CUNA Comment Letter

RE: Letter to Credit Unions (99-CU-06) - Proposed Revisions to Call Report (Form 5300)

June 28, 1999

Ms. Becky Baker
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, Virginia 22314-3428

RE: Letter to Credit Unions (99-CU-06) - Proposed Revisions to Call Report (Form 5300)

Dear Ms. Baker:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on the proposed revisions to the Call Report, as described in a Letter to Credit Unions (99-CU-06) that was issued in April 1999. CUNA represents more than 90% of our nation's 11,000 state and federal credit unions.

In general, CUNA believes changes to the Call Report should be very limited because these changes often result in additional expense and burden for the credit unions. However, we recognize that most of the changes NCUA is proposing were mandated by Congress in P.L. 105-219, the Credit Union Membership Access Act (CUMAA). Specifically, §201 of CUMAA requires that reports filed with NCUA be consistent with generally accepted accounting principles (GAAP), and NCUA's proposed revisions are designed to accomplish that directive. The proposed revisions also incorporate additional data items, such as information regarding lease activity, cyber financial services, and borrowing arrangements.

Summary of CUNA's Position

CUNA concurs with many of the proposed revisions to the Call Report, which are appropriate and needed. The changes to the instructions and format will simplify completion of the Call Report. By placing all cost of funds amounts together, segregating market from non-market amounts, and removing the provision for loan and lease losses from the expense area, the revised Call Report will follow the monthly financial statement (Form 109A) format that the NCUA has used for some time.

Although we support many of the revisions, we offer the following recommendations:

Proposal to Move Share Savings from the Equity Section to the Liabilities Section

We recognize that the CUMAA requires reports to NCUA from credit unions be consistent with GAAP and we, therefore, understand the reasoning for the proposal to move share savings from the equity to the liabilities section on page 2 of the Call Report. However, CUNA feels very strongly that shares represent member-ownership in the credit union, and are more accurately described as equity, rather than as a liability or debt. NCUA should make it clear that the proposal only applies for Call Report purposes, and that credit unions are still free to characterize shares as equity to their members. CUNA is also concerned that NCUA has not made it clear to credit unions why characterizing shares as liabilities is consistent with GAAP.

We would appreciate the opportunity to discuss this revision in further detail, especially the issue of whether GAAP requires the absolute classification of shares as liabilities.

Proposal to Move the NCUA Share Insurance Deposit from the "Investment" to the "Other Asset" Section

On page 1, the NCUA share insurance deposit should continue to be categorized as an "investment," not as an "other asset" as proposed. The share insurance deposit is an earning asset like other investments and it is not clear if GAAP requires that it no longer be classified as an "investment." We would appreciate the opportunity to further discuss with you the issue of whether GAAP provides the flexibility to continue to classify the NCUA share insurance deposit as an "investment."

Consolidated Reporting of Credit Union Service Organization (CUSO) Information

The consolidated reporting of CUSO information on Schedule D will create difficulties in comparing information with previous Call Reports. The inclusion of a separate schedule of information for each CUSO as well as the consolidated information may be helpful, assuming the benefits outweigh any additional work and the longer reports that would be generated. With regard to Question #5 on Schedule D, we believe that a follow-up question should be included that would ask if there is a controlling interest in a CUSO if the CUSO is not wholly owned by the credit union.

We note that NCUA is again requiring a Schedule D for every CUSO. We question the need to require this information on every 5300 Call Report for credit unions that own a small percentage of a CUSO.

Website Information

Page 5 of the Call Report contains revisions that require credit unions to provide information regarding e-mail addresses, Websites, and the vendors that host and maintain the Website. Although we understand that certain information on e-mail addresses and Websites may be helpful to NCUA, we question the need for information regarding the vendors that host and maintain the Websites.

We also believe the format of these questions can be improved. Specifically, Question 7 on page 5 asks credit unions if they have a Website. We suggest that Question 7 be rephrased to direct credit unions to skip the remaining questions on Websites (Questions 8-10) if they have indicated in Question 7 that they do not have one. Question 6 should also be revised to avoid confusion by indicating that it applies to the e-mail address of the credit union itself, and not to the separate e-mail addresses of the employees.

The instructions for page 5 indicate that a credit union should not include "http://www" when indicating the Internet address. This may lead to inaccuracies because some Internet addresses do not contain "www," and it would therefore be inaccurate to imply that "www" should be included in the address.

Calculation and Monitoring of the Credit Union's Rate Sensitivity

Page 11 of the Call Report (titled "Schedule F- Savings") should have specific instructions, similar to page 8 (titled "Schedule C - Investments"), indicating that disclosure of share or deposit amounts should be based on the remaining maturity or the earliest repricing interval, not on the original maturity or length of time the credit union expects to have the funds. We recognize that these specific instructions are on page 11a, but we believe that they should be moved to page 11.

Computation of Insured Share Deposits

Page 2 of the Call Report requires credit unions to calculate the amount of uninsured share deposits. Because of the insurance rules applicable to certain situations, such as the recent interim final rules regarding joint ownership accounts, the calculation does not ensure that NCUA will have an accurate accounting of insured funds on deposit in federally insured credit unions.

The call report for commercial and savings banks allows the reporting institution to use an internal calculation to determine the amount of deposits insured by the Federal Deposit Insurance Corporation in addition to the standard calculation contained in the call report. We encourage NCUA to give federally insured credit unions the same flexibility in determining the amount of insured shares on deposit in the credit union. This can be done by providing credit unions with the choice of the following two options:
1) using the current formula; or 2) using a credit union-derived formula that takes into account multiple owners on joint accounts and multiple beneficiaries on testamentary accounts.

Additional Comments on Specific Issues

We are also recommending the following changes with regard to certain specific issues pertaining to the Call Reports:

Suggestions for Possible Consideration

Finally, we would like to offer the following suggestions that NCUA may want to consider:

Thank you for the opportunity to comment on the proposed revisions to the Call Report. If Board members or agency staff have questions about our comments, please give me a call at 202-218-7795.


Jeffrey Bloch
Assistant General Counsel

cc: Polly Kennedy