Dollar Bows Out; NCUA Seeks Comments on Amendments to Fixed Assets, CDRLF Eligibility

ALEXANDRIA, Va.-In NCUA Chairman Dennis Dollar’s last appearance at a board meeting as the agency’s chair, the board agreed unanimously, like much of his administration, to issue two proposed rules and heard the quarterly insurance fund report. As part of its annual review of one-third of NCUA’s rules and regulations, agency staff recommended two substantive changes and some technical ones to the rule concerning federal credit unions’ ownership of fixed assets. The current rule caps credit unions’ investment in fixed assets at 5%. The board voted to issue for a 60-day comment period proposed changes that would eliminate the requirement that a federal credit union, in determining its fixed asset investments, include investments in any entity that holds fixed assets used by the federal credit union and to establish a time frame for submitting a waiver request for the fixed asset cap. Under the proposal, credit unions would have 30 months to apply for a waiver of the fixed asset cap to provide the agency ample time to decide whether to grant it or not before the three-year maximum on holding fixed assets without using them is up. Though she voted in favor of issuing the proposal for comment, NCUA Board Member Debbie Matz expressed safety and soundness concerns about the wise usage of waivers granted. She pointed out that of the 183 credit unions with fixed assets exceeding 5% at the end of 2003, 40 (22%) also had a negative return on assets that same year. When the 105 RegFlex-eligible credit unions, which automatically earn a waiver, were removed, 25 of the remaining 78 had a negative ROA. By then eliminating the credit unions that could have been granted a RegFlex designation if they applied for that waiver, the proportion became larger with 11 of the 24 credit unions receiving a waiver also having a negative ROA. Matz concluded that the “waivers need to be used judiciously.” The NCUA Board also considered a proposed rule to permit student-owned and controlled credit unions eligibility for the Community Development Revolving Loan Fund program. Student-owned and controlled credit unions can receive a low-income designation but historically have not been eligible for the grants or low-rate loans because of a shortage of funding. In 1993, according to Chairman Dollar, when the CDRLF began, there were only 146 low-income credit unions and between 60 and 70 student credit unions. Currently, there are 964 low-income credit unions and seven student credit unions. While the proposal has stirred up some controversy among other low-income credit unions (See sidebar below), Dollar pointed out that it would only make the institutions eligible to apply, not give them the funds. He added that even if all seven of the student-owned and controlled credit unions were granted the maximum, it would only be $35,000 out of $1 million. Dollar said NCUA’s proposed rule would do “no damage to the integrity of this program, whatsoever.” In addition, he explained that this is a great opportunity for financial education for these young adults. NCUA Vice Chair JoAnn Johnson agreed, pointing out that the fastest rising group of bankruptcy filers are those under 25. Following the meeting, Dollar also noted that this is a chance to get younger people involved in volunteering in the credit union movement. NCUA CFO Dennis Winans presented the board with the quarterly report on the state of the insurance fund. He started out by saying that the agency’s accounting firm, Deloitte & Touche gave NCUA a clean, unqualified audit. The agency’s operating expenses rose in March to $7.2 million up from $6.1 million in February, mainly due to a merit pay increase that took effect, Winans explained. The insurance fund’s net income exceeded projections by $5 million reaching $10.1 million as of March 31, 2004. Though gross income was below the budgeted amount for the year-”due to the fact that we’re still operating in an extremely low interest rate environment”-operating expenses are even further below projections. NCUA has $3.85 billion in investments maturing in the next year and Winans said officials were meeting after the monthly board meeting to discuss the possibility of going longer term in some of their investments. Winans projected the equity ratio to land around 1.25% by the end of the year, but if operating expenses and insurance losses are below projections, which they often are, then the ratio could go up. Problem credit unions were up slightly from 217 at year-end 2003 to 234 as of March 31. Of those, 222 are CAMEL 4s and 12 are CAMEL 5s, Winans said. The total insured shares those credit unions represent is 1.03%, the highest-barely-in the past 10 years. Three credit unions have failed so far this year at a cost of $240,000 to the insurance fund, far below last year at this time, when 13 credit unions had failed carrying a price tag of $9.7 million. [email protected]