. In addition to merging the two funds, we also set the normal operating level of the Share Insurance Fund to percent to strengthen the resilience of the fund, which has seen its equity ratio decline for several quarters due to increased share growth, declining investment income because of the low- interest rate environment, and insurance losses. This action also allows us to meet the remaining obligations of the Stabilization Fund, manage the potential risks associated with the introduction of the legacy assets into the Share Insurance Fund's portfolio prudently, and protect the Share Insurance Fund against any potential future losses. This action also allowed us in February 2018 to approve a distribution of additional equity above the normal operating level that will be paid to Credit unions in 2018, in accordance with the Federal Credit Union Act.

8 2. 2017 Annual Report | National Credit Union Administration Message from the Board Restructuring the Agency's Functions to Meet Future Challenges The financial services marketplace is evolving, and so too must the NCUA. It is critical that the agency continue to fulfill its mission in a fully transparent, accountable, and efficient manner. To improve our efficiency and effectiveness, and to account for anticipated future changes in the Credit Union system, we announced and began implementation of an agency-wide restructuring of our offices and operations in 2017 . Under this initiative, we: Planned the consolidation of the agency's five regional offices into three by closing the Albany, New York, and Atlanta, Georgia, offices beginning in 2019, and eliminating 80. percent of the agency's leased facilities;. Created the Office of Credit Union Resources and Expansion by redefining and realigning our chartering and field-of-membership, Credit Union development, grants and loans, and minority depository institutions programs.

9 This office began operations on January 7, 2018;. Restructured the Office of Examination and Insurance into specialized working groups; and Changed the Asset Management and Assistance Center's business model and reporting structure. We also eliminated overlapping responsibilities within our agency's offices and improved functions such as records management and procurement. We improved our process for issuing examination and supervision reports to improve their quality and increase consistency. With these structural changes, we anticipate a reduction in our workforce through attrition over the next two years. We also made further refinements to our examination program. During the year, we fully implemented an extended examination cycle for well-managed, low-risk federal Credit unions with assets of less than $1 billion. We also made other improvements such as better coordination with our state-level partners during exams on state-chartered Credit unions, and we tested new processes designed to reduce the amount of time examiners spent on site at Credit unions.

10 Through these initiatives, we are learning new ways to decrease our regulatory footprint, while simultaneously reducing costs and improving the quality of life for our employees. Additionally, we continued to make significant investments in new technology and systems in 2017 . under our Enterprise Solution Modernization Program. These will improve our data collection efforts, reduce our examination footprint, and give us better tools and data to analyze potential risks and emerging trends within the Credit Union system. 3. Message from the Board 2017 Annual Report | National Credit Union Administration Advancing Our Transparency and Accountability Efforts It is essential the NCUA carry out its responsibilities in a fully transparent and accountable manner. In 2017 , we took additional steps to ensure those principles applied to all aspects of the agency's operations and budget. The first step was the approval of two final rules that improved the ability of Credit unions to appeal agency actions to the NCUA Board and to appeal examination-related supervisory decisions to the agency's Supervisory Review Committee.