Matz: Problem CUs Continue To Be NCUA Focus Posted by AVCU on 9:47 AM

In a meeting of the NCUA Board last Friday, Chairman Debbie Matz Friday expressed concern about the high number of CAMEL 3, 4, and 5 credit unions and the percentage of insured shares which they represent. Matz says the NCUA is being proactive with respect to looking for "red flags" that indicate a credit union is experiencing problems which could lead to a CAMEL downgrade if not corrected. She added that credit unions with these red flags may be subject to unplanned examinations in order to address problems before a CAMEL downgrade is required.

Areas of concerns cited by Matz include increased loan delinquencies, especially increased problems with indirect lending, loan participations, or other areas in which credit unions may not have undertaken sufficient due diligence. Another warning sign Matz mentioned was credit union exposure to interest rate risk by making large numbers of fixed-rate mortgages and holding them in portfolio.

Matz said examiners are encouraged to adopt a cooperative attitude and not be "bullying." However, examiners will issue letters of resolution to credit unions unresponsive to examiners' concerns. She added that the agency will also consider issuing letters of understanding and agreement, and possibly making those public, as needed to protect the NCUSIF.

There are currently 351 CAMEL 4 and 5 credit unions, 80 more than at year-end 2008. They represent 5.82% of insured shares at about $41.2 billion. There are also 1,688 CAMEL 3 credit unions, which represent 13.67% of insured shares. So, almost 20% of insured shares is in CAMEL 3, 4, and 5 credit unions.

The NCUSIF's equity ratio was 1.24% as of the end of December 2009, down from 1.27% at the end of November 2009 and 1.30% at the end of September. The decrease was the result of an estimated 9.5% increase in member shares and deposits , higher than expected, and loss expenses. Insured shares is the denominator in determining the ratio, and therefore the higher denominator drives down the ratio. Another factor in the decrease was the agency's decision in 2009 to expense an additional $270 million to the NCUSIF's reserves beyond what had been budgeted. The NCUSIF's reserves, which are not included in the insurance fund's equity ratio, now stand at $758.7 million. Click to access the preliminary NCUSIF Report.