Agency Sees Numerous Opportunities During 2003

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While 2002 was a very successful and productive year for the National Credit Union Administration and America's credit unions, 2003 has the potential to be even more productive as we continue to address important issues vital to maintaining a viable, safe and sound credit union system. Let's look back at 2002 and then ahead to the year before us.

Last year was a results-oriented year in which credit union financial and management performance remained strong, with assets growing above the half-trillion mark to $557 billion and significantly increased net worth dollars to a record $5.67 billion, or a 10.71% net worth-to-assets ratio.

NCUA's Access Across America initiative continued its record-setting performance with 23.5 million potential members being added to credit union fields of membership from underserved areas. Representing the strongest performance in the agency's history, 223 federal credit unions adopted 424 underserved areas into their fields of membership. Additionally, the agency broadened and forged new public/private partnerships to provide resources to America's credit unions.

Many Partnerships Formed

Partnerships were formalized in 2002 with the Corporation for National and Community Service, Federal Deposit Insurance Corporation, Neighborhood Reinvestment Corporation, U.S. Department of Agriculture, U.S. Department of Housing and Urban Development, and the U.S. Department of Treasury. NCUA will continue to develop partnerships and initiatives wherever appropriate for America's credit unions.

In September, NCUA hosted the first Access Across America workshop in El Paso, Texas to present federal and state resources to credit unions in the Colonias region of the southwestern United States. A second workshop was held in Westborough, Mass. later in the year. Also, in further recognition of this important initiative, I was honored to have been asked on behalf of NCUA to be a key presenter in the first-ever White House Conference of Minority Homeownership, highlighting the positive role credit unions are playing to help many minority Americans realize the American Dream of homeownership.

The RegFlex earned regulatory flexibility initiative became effective in March 2002. By the third quarter, 3,624 credit unions (representing 60% of federal credit unions) have received the RegFlex designation which provides well- capitalized credit unions with solid CAMEL ratings greater autonomy to make specified business decisions which do not sacrifice safety and soundness but were previously prohibited by "one size fits all" regulatory mandates.

In building on our commitment and continuing emphasis on greater openness regarding the formation of the agency's budget, NCUA conducted its 2nd Annual Budget Briefing and Public Forum for stakeholders to have input into the NCUA budget process. Hopefully, this is an open government financial stewardship initiative which will continue in future administrations.

While on the NCUA budget, the NCUA board reversed a 15-year trend and adopted a 2003 budget that is $887,000 less than the 2002 approved budget. Highlights of the approved budget include exceeding my stated goal of a minimum 4% reduction in NCUA staffing levels over a two-year period accomplished through attrition and without layoffs, the closing of one regional office and the relocation of another to a lower-cost area, thus demonstrating the agency's long-term commitment to enhanced efficiency, and the consolidation and re-structuring of several NCUA general office departments.

One of the results of this improved agency efficiency is that we were able to reduce the 2003 operating fee for federal credit unions by 2.13%.

The NCUA board also approved a proposed rule for comment updating the Chartering and Field of Membership (FOM) rules for federal credit unions, consistent with the parameters of the Credit Union Membership Access Act of 1998 and recent court decisions. This proposal will provide greater diversification options for credit union fields of membership, thus reducing risk of losing a credit union due to a sponsor closing or downsizing.

Flexible Regulation

In 2002, NCUA fully implemented an innovative flexible examination schedule designed to recognize that federal credit unions should be evaluated based upon their individual institutional risk factors and therefore every credit union should not be subjected to the exact same examination cycle. This risk-based scheduling has resulted in more efficient use of agency resources and fewer FTE's than NCUA had ten years ago in 1992.

At the same time, NCUA expanded the above mentioned flexible, risk-based examination schedule into a structured risk-focused examination program with quarterly call reports providing an interim monitoring tool for all credit unions. A 5300 Short Form was introduced for credit unions under $10 million in assets to help with this new and essential supervisory requirement.

The agency also finalized an updated corporate credit union regulation and issued for comment the first update to corporate credit union standard bylaws in more than 20 years.

As the agency prepares for the challenges and opportunities in 2003, my commitment as chairman is to continue to build on the successes of 2002. The following issues are priorities for 2003.

Among our top priorities this year is to finalize the update to NCUA's field of membership rules to provide greater diversification options for federal credit unions consistent with the Credit Union Membership Access Act and recent court decisions.

We also intend to further the recent strides in providing better stewardship of NCUA's resources with full implementation of the Accountability In Management (AIM) recommendations for agency restructuring and greater NCUA efficiency, as well as long-term direction of the agency through NCUA's strategic plan and its budget and funding processes.

Other Goals For 2003

Another goal is to finalize an updated investment regulation for federal credit unions and evaluate and update member business lending rules and regulations. In addition, this year the board is scheduled to take final action on a regulation to allow overseas branching by credit unions with portions of their field of membership working internationally while still protecting the long term safety and soundness of the domestic credit union through a proper due diligence procedure.

In continuing our outreach initiative under the Access Across America banner, we plan to continue to encourage credit unions in their individual outreach efforts to the underserved with an emphasis on streamlining of process and regulatory empowerment to extend credit union services as an alternative to predatory lenders in many underserved and low-income communities.

We also hope to continue to monitor the success of RegFlex in credit union performance and enhanced member service. This will enable us to evaluate both existing and new regulations for others which could have the RegFlex standard applied.

I am invigorated by the financial performance and ongoing strong safety and soundness position of America's credit unions in 2002. It will remain our top priority to see that record financial performance continues and to build upon it.

As we move forward in 2003, NCUA will continue to seize the opportunities which enable us to embark on the ongoing challenge of holding our safety and soundness standards high even as we facilitate to continue credit unions' historically strong performance, both financially and in member service, to more Americans from all walks of life.

Dennis Dollar is chairman of the National Credit Union Administration. Mr. Dollar can be reached at 1775 Duke Street, Alexandria, VA, 22314, or via www.ncua.gov.

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