Citing unacceptable practices and inadequate board oversight, the NCUA announced Wednesday that has entered into a Letter of Understanding and Agreement with the $2.2 million Lynn Municipal Employees Credit Union of Lynn, Mass., and its state regulator, the Massachusetts Division of Banks.
According to the LUA, the credit union is now considered to be what it said is “troubled condition.”
The LUA identifies specific practices requiring correction, including:
- Failure to comply with the requirements of previous enforcement actions.
- Operating without adequate supervision and direction by the credit union's board of directors over senior management.
- Failure to maintain accurate books and records.
- Failure to establish appropriate internal controls.
- Engaging in unsafe and unsound underwriting standards and practices.
The credit union was also dinged for violating rules regarding the safeguarding of member information, and for failure to conduct appropriate reviews of the Allowance for Loan and Lease Losses account.
A quick look at the 398-member credit union's financial performance report doesn't reveal a struggling institution. Net worth as of June 30 was nearly 20%. Delinquent loans to total loans was only 0.27%, and charge offs were reported as -0.29%. ROAA is also healthy, reported as 1.09% as of June 30.
However, the credit union's simple loan portfolio primarily comprises unsecured lines of credit, representing $916,468 of LMECU's total $1.16 million loan portfolio, according to its June 30 Call Report.
The LUA requires LMECU to ensure credit reports reviewed during underwriting contain credit scores, document why members with adverse credit are granted loans, and ensure debt-to-income ratios are calculated correctly and include all debts from the member's credit report and loan application.
LMECU reported that year-to-date, it has granted $626,100 in new loans, but 12-month loan growth as of June 30 was only 3.29%, after reporting -16.12% loan growth as of March 31.
Loan yields were 9.91% as of June 30, well above the peer average of 7.33%. There was no reported fee income. The credit union operates one branch located in Lynn City Hall.
The NCUA said it is “working with the credit union to make a sustained, conscientious effort to correct these practices.” The regulator added that violations of the LUA could result in NCUA initiating formal administrative actions under the Federal Credit Union Act, including civil financial penalties, cease and desist orders, removal and prohibition orders, or orders to liquidate, conserve or merge the credit union.
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