ALEXANDRIA, Va. — NCUA shared a Supervisory Letter distributed to all examiners with federal credit unions earlier this month to help ensure examiners and credit unions understand that a 1% return on assets is not required in order to achieve a CAMEL 1 rating.

"NCUA appreciates the delicate balance credit unions must strive to achieve between the short-term and long-term needs of the credit union. In this regard, I encourage credit union officials to be committed to a sincere, conscientious, and well-planned strategy to safely balance the net worth and earnings needs of the credit union with strategies to achieve longer-term objectives," NCUA Chairman JoAnn Johnson wrote in Letter to Federal Credit Unions 06-FCU-04. "I am confident that with an open dialogue examiners will be supportive of such endeavors."

If a credit union has a disagreement with its examiner on the issue of ROA, she encouraged them to contact the supervisory examiner or the regional office. Disagreements with the regional office should be relayed to NCUA's Supervisory Review Committee. "Lower earnings are being observed nationwide," the Supervisory Letter, attached to the Letter to FCUs, acknowledged. "This trend is the result of rising interest rates, a flat yield curve, and some credit unions incurring costs to position themselves strategically. There is no simple metric for determining what a credit union's retained earnings level should be…CAMEL ratings are not automatically determined by matrix ratios. Striving for an arbitrary one percent Return on Average Assets just to achieve a CAMEL 1 rating based on the CAMEL matrix is not an acceptable argument, especially in the current economy, for a well-capitalized credit union. Each credit union's earnings level must be evaluated relative to net worth needs, financial and operational risk exposures, the current economic climate, and the institution's strategic plans."