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ALEXANDRIA, Va.-The NCUA Board handled its January meeting in near-record speed last week with just two items on the agenda and plenty of open seating in the board room. NCUA Chairman Dennis Dollar opened the meeting by congratulating his fellow board members on their first anniversary of working on the NCUA Board. After the warm welcome, it was on to studying the number crunching of the National Credit Union Share Insurance Fund status. The fund’s gross income was up $100,000 from November, which was not very meaningful considering the extra calendar day. Operating expenses for the NCUSIF were up 1.7 percentage points to 8.2 million from the previous month, but again, some expenses accrue over the year and December is typically higher. However, the insurance fund’s net income totaled $116.7 million for 2002, down from $164.1 million in 2001 and $204.2 million in 2000. NCUSIF had budgeted for $134.5 million in net income. NCUA Chief Financial Officer Dennis Winans explained that the largest contributing factor has been the significant drop in interest rates over the last two years. He demonstrated the Treasury yield curve on medium to short-term investments has dropped 100 to 150 basis points in the last year and the 90-day T-Bill has fallen about 500 basis points over the last two years. With many of the NCUSIF’s funds in short-term-approximately $5.4 billion maturing through 2005-the funds have to be reinvested at a lower interest rate, in some cases from 5% or more down to 1.25%. Aside from investments, the other half of the equation is insured shares, which grew 11.5% last year in its second year of double-digit growth, which is projected to bring the NCUSIF equity ratio down to 1.25% for 2002. In response to a question posed by NCUA Board Member Deborah Matz, Winans said he predicted a “slight uptick” in interest rates for the coming year, which would be favorable to the equity ratio. NCUA may set the ratio target anywhere between 1.2% and 1.5% and it is currently at 1.3%. Above 1.3% the NCUSIF may pay out a dividend, as it did from 1995 through 2000. Between 1.2% and 1.3% NCUA is permitted to make a judgment call on whether to charge insured institutions a premium, but below 1.2%, NCUA is required to assess a premium. “It’s a judgment call,” Dollar explained. “The statute says we can’t pay a premium below 1.3%. We make that judgment call. You have to look at the total picture.” That picture includes projections for the following year, which Winans showed placed the NCUSIF equity ratio soundly in the 1.2% to 1.3% range. Also, according to NCUA’s data, the NCUSIF experienced its first loss since 1994 of three shiny pennies per $1,000 for a total $12.5 million. The number of problem credit unions jumped from 205 in 2001 to 215 for 2002, but still well below historical figures. Of those 215, 207 are CAMEL 4 credit unions as opposed to the lowest rating of CAMEL 5. The majority of the troubled credit unions had assets below $10 million. However, because of the increased deposits the total insured shares for CAMEL 4/5 credit unions has jumped from under half-a-percent to 0.69%, but, again, well below historical data. Additionally, the number of failed credit unions dropped from 22 in 2001 to 15 in 2002. “It’s still a very manageable number compared to what we had in 1992 (114) and before that,” Winans said. Following Winans remarks, Dollar commented, “Even as strong as we are, it doesn’t mean there aren’t things we need to be concerned about.” In addition to the insurance fund report, the NCUA Board unanimously approved Texas’ proposed member business lending rule change. As one of the earliest states to amend NCUA’s rule after the Credit Union Membership Access Act, Texas requested additional changes based entirely on modification that had been approved for other states. The amendments included permitting unsecured member business loans for up to $100,000; reducing the equity interest requirements for construction and land development loans; and other minor clarifications. NCUA Vice Chair JoAnn Johnson said the amendments depicted “the beauty of the dual chartering system.” Matz agreed, calling the seven member business lending regulation pioneer states an “incubator” for ideas of broadening the rules. A total of seven states have amended their MBL regulations and NCUA is currently in the process of reviewing its own rule. A proposal is expected out at the March board meeting. [email protected]

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