REGION I REPORT (FROM PAGE 6)
NCUA encourages credit union boards and management to
track, monitor progress, and hold accountable those
individuals responsible for problem resolution.
Moving beyond management, examiners can define safety
and soundness in terms of the balance sheet. Because the
balance sheet generates the basis of all income and the
generation of net worth for the credit union, initial
assessments also focus on the quality and condition of asset
portfolios (both loans and investments) and financial
performance trends. These assessments are not limited to
asset classes, but incorporate shares and borrowings, as well.
The focus of safe and sound operations incorporates a global
aspect of the inter-relatedness of the balance sheet, income
statement, and operational structure of the credit union in
current and future economic climates.
In order to determine areas of greatest risk, examiners raise
questions in response to financial trends, harvested through
multiple areas (inclusive of off-site and on-site reviews of
Financial Performance Report trend analysis), NCUA 5300
Call Report reviews, prior examination reports, and external
audit reports. Examiners also review a historical ratio
analysis (in many instances over the past 10 years), which is
an indication of past performance. However, it is not
necessarily a strong indicator of future events nor
management’s abilities to handle them.
Analyzing balance sheet growth and financial performance
trends, and evaluating efficiency ratios is a critical component
of establishing examination scope review areas. This analysis
may lead to a risk-focused review of a particular financial
area or program. For example, an examiner would view rapid
share and loan growth, or abrupt changes in investment and
lending strategies, as leading indicators of potential unsafe
and unsound practices. This would lend to expanded scope
reviews to ensure management and the board are aware of
the inherent risks apparent in the balance sheet.
A balance sheet assessment, ultimately, focuses on those areas
that pose risk to the credit union, the membership, and the
NCUSIF. Examiners will focus on areas of perceived risk
while opting out of reviewing other areas. This is the basis of
the risk-focused safety and soundness examination process.
What about new product lines? From a safety and soundness
perspective, examiners expect to see due diligence when
introducing product lines. Questions that examiners may ask
relative to products are:
; What management controls are in place?
; What did the cost/benefit analysis reveal?
; What are the projected growth trends?
; How does this product fit into the credit
union’s strategy?
; What are the known and unforeseen risks
associated with the program?
These are all questions a board should ask management, and
management should provide answers. If a board does not
understand the risks and management is unable to provide
suitable responses, examiners would consider implementation
to be a high-risk venture.
As you may imagine, the examination process can progress in
a multitude of directions, based on responses to examiner
inquiries, review of financial and operational areas, and
perceived or supported risks. The examination takes into
consideration what is currently ongoing at your individual
credit unions and many areas may be reviewed at any given
time. One important factor will never change: From a safety
and soundness perspective, if your examiner is concerned,
boards and management should be concerned as well.
Office of the Chief Information Officer Report
NEW NCUA WEBSITE LAUNCHED
NCUA launched its completely restructured and redesigned
primary web site, and rolled out the second phase of its
consumer-focused website Nov. 1, making key information
easier to access.
Using a dynamic interface and building on the latest best
practices, www.ncua.gov is now exclusively tailored toward the
business aspects of the agency. With consumer content moved
to www.MyCreditUnion.gov, consumers who either want to
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