NCUA OKs Pilot Investment Program

The allowed investments are part of a pilot program requested by ALM First Financial Advisors, LLC., an SEC-registered investment advisor based in Dallas.

ALM First served as an advisor to two credit unions selling securities backed by auto loans in 2023. It advised Oregon Community Credit Union of Eugene ($3.4 billion in assets, 263,506 members as of Sept. 30) in a $275 million sale in October 2023 and Space Coast Credit Union of Melbourne, Fla., ($8.8 billion, 667,013 members) in a $422.5 million sale in December 2023.

From 2019 through November 2024, credit unions will have issued nearly $5.8 billion in securities backed by auto loans, including $2.4 billion through six deals this year, surpassing 2023’s record $2.1 billion.

Under the pilot program approved by the NCUA, individual investments must constitute no more than 15% of the investing credit union’s net worth and aggregate investments must be less than 50% of net worth.

The news release from NCUA says the program is limited to “federal credit unions,” but some of the language in a separate list of detailed requirements include the phrase “federally insured credit union.” NCUA has been asked to clarify.

The NCUA will permit up to 30 federal credit unions to participate in the program. NCUA data pulled from Callahan’s Peer Suite shows that there 727 credit unions with $500 million or more in assets as of Sept. 30, accounting for 86% of the movement’s $2.3 trillion in assets.

NCUA also laid out reporting requirements, none of wich will be available to the public.

NCUA must receive from ALM First as the fund sponsor any documentation related to the establishment of a fund and a list of its federally insured credit union investors within 30 days of its initial funding.

NCUA must receive each quarter from the fund a list of the investing federally insured credit unions and the dollar amount of each fund investment.

Investing credit unions must receive from ALM First offering documents with details that at least include loan types, credit scores, debt-to-income, loan-to-values and other loan applicable characteristics. It must describe management and fees, and the circumstances and conditions under which the loan servicer can be replaced.

Credit unions must receive monthly updates from ALM First of all assets held by the fund to the investing credit unions showing at least:

• Number of loans.
• Average coupon.
• Weighted average maturity.
• Weighted average original credit score.
• Delinquency, default, and charge-off information.
• Monthly pro-rata principal payments.
• The unpaid principal balance of the outstanding loans.
• The weighted average loan-to-value based on original collateral values for collateralized loans.
• If requested by the investing federally insured credit union, ALM First will provide the same detailed loan-level data (without personally identifiable information).
• The outstanding balance and current value of each of the fund’s holdings.
• The aggregate outstanding balance and current value of the federally insured credit union’s investment in each fund.
• A sensitivity analysis for changes in valuation for changes in interest rates under +/- 100, 200, and 300 basis point changes in prevailing rates.
• An internal rate of return at the payoff/maturity of the fund.

Contact Jim DuPlessis at [email protected].