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NCUA TRANSCRIPT: SHARE INSURANCE BRIEFING - THE ONLY CAMELS SNAPSHOT




Once a quarter NCUA conducts a briefing on the National Credit Union Share Insurance Fund. The following is a transrcipt of that briefing.


Todd Harper: The first item of business today is the board briefing on the share insurance fund quarterly report. Our chief financial officer, Eugene Sheed, is the sole presenter. Good morning, Eugene. It's good to see you as always. I also see that you got the purple tie memo today, so you are definitely on cue. Please begin whenever you are ready.

 

Eugene Schied: Good morning, Chairman Harper and Vice Chairman Hoffman. I am pleased to present to you this morning the 2024 second quarter statistics, the share insurance fund and update on the NCUA budget. Slide two. This table shows the fund's revenues and expenses for the second quarter of 2024. For the quarter that ended June 30, the fund recorded net income of $86.2 million. A few highlights are as follows, total income was $140.1 million for the quarter, mainly from investment income increased 5% compared to the prior quarter and increased 38% compared to the second quarter of 2023. Operating expenses were $60.4 million for the quarter, primarily due to the overhead transfer for agency operating expenses, and the provision for insurance loss reserve expenses decreased $6.1 million during the quarter.

 

Slide three. This table shows the fund's balance sheet as of June 30 compared to the prior quarter. As of June 30, total assets were valued at $21.6 billion, of which 99% were funds held with U.S. Treasury and cash, overnight investments, and long-term Treasury notes. A few highlights to take away from this slide are that the fund's capitalization deposit receivable was fully collected in the second quarter, accounts payable and other liabilities decreased mainly from the payment of capitalization deposit refunds of $238.8 million to credit unions whose insured shares had decreased, and the cumulative results of operation increased $142.7 million due to $86.2 million in the income and a reduction in unrealized losses on investments of $56.5 million.

 

Slide four. The fund records an insurance program liability comprised of both general and specific reserves. This is a contingency to cover anticipated future losses resulting from insured credit union failures. Each quarter, we assess the reserve needs for potential and actual credit union failures to make a reasonable estimate of potential future losses. During the second quarter, the reserve balance decreased by $5.5 million, primarily due to a decrease in the general reserves. The reserve balance totaled $212 million, and that is comprised of $10.1 million for specific reserves and $201.9 million for general reserves.

 

Slide number five. Through the second quarter of 2024, two credit union failures had occurred, which incurred a loss to the fund. Both were assisted mergers. The cost of the failures is estimated at $2.02 million. Fraud has not been identified as a contributing factor to either of those two failures.

 

Slide six. As of June 30, 2024, the fund had over $22.5 billion at par value invested in treasury securities with maturities out to November 2030. The weighted average life of the securities held by the fund is 2.3 years. The weighted average yield of the securities increased 11 basis points from last quarter up to 2.54%. During the second quarter of 2024, eight treasury notes matured for a total of $750 million. These securities had yields ranging from 0.24% to 2.14%. These maturities were subsequently reinvested during the second quarter.

 

Slide seven. The equity ratio. The equity ratio is updated on a semiannual basis. As of June 30, 2024, the equity ratio is 1.28% and was calculated using an insured share base of $1.76 trillion. The blue line across the chart represents the normal operating level. This was last set and approved by the board in December 2021. And that currently remains unchanged at 1.33%.

 

Slide eight. This presents the projected equity ratio, the projection for December 31, 2024, which is also 1.28%, unchanged from the June 30 actual. The stability is mainly due to the forecasted modest increase in insured shares during the second half of the year. The projected equity ratio is calculated on the same basis as the actual equity ratio and that formula and calculation are shown on the slide.

 

Slide 9. Moving to an overview of camel's data, this slide shows the percentage of insured shares by camel's codes from 2019 through the second quarter of 2024. In the graph, the dark blue at the top represents camel's coded 4 and 5, the gray represents camel's code 3, and the light blue represents camel's code 1 and 2. During the quarter, the percentage of insured shares at credit unions, camel's coded 3, 4, or 5 increased while those that camel's codes 1 and 2 decreased. The table at the bottom of the page shows the number of credit unions by the camel's code. The total number of credit unions as of June 30 was 4,533, a decrease of 45 from the prior quarter.

 

Slide 10. This slide compares credit unions camel's code by asset size. Camel's coded 4 and 5 credit unions are shown on the left-hand side of the graph, and camel code 3 is shown on the right. Looking at the 136 credit unions, camel's code 4 and 5, most of these credit unions continue to have assets of $100 million or less. For those with assets greater than $100 million, there were 10 credit unions in the hundred to $500 million range. For those with assets greater than $100 million, there were 10 credit unions in the $100 million to $500 million range. For those greater than $500 million, there were six more credit unions in 2024, June 2024 then in the prior quarter. During the quarter, assets and insured shares for credit unions camel code 4 and 5 increased. Considering now the 743 credit unions camel codes 3, 91% of these are credit unions that have less than $500 million. During the quarter, there was a decrease in credit unions with assets $500 million or less and an increase in credit unions greater than $500 million for the camel code 3. During the quarter, assets and insured shares in credit unions camel's code 3 increased.

 

Slide 11. I will now transition to a brief overview of the NCOA's budget status for 2024. Slide 12. Through July, the operating fund budget is used 60.8% of its funding that was made available by the board for 2024, a rate that's generally consistent with expectations and prior years. Employee pay and benefits is tracking very close to expectations as the agency has maintained a low vacancy rate. Travel spending has increased compared to recent years and we project most of the available travel funds will be used by the end of the year. Compared to recent years, we forecast a smaller year end availability of funds currently projected to be about $5 million or 1.3%. This would be smaller than what we've seen in recent years which means there would be less surplus funds to potentially apply as an offset to the 2025 budget as the board has done in recent years.

 

Slide 13. Slide 14. The board approved a capital budget for 2024 which is $7.4 million. Through July, approximately 50% of the funds have been used. Key line items in the capital budget include cyber security, information technology infrastructure and process improvements. As noted on the slide, a small reallocation of funds was made to increase funding for personal security case management system. Otherwise, all of the approved projects are executing within the amounts made by the board.

 

Slide 14. The share insurance fund administrative budget funds certain insurance related expenses of the agency. Through July, 76% of the board approved budget has been used. The line item we are monitoring here is state examiner training. We reallocated $100,000 from administrative expenses to state examiner training line item because participation rates at NCUA and FFIEC training classes have been higher than anticipated. And slide 15.

 

In closing, the share insurance fund is performing well here today. The board approved budgets are executing within the expected parameters. Supplemental slides provided with this presentation have additional information to help interested parties better understand the operations of the share insurance fund. Thank you for your time and this concludes my presentation. I'd be happy to answer your questions.

 

Todd Harper: Eugene, thank you for your update on the performance of the National Credit Union Share Insurance Fund in the second quarter of 2024, the overview of the fund's projected year-end equity ratio, and the status of the NCUA's budget at the mid-year. And thank you to you and your team and the Office of the Chief Economist for their continued solid work in preparing today's briefing materials. The Share Insurance Fund's performance in the second quarter of 2024 mirrors much of the industry's financial performance during the same period. The fund, like the credit union system, is doing well overall, but there are warning signs that we all must heed. First, let me start with the good news. Since the 2008 financial crisis and the Great Recession that followed, the U.S. has maintained an unprecedented low-interest rate environment for nearly 15 years. This economic environment prevented the Share Insurance Fund's investment income from offsetting the growth and insured shares the industry experienced during that same time frame. That's why there was a continual decline in the equity ratio in the middle part of each year during the last decade until the closure of the temporary corporate credit union stabilization fund in 2017.

 

In recent years, we have experienced a large growth in insured shares, especially at the height of the pandemic, when large amounts of government stimulus funds flowed into the credit union system, gradually depressing the strength of the equity ratio, with the 1.22% in June 2020. But the current higher interest rate environment has improved the fund's earnings. In fact, investment income in the first two quarters of 2024 alone exceeded the investment income of the Share Insurance Fund earned in all of 2021. So things certainly have changed, and I think you would agree that that's very good news for the Share Insurance Fund. Once more, the fund's yield in 2021 was just 1.21%. The Share Insurance Fund portfolio right now is yielding 2.54%, more than double 2021's level. That income, along with slower growth in insured shares, helped to stabilize the Share Insurance Fund's equity ratio at 1.28%, four basis points higher than the initial projected ratio for June 30. So, Eugene, while the Share Insurance Fund is overall experiencing its best performance in terms of investment income in nearly 15 years, should we expect that performance to continue?

 

Eugene Schied: Thank you for that question, Chairman Harper. Both in terms of income and the weighted average yield, the fund has seen its best performance since at least the Great Recession. The yield is now 2.54% and has benefited from the higher interest rates, especially in the overnight holdings. We have seen the overnight rates begin to fall from as recently as 5.4% in early August down to now under 5%. As of yesterday, that represented a decrease of about $82,000 a day to the fund, or about $30 million a year. However, the latter portfolio has maturities every quarter, and those maturity buckets have average yields of generally under 1.5% for the next couple of years. As we reinvest those maturities, we will help to offset lost earnings from a decrease in overnight rates. The amount of the offset will be highly dependent on the overnight rates and where they go, as well as the rates that we get on the reinvestments in the longer end of the SIF portfolio ladder. These challenges, these are, this is the challenge for the investment committee, is to reassess the fund's overnight holdings and potentially place more of the funds in the investment ladder, which would help lock in longer term earnings.

 

Todd Harper: So, just help me out here to make sure that I understand what you're saying. Are you saying that, yes, the long-term investments are paying a lower yield now because of that we invested them at this time, but if I remember correctly, we have $5.6 billion in overnights right now and that we're going to be moving out on the ladder. Are you saying that as we ladder, we expect those rates to go up on the longer-term investments?

 

Eugene Schied: Yeah, so I think there's sort of two balances here that we have to think about. There's the overnights, and we have seen those start to come down, and those presumably would continue to go down if the Fed continues to reduce interest rates. The maturities that we're seeing right now in the longer end of the portfolio, the longer securities that we've hold, those generally have rates under 1.5 percent overall. So the next couple of years, we'll see those lower rates mature off. If the 10-year, which would, you know, the longer-term rates continue to be somewhat higher, the net will kind of offset. So we'll kind of see movement at both ends of the spectrum. But how that plays out in net, I mean, obviously it will depend on what the rates look like.

 

Todd Harper: Thank you, Eugene, for that clarification. My next question relates to the funds balance sheet. If we could pull up slide three. On slide three, we see the overall assets of the share insurance fund declined slightly between the first and second quarters. This contraction may cause confusion for some. Would you please explain this slight decline in the funds total assets and why this slight decline in the funds total assets and net position occurred, and are there any seasonal factors at play here?

 

Eugene Schied: So that's really a factor of the refund that we did for the capitalization deposits. So in short, the agency refunded more in capitalization deposit adjustments during quarter two than we collected because there was overall decrease somewhat in insured shares the latter half of 2023. I think what's important here, though, is that the fund's cumulative results of operation increased. And so that's important for the stability of the fund. So maybe.

 

Todd Harper: Maybe it wasn't a seasonality, but it was a one-time event, just as we've seen this change in the composition makeup of Credit Union Balance Sheet.

 

Eugene Schied: Well, there is a there's a certainly a seasonality to the share insurance fund insured chairs, right? We see and so there's a seasonality. I would say that kind of the more unique aspect is We don't typically see a contraction in insured writers, and there was a bit of that that a letter after the year

 

Todd Harper: Thank you for those clarifications. Your response helps stakeholders to better understand that this slight decrease in the share insurance funds balance sheet isn't a trend, and that the fund's total assets in that position should improve over the remainder of the year based on current projections. It also reiterates the point that the share insurance fund remains overall in a healthy position. My next question concerns the fund's future income. The higher interest rate environment has improved the fund's earnings, and the anticipated drop in interest rates will decrease unrealized losses in the portfolio further improving the fund's position. In fact, just yesterday, the Federal Open Market Committee lowered the federal funds rate by 50 basis points and signaled the potential for additional rate decreases should economic conditions weaken. How are we positioning the share insurance fund so it can remain healthy in a declining interest rate environment? And we talked a little bit about that earlier, but I want to dive down a little deeper.

 

Eugene Schied: Sure. So, a key responsibility of the investment committee is to determine how to position the fund's portfolio within the policy set by the board. We generally approach this responsibility by considering safety, liquidity and yield, and I think personally liquidity being the most significant factor for us to consider. We've increased the fund's liquidity position in the overnight, we've already discussed, up to $5.6 billion, and that was in response to the longer term holding in a lost position, so we have a total of unrealized losses on the portfolio, and somewhat also the softening composite CAMELS ratings. We want to be able to respond to liquidity events without incurring a cost to the fund or to borrow, which also comes at a cost. The declining interest rate environment should lower the lost position, so our unrealized losses should come down as interest rates come down, and that will give us greater liquidity options going forward should we need to access them. Up to this point, the yield has favored the overnights, so the fund has been able to maintain that liquidity without paying a premium, which we normally see in a more normal rate environment. And that concludes my response.

 

Todd Harper: Thank you for that detailed response. Slattering expense in both up and down interest rate environments is a proven way to smooth out interest rate fluctuations and maximize long-term performance. I know that's something that both the vice chairman and I learned as undergraduates. It's important that the share insurance fund is healthy and able to respond quickly to any stress in the credit union system regardless of the economic environment, and that's also why we're maintaining some of that liquidity right now. Lattering investments also helps us to achieve that goal. Now, let me turn to some of the warning signs. We are seeing growing signs of concerns in loan performance, capital, delinquency rates and earnings across the system and at specific institutions. The latest quarterly performance data for the industry showed declining growth and weakening performance across auto lending, mortgages and commercial loan categories. Further, these trends are contributing to a large percentage of credit unions with CAMELS composite ratings of three, four or five. In fact, by my calculation on the slide you showed earlier, approximately one in five federally insured credit unions is a CAMELS code composite three, four or five. What especially concerns me about the information on slide 10 is the increasing number of complex credit unions with 500 million more or in assets falling into the troubled category, CAMELS code four or five ratings this last quarter. In fact, the number of troubled complex credit unions tripled from three to nine in the last quarter alone and the amount of assets that these institutions grew by more than five-fold. It's been about a decade since we saw this proportion of insured shares at risk, so we must remain vigilant as we navigate the situation. Eugene, we've been watching the amount of shares and composite CAMELS code three, four and five credit unions rise for several quarters now. We expect these rating declines to level off or even improve. Let me draw down a little deeper. We have a policy for billion dollar plus credit unions that we examine them on an annual basis. And it's been now more than a year since we've hit those institutions. So we've probably, if we've had changes and downgrades because of the liquidity events and issues related to last year, that's been brought in already. However, for credit unions less than a billion that are performing fairly well, they're on an extended cycle. There may be some of those who aren't performing well, so we might see some increases still occurring there. But in terms of liquidity, do you sort of see the issues leveling off there?

 

Eugene Schied: So I think that is really difficult to say, and I think a lot of the factors that you mentioned are at play. So credit unions are going to need to, so that, you know, think with a declining interest rate environment, you know, there comes, you know, a different set of challenges than what they saw in the increasing interest rate environment. So I think all those factors that you talked about in terms of their earnings will be changes in borrowing costs and their lending program. Really difficult to say, kind of, if this represents a bottoming out of the trend or if it will move one direction or the other. But certainly, I need, as you say, to remain vigilant on it and for us to continue to monitor the potential liquidity of the fund in case there is a failure of size. I think there's additional concerns, though, that they're seeing in credit unions, which includes everything from record-keeping and management to other issues. So it's not just a single factor. It's a variety of factors, and those factors, you know, may be unrelated to any movement in interest rates.

 

Todd Harper: So what I'm hearing you tell we're not quite out of the woods just yet. I can't say that we are okay credit union leaders must therefore continue to monitor their institution performance and ballot sheets and act Expeditiously to prevent small issues from turning into big problems The NC ways supervisory teams for their part will continue to monitor credit union performance through our examination process Off-site monitoring and tailored supervision Will work to maximize the credit union systems preparedness and resilience for any bumps in the road that may lie ahead We did that during the great recession when we had 14 billion dollar-plus credit unions that were in troubled status Yet none of them ultimately failed after all protecting the share insurance fund against losses was then and is now a top Priority for the NC way board just as it always will be that concludes my remarks on this topic. I now recognize the vice chairman

 

Kyle Hauptman: Thank you sir and Eugene for a chat about this topic I want to mention Mr. Chairman I believe you mentioned call report changes at the outset just want to remind people submit submit comments is not all that difficult we encourage people to do it we do read them they do matter and one of the best things about reading comments is it well first of all you should know they're public okay you put one in and some people don't know that it's the first time they've done it but it also means you can read other people's and I find it very useful because people say this is such a no-brainer you know such an obvious view on whatever the topic is okay but there are people who feel the other way you should know that and you can read it's very useful sometimes to know what the other argument is even if you think your view is rock-solid nca.gov you select regulation supervision from the top menu and then rule makings and proposals you find everything that is presently out for comment these new changes that Mr. Chairman mentioned about the call report they were just published this Monday might take a few days but to be reflected but the proposed changes to the CU profile credit human profile when you want to look up a credit and just get the basic info it's currently shown as agency information collection activities we might want to do something about that name it's not intuitive to me agree click on it it takes you to regulation gov you find the comment button you can comment quietly quite easily the federal register will show you comments by other people and your comment again will be public it's just something you should know to the topic at hand a safe update obviously yesterday the Fed cut interest rates for the first time since March 2020 that was if you recall that was an emergency meeting on the Sunday when everything sort of broke loose with Covid the Fed normally moves in 25 basis point increments they usually cut or raise a quarter point at a time I don't read too much into these things there's a Fed meeting every eight weeks so but a cut of 50 since I've been an adult this is the first non-emergency time the last three times they cut by more than 25 we're all what we call emergencies there was that Covid Sunday the financial crisis and just after 9-11 since I've been an adult the only times they've lowered by greater than 25 again I don't read too much into it as chairman Powell said you could have done 25 in July and 25 now but markets are pricing and further cuts ahead that obviously affects us and it affects our balance sheet or fix our earnings and it certainly affects credit unions for what it's worth and this is just public data I just checked futures markets by Christmas the Fed has a December meeting late for Christmas the markets are pricing and the modal outcome the most likely is seven another 75 down right Christmas Eve according to markets the modal outcome is another 75 on top of a 50 they did one year from now September of 2025 the modal outcome is make sure I get this right I just is down another 200 from today right so currently the Fed the Fed since the fans credit now does a range of a quarter point before yesterday was five and a quarter to five f today four and three-quarters to five that's the range for the overnight rate so Christmas this Christmas 400 to four and a quarter that's down 75 from where we are now this is just market data it moves all the time I'm not predicting anything okay and then what if we have this meeting next year it will again be right after the Fed meeting September 17th 2025 the modal outcome on the features markets is two and three quarters to three okay so read into that what you will it does mean that we will have less money in our short-term investments the reason I'm talking about rate cuts rate moves at all it matters to the share insurance fund for two reasons one as stated we parked a lot of money and overnights and other short-term investments so the SIF is going to get lower income going forward in that sort of investing interest rates are just the price of money and this is a seller of money meaning we lend it out like any seller of anything we get hurt when prices are down in our case the only buyer is the US government Treasury and they of course are a buyer which means they like it when prices go down this is same true of any product anytime and the second factor and somewhat countering the first factor remember first factor is lower short-term income for us the second factor is that credit unions are now faced less interest rate risk than they did during the Fed's aggressive rate hike cycle that was a major problem last year that's one of the things that contribute to Silicon Valley Bank going down it was a big topic for us people wanted meetings about it that was a major problem it is much less so now That's a positive thing for the share insurance fund, but it's hard to measure and it's not reflected in today's SIF report. Our short-term income is going to go down, but so is the interest rate risk facing credit owns. And risk to credit owns is why we have a share insurance fund in the first place. The big picture, despite economic uncertainty, is our fund remains well capitalized and continues to perform effectively. We have a net income of 86 billion this quarter. Our equity ratio, as mentioned, went down slightly from 1.30 to 1.28 as of June 30. Now, this remains well above the statutory floor and it is below our normal operating level where we kick money back. It is higher than our projected 1.24 to review below 1.20 Congress mandates that we put together a plan within six months to restore it, right? Which historically has meant billing everybody. So we're well above that. First off, Eugene, all right, so the mismatch. We projected 1.24, came in at 1.28, reviewed the reasons that we missed by four and why we missed to the downside. I mean, it came in above.

 

Eugene Schied: Sure, so thank you for that question, Vice Chairman, and the opportunity to provide some thoughts on this matter. Regarding the change between the 630 projection versus what we saw as the actual, the primary factor was a difference in insured share deposits. The projection was based on a higher growth rate in insured shares than what actually occurred. Rather than 5% growth, which was projected, the actual growth was 2.1%. The higher rate of insured share growth tends to depress the equity ratio, as we saw clearly during the pandemic. Also contributing to the higher 630 equity ratio was a low loss environment, so we had fewer losses than the model projected, and also slightly higher income than what was forecast. And so for awareness, slide 19 has supplemental information, today's presentation, that shows the change in insured shares.

 

Kyle Hauptman: We only had, like you said, 2% growth the first half of the year in shares. We haven't seen a big movement out of credit unions, for a number of reasons. That means credit unions at least doing a good job playing offense and defense to prevent people leaving for high yielding options elsewhere. But 2%, what's affecting credit union growth right now? So I know we've resumed purchases in our bond ladder and overnights remained about the same. So we've obviously seen a reduction in all the unrealized losses we had. We had the same interest rate problem that credit unions do, but we have the advantage of holding the maturity the same way they're holding mortgages like mine, just under 3%, and that hurt on their balance sheet. We were holding paper we bought for 1%, yield for five years and that sort of thing. How do we prepare for this new rate environment, whatever it is?

 

Eugene Schied: So I think as always that deposit growth is a function of multiple factors for example household income changes in household income unemployment rates interest rates there's also a seasonality to the Insured share our rate the cumulative impact of inflation and household expenses is likely playing a role today So while inflation rates have fallen significantly The burden of daily expenses remains high for many households and that can translate into lower balances The slowdown in insured share growth I believe is also similar to trends that the FDIC is seeing in their deposit fund And so it's not unique to credit unions So I think we prepare by first looking at the liquidity needs. So again, safety liquidity yield is what we generally look at when we consider how to make the investments of the share insurance fund. A few notes on the unrealized losses. So the unrealized loss position peaked at about $1.7 billion in 2020.

 

Kyle Hauptman: That would be a little under 10% of our bonds were under water.

 

Eugene Schied: and we paid for them so the overall value the portfolio was like every single bond yes underwater itself right the overall position was roughly almost 10% and as of June 30th so that's receded now from that high water mark by about 500 million dollars and the change in the second quarter alone was around 60 million dollars now since June we're estimating that the unrealized losses have come down yet again by almost 500 million more dollars which will eventually be shown in the third quarter financials but of course that subject to change depending out on how interest rates behave between now and the end of the month so that unrealized loss that was a key factor in driving up our overnight holdings because we wanted to have liquidity in case there was a need for it without having to sell at a loss and realize an unrealized loss now that we're going to see sort of an increased range in liquidity options within the portfolio as we move away from the extent of the loss position I think we'll have to reassess what the appropriate amount is to have into the overnights

 

Kyle Hauptman: Did we have kind of a Goldilocks thing for a while there, meaning that, as every insurer, you have to have liquidity. You need cash on hand to pay out. Families have emergency funds, that sort of thing, that's not in the stock market, et cetera. But normally, with an upward slope yield curve, that liquidity costs you money, because you're not earning much on it. We had a situation there for a while where having lots of liquidity was also the highest yielding. That is not normal. We had a Goldilocks thing that may not be the case anymore.

 

Eugene Schied: Well, I mean, as of today, it still is the still, yeah, it's still, still inverted. Um, and so, yeah, I mean, I sort of plays into the, uh, you know, again, safety liquidity yield. Uh, we weren't paying that premium that you would normally expect to pay by having as much as we had in overnights. The overnights were paying more. Um, so, and again, looking at that, how that behaves going forward, you know, it's another part of the sort of the equation and how to balance or consider rebalancing the overnight portfolio.

 

Kyle Hauptman: Thank you, Jane. Last thing I just want to acknowledge the hard work you guys put into the mid-session budget update. It looks like we're currently running a five million dollar budget surplus Compares a 23 million surplus last year. What line items Have decreased and where we see an increase in the budget

 

Eugene Schied: So, thank you for that, and the budget is executing closer to the levels approved by the board for 2024 than it did in 2023, meaning that we do expect a smaller year in balance. In recent years, the agency has generally underspent its budget for pay and benefits, travel and contracts. To answer your question, I think the, you know, comparing where we're at as of July 2024 to where we were at in July 2023's over-year comparison, the couple of key changes would be first, pay and benefits costs have increased by just over 9 percent through this point this year versus last year, and a lot of that is reflective of the concerted effort that the agency made to fill vacant positions last year, and we're maintaining that low vacancy rate this year, so that effectively has increased our actual payroll costs. Travel expenses are increasing, they're up about 5 percent so far year-to-date this year versus last year. Contract spending, which often is one of our more rapidly expanding budget land items, is actually only up 1.8 percent for this year, and so while it's still an overall increase, it's lower than in recent years, and the agency has seen some reductions in specific contract re-competitions so far this year that have helped keep that growing.

 

Kyle Hauptman: down. Paying benefits up nine probably because we had a lot of vacancies last year. Did you get a 9% raise?

 

Todd Harper: I have to say that my pay has remained flat for the last, how many? I think it's been 12 years since Congress has raised $10,000.

 

Kyle Hauptman: It is what it is back to you, Mr. Chairman

 

Todd Harper: Thank you so much. If I could just build on a little bit more what you said about rates, I think rate drops are good for borrowers and credit unions are going to need to prepare for what could be a wave of refinances when it comes to auto loans as well as mortgages. It also could mean more mortgages could be made as more buyers are able to stretch their dollars further and reach into the housing market. And certainly, of course, it will for those that have a floating rate, even though we have an interest rate cap ceiling, we'll see credit card rates coming down. That could cause some difficulty. Also, too, we could see some disintermediation happening for savers within the markets who are going to take money out of their short-term yields that have been doing really well and move into places where they might do better. I think the credit unions overall, as I looked at the last quarter numbers, had been increasing the amount of cash on hand as well as overnight investments so that they can handle these changes that we anticipate coming into the market. That concludes our first item of business today.


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