Ga. Comp. R. & Regs. R. 80-2-9-.01 - Investment Securities

(1) Subject to such further restrictions and limitations as its board of directors may set forth in this investment policy, a credit union may purchase, sell and hold securities:

(a) Without limitation if such securities are:

1. The general obligations of the United States Government or any agency or instrumentality thereof;

2. Guaranteed as to principal and interest by the United States Government or any agency or instrumentality thereof; or

3. Separate Trading of Registered Interest and Principal of Securities which are offered exclusively in book entry form, are direct obligations of the United States, and are issued under Chapter 31, Title 13 USC.

(b) Without limitation if such securities are:

1. The general obligations of any state or territorial government of the United States or any agency of such governments;

2. Securities guaranteed as to principal and interest by such states or territorial governments or any agency of such governments;

3. The general obligations of counties, districts, and municipalities of any state or territorial government of the United States which is authorized to levy taxes;

4. Securities issued by counties, districts, and municipalities of any state or territorial government of the United States which are secured by a pledge or assignment of tax receipts sufficient to pay the principal and interest of such securities as they become due; or

5. Revenue obligations of counties, districts, and municipalities of any state or territorial government of the United States authorized to establish utility fees, public transportation usage fees, or public use fees where such levies or fees are pledged to and are sufficient to pay the principal and interest of the securities as they become due.

(c) Up to fifteen (15) percent of the net worth of the credit union if the securities are:

1. Revenue obligations issued by a political subdivision located within the United States where the repayment is dependent upon rentals or other fees payable to such political subdivision by a non-governmental unit, such as in the case of industrial revenue bonds. In such cases, the obligor for the purpose of applying legal limitations shall be the non-governmental unit responsible for the payment of such rentals or other fees and any guarantor of such payments;

2. Reserved;

3. Reserved; and

4. The securities are the securities of, or other interests in, any open-end or closed-end management type investment fund or investment trust which:

(i) Is registered under the Investment Company Act of 1940,

(ii) Expressly requires that any changes in the investment objectives, fundamental operating policies, and limitations of the fund or trust must receive prior approval by a majority of the shareholders authorized to vote on such matters,

(iii) Limits the investment portfolio of such investment fund or investment trust to:

(I) Obligations otherwise authorized under subparagraphs (1)(a)1., (1)(a)2., and (1)(a)3. of this Rule;

(II) Repurchase agreements, which are fully collateralized by securities authorized in subparagraph (1)(a)1., (1)(a)2., and (1)(a)3. of this Rule, and where the fund or trust takes delivery of such collateral either directly or through an authorized custodian; or

(III) Certificates of deposit issued by financial institutions insured by an instrumentality of the United States government, and;

(iv) Does not:

(I) Except to the extent authorized in subparagraph (1)(a)3. of this Rule, acquire investments in the form of stripped or detached interest obligations associated with any security which otherwise constitutes a permissible investment under the provisions of this Rule;

(II) Engage in the purchase or sale of interest rate futures contracts;

(III) Purchase securities on margin, make short sales of securities or maintain a short position; or

(IV) Otherwise engage in futures, forwards or options transactions, except, however, that forward commitments may be entered into for the express purpose of acquiring securities on a when-issued basis;

5. Bankers Acceptances and Subordinated Securities issued by financial institutions domiciled in Georgia or by financial institutions affiliated with a financial institution domiciled in Georgia;

6. Commercial paper issued by corporations domiciled within the United States which are rated in the four highest rating categories by a nationally recognized rating service;

7. Other securities issued by political subdivisions located within the United States which are rated in the four highest rating categories by a nationally recognized rating service;

8. Credit unions may invest in such other investment securities as may be authorized for federally chartered credit unions subject to the prior approval of the Department; or

9. Such other securities as the Department may approve and subject to such limitations as the Department may specify upon a finding that the securities are marketable under ordinary circumstances, with reasonable promptness, at a fair value.

(2) In the case of a corporate credit union, the Department may approve investments of the type described in subparagraph (1)(c) of this rule which may exceed fifteen (15) percent of net worth but in no event exceed 25% of net worth. Prior approval is required and may be subject to certain conditions of approval.

(3) Reserved.

(4) Asset backed securities repayable in both interest and principal which are issued under:

(a) Governmentally sponsored programs which are fully collateralized by obligations fully guaranteed as to principal and interest by a governmental entity may be purchased to the same extent as direct obligations of the governmental entity granting the guarantee; and

(b) Private programs which are fully collateralized by obligations fully guaranteed as to principal and interest by a governmental entity may be purchased to the same extent as direct obligations of the governmental entity granting the guarantee.

(5)

(a) Except for those investments specifically authorized in subparagraph (1)(a)3. of this Rule, futures, forwards, option contracts, interest rate swaps, and direct and indirect investments associated with any security which otherwise constitutes a permissible investment under provisions of this Rule may be approved in writing by the Department for credit unions demonstrating technical expertise and policies sufficient to promote safe and sound use of such investments as part of prudent investment strategies.

(b) Notwithstanding the limitation in subparagraph (5)(a), a credit union may invest in derivative instruments, including forwards and interest rate swaps, without the approval of the Department so long as the investment is solely for the purpose of managing interest rate risk. Such investment must be denominated in U.S. dollars, have a contract maturity of fifteen (15) years or less, and be based on domestic interest rates or the Secured Overnight Financing Rate (SOFR), or similar replacement rate for the U.S. dollar-denominated London Interbank Offered Rate (LIBOR). A credit union must have technical expertise, sufficient policies and procedures, and adhere to safe and sound practices in making such investments.

(6) Subordinated debt is a security issued by a credit union after approval by the National Credit Union Administration, which may qualify as capital under federal regulatory capital guidelines. The subordinated debt must be scrutinized under the suitability analysis in this rule as if it was a loan being underwritten by the purchasing credit union. Subordinated debt is an authorized investment for a state credit union subject to compliance with the terms and conditions contained in this paragraph.

(a) Notwithstanding any provision in this rule to the contrary, the credit union's aggregate investment in subordinated debt shall not exceed the credit union's policy limits or twenty-five percent of net worth, whichever is less. For purposes of determining compliance, this aggregation requirement applies to all subordinated debt investments, whether purchased pursuant to this paragraph or any other paragraph of this rule.

(b) The securities shall be of investment quality or the credit equivalent of investment quality. Investment quality means that a rating in one of the four highest categories has been assigned to the securities by a nationally recognized rating service and, as such, are not predominantly speculative in nature. If the securities are not rated by a nationally recognized rating service, then credit equivalency shall be determined by the methods in subsection (c) of this rule.

(c) Before the purchase of subordinated debt, the credit union shall perform a due diligence suitability analysis to determine whether the subordinated debt is suitable for purchase relative to the credit union's tolerance for credit risk, asset liability position, sensitivity to market risk, and its liquidity exposure. Such analysis shall include, at a minimum, the following:

1. A complete credit analysis, including pro forma financial statements and cash flow analysis, sufficient to determine that the issuer is creditworthy and thus has the ability to meet the debt repayment schedule;

2. A review of the subordinated debt plan submitted by the issuing credit union to the National Credit Union Administration;

3. An analysis of the quality, capability, and leadership expertise of the management of the issuing credit union;

4. A marketability analysis, sufficient to determine whether or not the securities may be sold with reasonable promptness at a price corresponding to their fair value, which analysis may be supported by input from the placement agent for such securities;

5. The documentation of the suitability analysis shall be in written form and maintained in the credit union's files; and

6. A periodic update of the suitability analysis shall be performed by the credit union at least as frequently as annually during the term of the investment.

(d) The credit union shall obtain and monitor the securities' market values on an ongoing basis.

(e) The credit union's written policies and procedures shall adequately address the various risks inherent in these securities including credit risk, price or market risk, interest rate risk, and liquidity risk.

(7) Department Rule 80-2-4-.03(1) authorizes credit unions to obtain shares of stock or interests in certain subsidiary or affiliates. A credit union may invest in such subsidiary or affiliate without the approval of the Department if it owns less than ten (10) percent of the subsidiary or affiliate and the ownership interest in the subsidiary or affiliate is less than ten (10) percent of the credit union's net worth. However, in the event the credit union wishes to have an ownership interest of ten (10) percent or more in the subsidiary or affiliate or an ownership interest in the subsidiary or affiliate that is ten (10) percent or more of the credit union's net worth, then it must obtain prior approval from the Department pursuant to subparagraph (1)(c)8. of this Rule.

(8) In the event a credit union's investment in securities no longer conforms to this Rule but conformed when the investment was originally made, the credit union shall provide written notification to the Department regarding the nonconforming investment within 30 days of discovering the nonconforming investment or 120 days of the investment becoming nonconforming, whichever event occurs first. In the event a credit union wishes to hold the nonconforming investment, the credit union must submit a letter form application to the Department including the institution's current assessment of the condition of the nonconforming security and supporting documentation that details the cause of the deterioration, severity of the deterioration, and resulting accounting treatment by the institution. Upon review of the application, the Department may request additional information if it determines such additional information is necessary in order to fully and completely evaluate the application. After completion of its review, the Department shall either approve, conditionally or otherwise, or deny such application in writing.

(9) A credit union may sell a nonconforming investment without Department authorization but only if it provides the Department with written notice no later than five (5) business days after the sale.

Notes

Ga. Comp. R. & Regs. R. 80-2-9-.01

O.C.G.A. §§ 7-1-61, 7-1-663.

Original Rule entitled "Investment Securities" adopted. F. Oct. 12, 1989; eff. Nov. 1, 1989. Amended: F. Jul. 7, 1994; eff. July 27, 1994. Amended: F. Jul. 14, 1998; eff. Aug. 3, 1998. Amended: F. Jul. 12, 1999; eff. Aug. 1, 1999. Amended: F. Aug. 15, 2007; eff. Sept. 4, 2007. Amended: F. Jun. 10, 2014; eff. Jun. 30, 2014. Amended: F. July 7, 2022; eff. July 27, 2022. Amended: F. July 7, 2023; eff. July 27, 2023.