NCUA Weighs In on Earnings Reviews and Excess Deposits

The NCUA issued messages last week on the way examiners should look at earnings and on the pledge of assets to secure excess deposit insurance.On earnings, the regulator said it’s about more than just ratios in a letter sent to examiners asking them to take a broader view when evaluating the earnings and other financial results of a credit union.Office of Examination and Insurance Director Melinda Love wrote that “examiners must evaluate each credit union’s earnings level relative to net worth needs, financial and operational risk exposures, the current economic climate and the institution’s strategic plans.”She wrote that examiners should consider these six factors: adequacy of net worth, in light of a credit union’s risk profile; quality and sources of the earnings structure; how the earnings results fit with credit union’s overall strategy; the likely future direction of earnings performance; the Adequacy of the allowance for loan and lease losses; and the credit union’s ability to realize an adequate earnings level in a safe and sound manner.Three weeks before the letter was sent, House Financial Services Committee Chairman Barney Frank (D-Mass.) and committee member Rep. Walt Minnick (D-Idaho) sent NCUA Chairman Debbie Matz and the other heads of financial regulatory agencies a letter urging them to take action to encourage financial institutions to increase the flow of capital into the economy while ensuring safety and soundness standards are maintained.In a statement accompanying Love’s letter, Matz said that the agency “appreciates the delicate balance credit unions must strive to achieve between the short-term and long-term needs of the credit union.”Separately, the NCUA said credit unions can’t pledge assets to secure excess deposit insurance for labor unions that are its members in a legal opinion letter.“Except in the case of government depositors, meaning public units or political subdivisions, an FCU cannot pledge its assets to guarantee member deposits. Labor unions do not qualify under this provision in the FCU Act and do not meet the definition of public units or political subdivisions under our regulations,” NCUA Associate General Counsel Sheila Albin wrote in a letter to Building Trades FCU President/CEO Leesa Husak.The credit union had purchased excess share insurance-to cover deposits exceeding $250,000-and named the labor unions as beneficiaries on the line of credits from the FHLB and a corporate credit union.Albin suggested that the credit union restructure the unions’ deposits so they can all be covered by the NCUSIF and noted that shares of employee benefit plans are insured on a “pass-through” basis.–[email protected]