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ALEXANDRIA, Va.-The number of troubled credit unions-those rated a CAMEL 4 or 5-has been steadily on the rise since 2000, according to statistics released last week by NCUA. During the presentation of the quarterly insurance fund report at the NCUA Board meeting Feb. 16, agency staff provided data showing that the number of problem credit unions was not only growing, but the percent of insured shares these institutions represent was also increasing. In 1999, the number of CAMEL 4s and 5s stood at 338 but experienced a significant drop in 2000 to 202. Since then the number has climbed back up to 280 as of year-end 2005. Additionally, in 2000, the troubled credit unions represented just 0.4% of insured shares in the NCUSIF. That percentage more than doubled by 2003 to 0.83% and surpassed the 1% mark in 2005. At 1.11% at the end of last year, the percentage of insured shares in CAMEL 4 and 5 credit unions is at its highest in a decade. “Why there’s an increase, I’m not sure,” NCUA Chief Financial Officer Dennis Winans explained. He added that obviously some of the credit unions hit by Hurricanes Katrina and Rita are having problems right now; when announcing the operating fee adjustments available to affected credit unions, NCUA identified 128 impacted credit unions. Probably less than 10 credit unions in the path of the hurricanes will have to either be merged or liquidated. These numbers are still much lower than historical figures, Winans said, pointing out that there were 1,022 CAMEL 4s and 5s in 1980. He also said that 194 of the problem credit unions had less than $10 million in assets. Last year saw just 15 credit union failures compared to 21 in 2004. However, insurance loss expenses for the NCUSIF were the second highest in 10 years at $21 million. The highest aggregate loss to the fund over the past decade was $38 million in 2003. On a more positive note, though loss expenses exceeded the $18 million budget, net income was well above expectations. The NCUSIF’s net income came to $74.3 million far more than the budgeted $59.8 million. Gross income was over budget and exceeded 2003 and 2004, while operating expenses came in under budget, which has been the trend in recent years. “There’s been a rise in short term interest rates,” Winans said in explaining the variance between the budgeted and actual net income of the fund. “They’ve just taken off incredibly this year.” Also addressed at the monthly NCUA Board meeting was an Advance Notice of Proposed Rulemaking concerning its supervisory committee rule. The agency is seeking comments in a number of areas, namely: * whether and how to modify the regulation to require an `attestation on internal controls’ in connection with their annual audits; * to identify and impose assessment and attestation standards for such engagements; * to impose minimum qualifications for supervisory committee members; and * to identify and impose a standard for the independence required of state-licensed, compensated auditors. The FDIC requires banks over $500 million to perform such audits; NCUA is asking what minimum asset size would be appropriate for credit unions among other things. “To achieve parity with other federally-insured financial institutions, the U.S. Government Accountability Office recommended requiring large credit unions to obtain an “attestation of internal controls” over financial reporting in connection with their annual financial statement audits,” the NCUA Board Action Memorandum explained. The agency agreed with this recommendation. The ANPR is open to 60 days of public comment. -

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