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contains regulatory documents having general

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are keyed to and codified in the Code of

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REGISTER issue of each week.

Rules and Regulations Federal Register

4033 

Vol. 71, No. 16 

Wednesday, January 25, 2006 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Part 741 

Requirements for Insurance 

AGENCY: National Credit Union 

Administration (NCUA). 

ACTION: Final rule. 

SUMMARY: NCUA is amending its rule 

concerning financial and statistical 

reports to require all federally insured 

credit unions to file the same quarterly 

Financial and Statistical Report with 

NCUA. The amendment requires all 

federally insured credit unions to file 

Form NCUA 5300 quarterly and, 

beginning with the third quarter 2006 

cycle, eliminates the alternate Form 

NCUA 5300SF for credit unions with 

assets of less than ten million dollars. In 

conjunction with the change in the 

reporting requirement for small credit 

unions, NCUA is issuing a number of 

revisions to Form 5300. All credit 

unions must use the revised form 

beginning with the second quarter 2006 

reports, due July 20, 2006. 

DATES: This rule is effective February 

24, 2006, and applies to quarters 

beginning on or after April 1, 2006. 

FOR FURTHER INFORMATION CONTACT: 

Debra Tobin, Risk Management Officer, 

or Larry Fazio, Director, Division of Risk 

Management, Office of Examination and 

Insurance, at the above address or 

telephone number (703) 518–6360; or 

Regina M. Metz or Elizabeth Wirick, 

Staff Attorneys, Office of General 

Counsel, at the above address or 

telephone number (703) 518–6540. 

SUPPLEMENTARY INFORMATION: 

Background 

On September 21, 2005, the NCUA 

Board issued proposed revisions to 

§ 741.6(a), the provision governing the 

filing of quarterly Financial and 

Statistical Reports, also known as Call 

Reports or 5300 reports. 70 FR 55308 

(Sept. 21, 2005). The NCUA Board is 

issuing the final rule without change 

from its proposal. The effect of this 

revision is that all federally insured 

credit unions will file the same 

quarterly call report form beginning 

with the second quarter of 2006 and the 

revision eliminates the special short 

form for credit unions with less than ten 

million dollars in assets beginning with 

the third quarter of 2006. 

The NCUA Board last revised 

§ 741.6(a) in 2002. 67 FR 12464, March 

19, 2002. Before those 2002 revisions, 

this section required all federally 

insured credit unions with assets in 

excess of $50 million to file a quarterly 

call report with NCUA. All other 

federally insured credit unions filed 

semiannually. 

Since the 2002 amendments, all 

federally insured credit unions are 

required to file quarterly Call Reports, 

but credit unions with less than ten 

million dollars in assets have the option 

of filing a short form for the first and 

third quarters. The amendment requires 

all federally insured credit unions to file 

the same quarterly call report form, a 

revised Form NCUA 5300. Small credit 

unions, accordingly, will no longer have 

the option of using a short form 

beginning with the third quarter 2006 

reporting cycle. 

NCUA has also revised its Call Report 

form, and will require credit unions to 

use the new form for reporting cycles 

beginning with the second quarter of 

2006. NCUA usually makes revisions to 

Form 5300 every year and requires use 

of the revised form for the first quarter 

of each year. Revisions to the Form 5300 

do not require a change to NCUA’s 

regulation. Because this rule change 

eliminates the short form for small 

credit unions, NCUA has delayed 

implementation of the revised form 

until the second quarter in 2006. 

The revised Form NCUA 5300 

consolidates information, reduces 

ancillary schedules, and is easier to read 

and use. Based on the revisions, the 

short form is no longer needed, and the 

new design provides many benefits for 

credit unions. The Call Report form will 

have a consistent appearance each 

cycle, which will eliminate confusion 

for smaller credit unions, and it is 

shorter: 16 pages compared to 19 pages 

in the current version. In addition, the 

revised form is designed so small credit 

unions generally will not have to 

complete supporting schedules. Only 

the first ten pages require input by all 

credit unions. For comparison, the 

current short form is only eight pages 

but the new, easier format will reduce 

the burden. NCUA currently reports to 

the Office of Management and Budget 

an average completion time of 6.6 hours 

for the regular Form NCUA 5300 and 6.0 

hours for the Form NCUA 5300SF. The 

consolidated form should not materially 

impact the time spent by smaller credit 

unions, meaning those under ten 

million dollars in assets. 

The new design also provides 

efficiencies and benefits to NCUA. By 

eliminating the short form NCUA only 

has to maintain one 5300 form, one set 

of edits and warnings, and one set of 

Financial Performance Report 

specifications. This will improve 

efficiency and reduce the likelihood of 

introducing errors in the reporting 

system. In addition, the burden on the 

Office of the Chief Financial Officer and 

the cost of printing and mailing will be 

reduced with the distribution of a single 

form. Both internal and external 

quarterly financial trend analysis will be 

improved, since comprehensive 

quantitative data will be reported by all 

credit unions. Further, the shift to one 

Call Report will simplify maintenance 

of the Financial Performance Report and 

provide additional data needed for 

small credit unions to use the expanded 

Financial Performance Report fully. 

Additionally, trend reports from 

NCUA’s Automated Integrated 

Regulatory Examination System (AIRES) 

will be more consistent and detailed for 

smaller credit unions. For example, 

quarterly detail that is currently not 

provided for real estate loans and 

investments will be available. 

In summary, the consolidation of the 

Call Report and elimination of the Form 

NCUA 5300SF will improve the 

agency’s efficiency, increase the 

accuracy of the information collected, 

and simplify the reporting process for 

credit unions, large and small. The 

revised form will be used beginning 

with the second quarter 2006 call 

reports, due July 20, 2006. 

Summary of Comments 

The NCUA Board received six 

comment letters regarding the proposal: 

Three from national trade associations; 

one from a state credit union league; 


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4034 Federal Register / Vol. 71, No. 16 / Wednesday, January 25, 2006 / Rules and Regulations 

and two from FCUs. All commenters 

supported the proposed changes and 

stated that the benefit of having a 

consistent reporting system outweighs 

any possible new burden for smaller 

credit unions. All commenters also 

supported NCUA’s goals to streamline 

the reporting process and reduce 

regulatory burdens and agreed that the 

proposed revisions would contribute to 

these goals. Three commenters stated 

that credit unions should only be 

required to submit revised reports for 

the third quarter cycle ending in 

September 2006 if the final revisions to 

the call report were issued before yearend 2005. One commenter stated 

support for the planned implementation 

date without any conditions. One 

commenter requested that credit unions 

have six months to one year after the 

issuance of the final form before they 

are required to use it. 

NCUA agrees that credit unions need 

sufficient time to prepare for filing the 

new form. The final version of the form 

is unchanged from the proposal issued 

in September 2005 and is being issued 

January 19, 2006. Three commenters 

suggested that the final rule should be 

issued by the end of 2005 if compliance 

for the third quarter of 2006 would be 

required. This final rule is being issued 

less than a month after the issuance date 

suggested by the three commenters and 

NCUA has determined that credit 

unions will have ample time, 

approximately six months, to become 

familiar with the new form before its 

due date. 

For Call Report revisions occurring 

apart from regulatory changes, NCUA 

generally provides about three months’

notice. Thus, by implementing the 

changes for the second quarter, NCUA 

has at least doubled its usual notice for 

changes of this type. 

Two commenters suggested other 

ways that NCUA could make the call 

report process less burdensome. These 

suggestions included: Not requiring 

credit unions to repeat information that 

is unchanged from previous call reports, 

making reporting categories mutually 

exclusive and improving explanations 

for requested information, and 

importing information between sections 

of the report. These suggestions are 

outside the scope of the proposed rule 

and, therefore, NCUA cannot 

incorporate them into the final rule; 

NCUA would have to issue a second 

proposal with a second comment 

period. NCUA wants to implement the 

single call report form for the reasons 

discussed above without delay but 

believes the commenters have made 

interesting suggestions that deserve 

further review. NCUA notes it welcomes 

these suggestions for further 

improvement and will consider them in 

future call report revisions. 

Regulatory Procedures 

Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

and Office of Management and Budget 

(OMB) regulations require that the 

public be provided an opportunity to 

comment on the paperwork 

requirements, including an agency’s 

estimate of the burden of the paperwork 

requirements. The NCUA Board 

previously determined that the rule to 

require all federally insured credit 

unions to file a Call Report form on a 

quarterly basis is covered under the 

Paperwork Reduction Act. 

Currently, credit unions with assets 

less than ten million dollars have the 

option in the first and third quarters of 

filing the NCUA 5300SF with NCUA. 

We now report to OMB an average 

completion time of 6.6 hours for the 

regular Form NCUA 5300 and 6.0 hours 

for the Form NCUA 5300SF. NCUA 

estimated annually 38,050 forms are 

submitted to NCUA, with an average 

annual completion time of 251,130 

hours, at an annual cost of $5,497,542. 

OMB approved the information 

collections under both Forms NCUA 

5300 and NCUA 5300SF as OMB 

number 3133–0004. 

NCUA submitted a copy of the 

proposed rule and revised Form NCUA 

5300 to OMB and has received its 

approval under OMB number 3133–

0004. 

Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

requires NCUA to prepare an analysis to 

describe any significant economic 

impact any proposed regulation may 

have on a substantial number of small 

entities. 5 U.S.C. 601–612. NCUA 

considers credit unions having less than 

ten million dollars in assets to be small 

for purposes of RFA. Interpretive Ruling 

and Policy Statement (IRPS) 87–2 as 

amended by IRPS 03–2. The final rule 

requires all federally insured credit 

unions to complete the same, revised, 

Form NCUA 5300. 

The NCUA has determined and 

certifies that this final rule will not have 

a significant economic impact on a 

substantial number of small credit 

unions. Accordingly, the NCUA has 

determined that an RFA analysis is not 

required. NCUA requested comments on 

its determination and received no 

comments either agreeing or disagreeing 

with this analysis. 

Executive Order 13132 

Executive Order 13132 encourages 

independent regulatory agencies to 

consider the impact of their regulatory 

actions on state and local interests. In 

adherence to fundamental federalism 

principles, NCUA, an independent 

regulatory agency as defined in 44 

U.S.C. 3502(5), voluntary complies with 

the executive order. This final rule will 

not have substantial direct effects on the 

states, on the relationship between the 

national government and states, or on 

the distribution of power and 

responsibilities among the various 

levels of government. NCUA has 

determined the final rule does not 

constitute a policy that has federalism 

implications for purposes of the 

executive order. 

Treasury and General Government 

Appropriations Act, 1999 

NCUA has determined that the final 

rule will not affect family well-being 

within the meaning of section 654 of the 

Treasury and General Appropriations 

Act, 1999, Public Law 105–277, 112 

Stat. 2681 (1998). 

Agency Regulatory Goal 

NCUA’s seeks to minimize the 

reporting burdens on federally insured 

credit unions. Commenters agreed that 

the amendment is understandable and 

imposes minimal regulatory burden. 

List of Subjects in 12 CFR Part 741 

Credit unions, Requirements for 

insurance. 

By the National Credit Union 

Administration Board on January 19, 2006. 

Mary Rupp, 

Secretary of the Board. 

■ Accordingly, NCUA amends 12 CFR 

part 741 as follows: 

PART 741—REQUIREMENTS FOR 

INSURANCE 

■ 1. The authority citation for part 741 

continues to read as follows: 

Authority: 12 U.S.C. 1757, 1766(a), and 

1781–1790; Pub. L. 101–73. 

■ 2. Amend § 741.6 by revising 

paragraph (a) to read as follows: 

§ 741.6 Financial and statistical and other 

reports. 

(a) Each operating insured credit 

union must file with the NCUA a 

quarterly Financial and Statistical 

Report on Form NCUA 5300 according 

to the deadlines published on the Form 

NCUA 5300, which occur in January (for 

quarter-end December 31), April (for 

quarter-end March 31), July (for quarterVerDate Aug<31>2005 14:58 Jan 24, 2006 Jkt 208001 PO 00000 Frm 00002 Fmt 4700 Sfmt 4700 E:\FR\FM\25JAR1.SGM 25JAR1

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Federal Register / Vol. 71, No. 16 / Wednesday, January 25, 2006 / Rules and Regulations 4035 

1See Interpretive Ruling and Policy Statement 

95–1, 60 FR 14795 (March 20, 1995). 

2See 68 FR 32960, 32966 (June 3, 2003) and 68 

FR 56537, 56542, 56553 (Oct. 1, 2003). 

3Federal credit unions are permitted to invest in 

commercial mortgage-related securities issued by 

the government-sponsored enterprises (‘‘GSEs’’) 

enumerated in 12 U.S.C. 1757(7)(E). ‘‘Subject to 

such regulations as the Board may prescribe,’’ 12 

U.S.C. 1757(15)(B), federal credit unions also may 

invest in commercial mortgage-related securities of 

issuers other than GSEs. Section 742.4(a)(9) of the 

final rule prescribes conditions under which 

RegFlex credit unions may invest in commercial 

mortgage-related securities of non-GSEs. 

end June 30), and October (for quarterend September 30) of each year. 

* * * * * 

[FR Doc. 06–684 Filed 1–24–06; 8:45 am] 

BILLING CODE 7535–01–P 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Part 742 

Regulatory Flexibility Program 

AGENCY: National Credit Union 

Administration (NCUA). 

ACTION: Final Rule. 

SUMMARY: The National Credit Union 

Administration (NCUA) is modifying 

the eligibility criteria for its Regulatory 

Flexibility Program by reducing the 

minimum net worth, and extending the 

duration that it must be maintained, to 

qualify for the Program. Federallyinsured credit unions that qualify are 

exempt in whole or in part from a series 

of regulatory restrictions and also are 

allowed to purchase and hold an 

expanded range of eligible obligations. 

DATES: This rule is effective February 

24, 2006. 

FOR FURTHER INFORMATION CONTACT: 

Steven W. Widerman, Trial Attorney, 

Office of General Counsel, at 703/518–

6557; or Lynn K. Markgraf, Program 

Officer, Office of Examination and 

Insurance, at 703/518–6396. 

SUPPLEMENTARY INFORMATION: 

A. Background 

1. RegFlex Program Under Part 742 

The NCUA Board established a 

Regulatory Flexibility Program 

(‘‘RegFlex’’) in 2002 to exempt 

qualifying credit unions in whole or in 

part from a series of regulatory 

restrictions, and grants them additional 

powers. 12 CFR part 742 (2005); 66 FR 

58656 (Nov. 23, 2001). A credit union 

may qualify for RegFlex automatically 

or by application to the appropriate 

Regional Director. 

To qualify automatically for RegFlex, 

a credit union must have a composite 

CAMEL rating of ‘‘1’’ or ‘‘2’’ for two 

consecutive examination cycles and, 

under existing part 742, also must 

achieve a net worth ratio of 9 percent 

(200 basis points above the net worth 

ratio to be classified ‘‘well capitalized’’) 

for a single Call Reporting period. If the 

credit union is subject to a risk-based 

net worth (‘‘RBNW’’) requirement, 

however, the credit union’s net worth 

must surpass that requirement by 200 

basis points. 12 CFR 742.1 (2005). 

A credit union that is unable to 

qualify automatically for RegFlex may 

apply to the appropriate Regional 

Director for a RegFlex designation. To 

be eligible to apply, a credit union must 

either have a CAMEL rating of ‘‘3’’ or 

better or meet the present 9 percent net 

worth criterion, but not both. 12 CFR 

742.2 (2005). A Regional Director has 

the discretion to grant RegFlex relief in 

whole or in part to an eligible credit 

union. 

A federal credit union’s RegFlex 

authority can be lost or revoked. A 

credit union that qualified for RegFlex 

automatically is disqualified once it 

fails, as the result of an examination 

(but not a supervision contact), to meet 

either the CAMEL or net worth criteria 

in § 742.2(a). 12 CFR 742.6 (2005). 

RegFlex authority can be revoked by 

action of the Regional Director for 

‘‘substantive and documented safety 

and soundness reasons.’’ § 742.2(b) 

(2005). The decision to revoke is 

appealable to NCUA’s Supervisory 

Review Committee,1 and thereafter to 

the NCUA Board. 12 CFR 742.7 (2005). 

RegFlex authority ceases when that 

authority is lost or revoked (even if an 

appeal of a revocation is pending). Id.; 

12 CFR 742.6 (2005). But past actions 

taken under that authority are 

‘‘grandfathered,’’ i.e., they will not be 

disturbed or undone. 

2. RegFlex Relief 

As originally adopted, the RegFlex 

program gave qualifying credit unions 

relief from a variety of regulatory 

restrictions, 12 CFR 742.4(a) and 742.5 

(2005): 

• Fixed assets. The maximum limit 

on fixed assets (5 percent of shares and 

retained earnings), 12 CFR 701.36(c)(1). 

• Nonmember deposits. The 

maximum limit on non-member 

deposits (20 percent of total shares or 

$1.5 million, whichever is greater), 12 

CFR 701.32(b). 

• Charitable contributions. 

Conditions on making charitable 

contributions (relating to the charity’s 

location, activities and purpose, and 

whether the contribution is in the credit 

union’s best interest and is reasonable 

relative to its size and condition), 12 

CFR 701.25. 

• Discretionary control of 

investments. The maximum limit on 

investments over which discretionary 

control can be delegated (100 percent of 

credit union’s net worth), 12 CFR 

703.5(b)(1)(ii) and (2). 

• Zero-coupon securities. The 

maximum limit on the maturity length 

of zero-coupon securities (10 years), 12 

CFR 703.16(b). 

• ‘‘Stress testing’’ of investments. The 

mandate to ‘‘stress test’’ securities 

holdings to assess the impact of a 300- 

basis points shift in interest rates, 12 

CFR 703.12(c) (2001). 

• Purchase of eligible obligations. 

Restrictions on the purchase of eligible 

obligations, 12 CFR 701.23(b), thus 

expanding the range of loans RegFlex 

credit unions could purchase and hold 

as long as they are loans those credit 

unions would be authorized to make 

(auto, credit card, member business, 

student and mortgage loans, as well as 

loans of a liquidating credit union up to 

5 percent of the purchasing credit 

union’s unimpaired capital and 

surplus). 

With the overhaul of parts 703 

(investments) and 723 (member 

business loans) in 2003,2 RegFlex credit 

unions received further relief from the 

following restrictions: 

• Member business loans. The 

requirement that principals personally 

guarantee and assume liability for 

member business loans. 12 CFR 

723.7(b). 

• Borrowing repurchase transactions. 

The maturity limit on investments 

purchased with the proceeds of a 

borrowing repurchase transaction. 12 

CFR 703.13(d)(3). 

• Commercial mortgage-related 

securities. The restriction on purchasing 

commercial mortgage-related securities 

of issuers other than the governmentsponsored enterprises.3 12 CFR 

703.16(d). 

3. 2005 Proposed Rule 

In 2005, the NCUA Board reassessed 

the RegFlex program to ensure its 

availability to credit unions that are 

least likely to encounter safety and 

soundness problems, thus minimizing 

the risk of loss to the Share Insurance 

Fund. Experience indicates that such 

credit unions consistently maintain a 

high net worth ratio and a high CAMEL 

rating. Accordingly, the NCUA Board 

issued a proposed rule reducing from 9 

to 7 percent the minimum net worth 

ratio to qualify for RegFlex, but 

extending from one to six quarters the 

period the minimum net worth must be 

maintained to qualify. 70 FR 43769 (July 


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