Chairman’s Corner
WHAT A DIFFERENCE A YEAR MAKES

As we close out 2011, now is a good time to reflect on all we have accomplished in the past year.

Just think—one year ago at this time, NCUA was dealing with the largest number of problem assets in credit union history. NCUA had conserved three more corporate credit unions and seized control of billions of dollars in troubled mortgage-backed securities. We were about to embark on an unprecedented initiative to recover losses on behalf of the entire credit union industry.

Among all credit unions, positive indicators are moving in the right direction. Return on average assets strengthened from 51 basis points to 66 basis points, while net worth rebounded from 10.06 percent to 10.15 percent.

Negative indicators look less severe. Delinquencies dropped from 1.74 percent to 1.59 percent, while net charge-offs fell from 1.13 percent to 0.91 percent.

The industry continues to grow, with assets up to $951 billion and membership over 91.4 million.

Debbie Matz

Chairman

Corporate Credit Unions Stabilizing Fast forward one year—NCUA successfully raised $28.3 billion in liquidity for the corporate credit union system by repackaging cash flows from those troubled securities as NCUA Guaranteed Notes. New corporate credit unions were chartered to serve members of the conserved corporates, with no interruption of services to consumer credit unions.

Examiners Preventing More Failures In 2011, NCUA hired 78 new examiners and other specialists. NCUA’s return to a 12-month exam cycle by putting more “boots on the ground,” has truly paid off.

By paying a $25 million NCUA budget increase in 2011, the industry was spared $1.5 billion in additional losses to the National Credit Union Share Insurance Fund (NCUSIF). Many credit unions that were in imminent danger of failing have been stabilized.

Last year 28 credit union failures cost the NCUSIF $221 million. At press time, only 15 credit unions had failed so far this year at a cost of less than $50 million.

As the remaining troubled credit unions pose less risk to the NCUSIF, we have been able to reduce the fund’s reserves and increase the equity ratio to its highest level since May 2007.

Most importantly, thanks to NCUA’s efforts to prevent failures, credit unions will not pay any NCUSIF premium this year.

And by negotiating $165 million in settlements, NCUA became the first federal regulator to recover losses on behalf of failed financial institutions that resulted from investments in mortgage-backed securities. The net proceeds from NCUA’s settlements will reduce future Stabilization Fund assessments on credit unions.

Consumer Credit Unions Recovering At the same time, the financial conditions of consumer credit unions are improving.

The percentage of shares in credit unions rated CAMEL 1 or 2 rose from 77.9 percent in December 2010 to 82.7 percent. Over the same time, the percentage of shares in credit unions rated CAMEL 3, 4 or 5 decreased from 22.1 percent to 17.3 percent.

Industry Turning the Corner

It appears that the credit union industry is turning the corner. So as we close out this year, NCUA’s emphasis is shifting from the extraordinary efforts which were required to resolve the corporate crisis and stabilize consumer credit unions.

Now, under my Regulatory Modernization Initiative, NCUA is reviewing existing significant regulations for those that may be outmoded, ineffective, insufficient, or excessively burdensome, and will modify, streamline, expand, or repeal them accordingly.

Where regulations are ineffective or overly burdensome, they will be eliminated or streamlined. Where new risks have arisen and current regulations are outdated or insufficient, those regulations will be modernized.

Through careful supervision by NCUA and state regulators, and diligent efforts by credit union management and volunteers, the credit union industry is coming through the economic downturn. Credit unions can look forward to a future of increasing members and strengthening bottom lines.