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| #  NCUA LETTER TO CREDIT UNIONS                                       |
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**NATIONAL CREDIT UNION ADMINISTRATION**

**1775 Duke Street, Alexandria, VA 22314**

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  **DATE: August 2005**               **LETTER NO.: 05-CU-10**

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**TO: Federally Insured Credit Unions**

**SUBJ: 5300 Call Report Process Improvements**

Dear Board of Directors:

NCUA initiated a comprehensive review of the 5300 Call Report data
collection, analysis, and reporting processes in 2004. The review
revealed significant opportunities to increase efficiency and
effectiveness by implementing innovative technological improvements.

These improvements will reduce costs, increase data integrity, expedite
information dissemination, and significantly increase NCUA's risk
analysis capabilities. By leveraging technology, NCUA will also be
providing the credit union community with a more efficient means to
report data and new tools to access and work with this data.

As further explained below, the key changes being implemented for the
September 30, 2005 reporting cycle include:

-   The addition of comment boxes and controls in the 5300 Call Report
    software to allow credit unions to provide an explanation for data
    that triggers warnings programmed into the software;

-   The implementation of an electronic validation process that compares
    data reported in the current cycle to historically reported data,
    identifies unusual or unlikely conditions, and generates a
    Historical Warnings Report (HWR);

-   The modification of the 5300 Call Report submission process to allow
    credit unions to upload their transmission file for initial
    processing directly to an NCUA server and receive the HWR and
    Financial Performance Report (FPR) via email within 24 hours; and

-   A major revision of the FPR to make it a more comprehensive and
    flexible tool for credit unions and examiners to check data
    integrity and analyze risk.

[NCUA 5300 Call Report Software]{.underline}

NCUA provides internally developed software to all federally insured
credit unions for use in preparing their quarterly data submission. The
software contains auto sum features and data entry controls to help
minimize errors in reporting. Errors and warnings are two types of data
entry controls programmed into the software.

Errors identify data representing conditions that cannot be true (e.g.,
assets do not equal liabilities plus equity). Controls in the software
prevent the creation of a transmission file for a call report containing
errors. Warnings identify data representing conditions that can be true
but are generally outside expected parameters (e.g., the amount of
recoveries on loans charged off is greater than the amount of loans
charged off). Since warnings represent conditions that may be true, the
software does not prevent the creation of a transmission file for a call
report containing warnings.

NCUA modified the software to include comment boxes for triggered
warnings. The comment boxes provide an efficient means for credit unions
to explain the conditions leading to the warning. The comments provided
by the credit union will increase communication and understanding
between the credit union and the supervisory authority responsible for
processing the report. Other modifications to the software are detailed
in the Users' Guide to NCUA's Call Report Software, which will be
distributed with the call report materials for the September 30, 2005
cycle and are available on the NCUA website at <http://www.ncua.gov/>.

[Historical Warnings Report]{.underline}

Errors and warnings, as described above, are an electronic means to
review the integrity of reported data. These data entry controls are
programmed into the software and are limited to reviewing and comparing
current cycle data to identify unusual conditions.

NCUA is expanding the use of electronic validation by comparing current
cycle data to historically reported data. The data submission process
was revised to allow credit unions to send call report data directly to
an NCUA server where historically reported data resides. The data will
run through a series of warnings programmed on the server and, if
unusual or unlikely conditions are identified, the system will generate
a Historical Warnings Report (HWR). The HWR will be forwarded to the
examiner and to credit unions using eSend within 24 hours of the initial
data submission. The HWR is intended to be the basis for discussion
between the credit union and the supervisory authority. Credit unions
are not required to provide comments about the conditions leading to
historical warnings but will be alerted through the HWR to issues an
examiner might question.

[Financial Performance Report]{.underline}

The Financial Performance Report (FPR) is a computer-generated,
analytical tool that credit unions may use to identify key trends,
analyze past performance and set future goals. NCUA produces an FPR for
each federally insured credit union quarterly. In the past, the FPR
contained summary data, financial ratios, and graphs for an individual
credit union. FPRs were printed and mailed via U.S. Mail at the end of
the cycle after all call report data was submitted and peer averages
were calculated. Delivery of the FPR generally ranged from 45 -- 65 days
after the end of each quarter.

NCUA performed a comprehensive review of the content, structure, and
timing of the FPR. As a result, NCUA made improvements to make the FPR a
more timely, comprehensive, and flexible tool. Beginning with the
September 30, 2005 call report cycle, NCUA will email (normally within
24 hours) a five-page FPR to credit unions that use eSend[^1] to submit
their 5300 Call Report. Additional pages containing more detailed
information will be available to the public on the NCUA website upon
request. When requesting an FPR, users may choose the page(s) they wish
to review. Users may also request a consolidated FPR for a group of
credit unions based on select criteria such as region, state, peer
group, charter type, field of membership code, etc. The FPR request
application and a complete *User's Guide to the NCUA Financial
Performance Report* are available on the NCUA website at
<http://www.ncua.gov/>.

As of the September 30, 2005 cycle, the peer average calculation
methodology will also change. The new method trims the top five and
bottom five values for each ratio to minimize distortion, separates the
remaining ratios into the six peer groups based upon asset size, and
then calculates a peer average. The six peer groups will now include all
federally insured credit unions (federal and state charters will be
combined). NCUA will no longer calculate peer average ratios for
non-federally insured credit unions.

[Credit Union Workshops]{.underline}

A summary of the 5300 Call Report process improvements is an agenda item
for credit union workshops being conducted throughout the United States.
These workshops are sponsored by NCUA's Office of Small Credit Union
Initiatives and are free and open to all credit unions regardless of
asset size.

Registration forms for the workshops are posted on the NCUA website at
<http://www.ncua.gov/CreditUnionDevelopment/Events>. The NCUA website is
frequently updated with changes in location and agenda items. Credit
unions are encouraged to visit the website for the latest information.

The scheduled dates and locations of the workshops are as follows:

  ------------- ---------------------------------------- ----------------
  **2005 Credit                                          
  Union                                                  
  Workshops**                                            

  **Date**      **Workshop Locations**                   **City, State**

  August 16     Holiday Inn Hotel & Suites               Council Bluffs,
                                                         IA

  August 18     Park Plaza New Orleans                   New Orleans, LA

  August 27     Radisson Hotel Waikiki Prince Kuhio      Honolulu, HI

  September 10  Red Lion Hotel on the River              Portland, OR

  September 29  To Be Determined                         Indianapolis, IN

  October 1     To Be Determined                         Pittsburgh, PA

  October 4     To Be Determined                         Kansas City, MO

  October 5     Kansas Credit Union Association          Wichita, KS

  October 6     Arkansas Credit Union League             Little Rock, AR

  October 8     St. John United Federal Credit Union     Buffalo, NY

  October 15    To Be Determined                         Philadelphia, PA

  October 15    To Be Determined                         Minnesota

  October 27    To Be Determined                         Clarksburg, WV

  October 27    To Be Determined                         Chicago, IL

  October 29    To Be Determined                         Alexandria, VA

  October 29    To Be Determined                         Boston, MA

  November 8    Holiday Inn Select Memphis East          Memphis, TN

  November 10   To Be Determined                         Savannah, GA

  November 17   To Be Determined                         Jackson, MS

  November 19   To Be Determined                         Albuquerque, NM

  December 3    To Be Determined                         Dallas, TX

  December 10   To Be Determined                         Los Angeles, CA
  ------------- ---------------------------------------- ----------------

NCUA encourages all federally insured credit unions to submit call
report data using the NCUA 5300 Call Report software and the eSend
option to better yield the benefits of these technological improvements.
Questions regarding the new software and process improvements should be
directed to the district examiner, regional office, or state supervisory
authority.

Sincerely,

/s/

> JoAnn Johnson

Chairman

/media/pszemraj/PeterTrove/project-files/DATA/ms-word-files/big-DOC/932749.doc

[^1]: eSend is a function within the Call Report program that credit
    unions may use to send their Call Report directly to the NCUA
    server. After a credit union uses eSend, the examiner and SSA (where
    applicable) assigned to the credit union are notified that the
    credit union's Call Report is ready for review.