Credit union midyear update: Takeaways for 2024

Dennis Hild, Jason M. Naber, Megan Rangen, Niall Twomey

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During the webinar “2024 Credit Union Midyear Update,” Crowe credit union specialists examined various topics that are important for credit unions to consider through the rest of 2024 – and potentially beyond. Here’s a recap of the key takeaways so you can assess your credit union’s priorities for the remainder of the year and start planning ahead.

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Accounting topics to monitor

Current expected credit losses (CECL) questions to ask:

If your credit union has an unallocated reserve, is it supported?
Is your credit union considering off balance sheet credit exposures and securities held to maturity or securities available for sale in the scope of CECL?
Has your credit union had a model validation done on its allowance for credit losses (ACL) model and determined what scope of model validation is necessary?
Do you have processes and controls in place to track loan modifications?
Are you prepared to document and support refinements in year two of CECL?
Are your credit union’s policies and procedures, including ACL documentation, complete and accurate?

Considerations for common control lease arrangements:

Review your lease inventory and structures to determine if the practical expedient can be utilized.
Review any informal lease contracts to determine if a right-of-use asset and lease liability exist and should be recorded.
Consider the volume and dollar impact of your common control leases at the credit union; determine how material those leases are to the financial statements.

Ongoing Financial Accounting Standards Board (FASB) projects to monitor:

Purchased financial assets project: The FASB affirmed the scope of its proposal would require all acquired financial assets (with certain exceptions) to be accounted for using the gross-up approach whether acquired through a business combination or asset acquisition. The FASB staff is performing additional research and analysis on the feedback received on the proposal.
Accounting for government grants project: The FASB decided to leverage the accounting framework within International Accounting Standard (IAS) 20, “Accounting for Government Grants and Disclosure of Government Assistance,” for government grants and to include targeted improvements to the guidance. The board also decided to provide limited implementation guidance, focusing on areas that differ from the requirements in IAS 20, including scope, and will continue deliberation at a future meeting.

To-dos in the face of credit union industry trends:

Keep an eye on your credit union’s delinquencies, as delinquencies on certain loan types are on the rise across the industry.
Monitor your modifications and renewals for additional disclosures and requirements.
Take stock of loans that have variable rates or are due to be renewed; determine if a borrower can make payments at a higher interest rate.

Regulatory updates to review

National Credit Union Administration (NCUA) supervisory priorities

Credit risk
- Examiners are focused on credit union lending programs and overall credit risk management, with a special emphasis on:
  - Any changes to underwriting standards and portfolio monitoring practices
  - Modification and workout strategies for collections
  - ACL methodology and the documentation and adequacy of reserves
- Workouts and modifications should be reported to the board with proper controls and management oversight.
- Organizations should clearly document credit quality deterioration and make sure a robust reserve methodology exists.
Liquidity risk
- With continued increased liquidity risk and uncertainty, examiners are evaluating credit unions’ liquidity risk management framework and sources of liquidity compared to their funding needs.
- When performing scenario analysis, organizations should continue to look at potential shifts in prepayment speeds.
- Organizations should understand their contingency plans and how diverse their funding sources are in the event of a liquidity crisis.

Cybersecurity risk management
- As cybercrimes continue to be a significant risk to credit unions of all sizes, cybersecurity programs must keep adapting and evolving to counter the increasing complexity of threats.
- IT programs and resources should be reviewed regularly for any gaps.
- Organizations should remember that the 72-hour notification requirement in the Cyber Incident Notification Requirements rule extends to third parties.
- Organizations should take advantage of the NCUA Automated Cybersecurity Evaluation Toolbox (ACET), which offers a cybersecurity preparedness self-assessment tool.
Interest rate risk
- In this uncertain rate environment, it’s important to perform a scenario analysis for any potential impact on capital and earnings and take steps to mitigate any identified risks.
- Any tolerance and policy exceptions should be reported and addressed.
Bank Secrecy Act/anti-money laundering (BSA/AML)
- BSA/AML programs should be built and enhanced to keep up with the sophistication of financial crimes and money laundering.

Consumer compliance areas to navigate

Regulators are highly focused on compliance with applicable consumer financial protection laws and regulations. Accordingly, in 2024, examiners likely will focus on areas related to overdraft programs, fair lending, and automotive lending.
In this environment, pay attention to risk related to:
- Applicable consumer financial protection laws and regulations
- Alignment of disclosures, website advertising, periodic statements, and balance calculation methods
- Whether an examiner, consumer advocacy groups, or the media could identify issues related to the markets and segments where the organization is not lending
- Indirect portfolio programs relying on third parties
- The organization’s fintech third-party relationships
- Artificial intelligence and fair lending
Organizations approaching $10 billion and above in assets should consider:
- Documentation of roles and responsibilities. Who owns any given process and who will be speaking to the regulators about it? Is ownership apparent from a risk assessment or an organizational chart?
- A “three lines of defense” model. Clear delineation of expectations of risk management by the first line (the business), the second line (compliance), and the third line (internal audit) is critical.
- Level of reporting and governance. Does the board receive enough information to make informed decisions? This area is likely to be scrutinized as regulators want to ensure organizations are receiving the appropriate level of detail and are asking the right questions, especially in finance compliance.

Listen to the full session

For a deeper dive into these credit union topics and more, watch the full webinar.

2024 credit union midyear update

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