The NCUA board approved 2016 operating and capital budgets thattotaled more than $300 million during its November board meeting,according to the board action memorandum. Combined operating andcapital budgets approved for 2017 exceeded $316 million.

The 2016 operating budget of $290.9 million represented a 4.1%increase over 2015. The board approved a $302.9 million operatingbudget for 2017, which also marked a 4.1% increase over theprevious year. NCUA Chairman Debbie Matz announced in October during theagency's Open Forum she would present a two-year budget for approval for the first time since thefinancial crisis.

Matz and Vice Chairman Rick Metsger voted in favor of thebudget, while Board Member Mark McWatters voted against it.

Included in the 2016 operating budget was a 1.7% reduction infull-time equivalents. The 26 FTEs were all field staff positions,and reduced through attrition, will save the NCUA $4.3 million inpay, benefits and travel, Matz said.

The reduction is primarily a direct result of the NCUA modifyingits state examination program to align with National SupervisionPolicy Manual requirements. The result will be fewer NCUAexaminers in state-chartered credit unions, the regulator said.

The 2017 budget included the same number of FTEs.

However, that $4.3 million savings was not a net figure – thesalary and benefits budget for 2016 was $210,928,398, a 4.5%increase over 2015. The 2016 salary budget was $151,053,793, a 3.6%increase over 2015. The 2016 benefits budget increased 6.7% to$59,874,605.

Those figures included four new positions: A human resourcesposition that would replace a contracted position, an IT programmanager position to manage the AIRES system upgrade and twosecurity positions.

Salary and benefits represented 73% of the NCUA's 2016budget.

The reduction in examiner positions showed in the agency's 2016travel budget, which increased only $4,595 from 2015, to$29,586,321.

Rent, communications and utilities increased significantly –17.2% – to $6,765,525 for 2016. Contracted services also increased7.8% to $28,226,641.

Administrative costs decreased 3.9% from 2015 to$15,701,976.

“I know there will always be those who argue that (the) NCUAshould cut the budget each year as the number of credit unionsdeclines. However, that argument has a fatal flaw,” Matz said. Mostof the insured shares and troubled assets from those credit unionsdo not disappear — they are acquired by other credit unions. As aresult, the remaining credit unions are growing larger and morecomplex, posing a greater concentration risk to the insurancefund.

Larger, more complex institutions require examiners withspecialized expertise in commercial lending, sophisticatedinvestments, cutting-edge technology and cybersecurity, Matzcontinued. “These specialists often require highercompensation than generalist examiners. However, these specialistsare essential so that (the) NCUA can keep up with the growingcomplexity of the credit unions we supervise,” she said.

Download and read Matz' prepared remarks here.

The NCUA's capital budget will experienceincreases in 2016 and 2017 as the agency upgrades computer systemsto accommodate, among other things, field of membership regulatoryrelief that was also proposed Thursday. The 2016 capital budgetwill swell to $10,068,920, up from $8,872,500 in 2015. The capitalbudget will increase to $13,671,826 in 2017.

The capital budget increase will support new field of membershipsoftware that will automate the FOM application process. It willallow credit unions to track the approval process of theirapplications online, and will ultimately expedite the approvalprocess, Matz said.

The CU Online call report system will be modernized so creditunions will only be required to complete sections that pertain totheir operations. Finally, the NCUA's AIRES exam platform will bemodernized to allow examiners to conduct more off-site monitoring,reducing the travel budget and decreasing the amount of timeexaminers will spend onsite and credit unions, Matz said.

“The new exam platform could even pave the way for a return toan 18-month exam cycle in the future,” Matz said.

The 2016 Corporate Stabilization Fund budget was reduced 2.4% to$4 million. The 2017 budget nudged up 1.8% to $4.1 million.

The overhead transfer rate for 2016 increased to 73.7%, up from71.8% in 2015. The primary driver of the increase was an increasein the percentage of insured shares held by state chartered creditunions, up 0.9 percentage points to 47.7%, the NCUA said.

The board approved the delegation of the authority to set theOTR and administer the rate's calculation to the director of theOffice of Examination and Insurance, beginning with the 2016 rate.Matz will ask the board in January to approve posting the current OTR methodology in the FederalRegister for public comment, and periodically thereafterin conjunction with the NCUA's Strategic Plan.

“Under the anticipated comment process, the NCUA Board wouldanalyze the comments and determine whether or not to adjust themethodology. With this process, (the) NCUA would also seek priorpublic comment on any future changes to the OTR methodology. Anysuch changes to the OTR methodology would require a vote of theNCUA Board. However, there would no longer be a need for staff tobring the rate resulting from the OTR calculation to the NCUA Boardannually for approval,” the memo read, explaining the motion todelegate annual OTR calculation to the Office of Examination andInsurance.

NCUA Chief Financial Officer Rendell Jones announced at themeeting credit unions will not pay a corporate assessment or ashare insurance fund assessment in 2015. For 2016, Jones said undera best case scenario, credit unions would not pay a share insurancefund assessment at all. Under a worse case scenario, thatassessment would be as high as six basis points.