Sperry Associates FCU Under Enforcement Action

The National Credit Union Administration (NCUA) has published a Letter of Understanding and Agreement (LUA) entered into with Sperry Associates Federal Credit Union, Garden City Park, New York on May 28, 2010. The LUA outlines corrective steps the credit union needs to take with regard to strategic risk, credit risk, interest rate risk, liquidity risk, transactions risk, and compliance risk.

Below are some of the actions required by the LUA.

The credit union was to charge-off $3.1 million in non-performing assets associated with CalState 9 loan participation pool and South Florida Properties participation loan. This resulted in the credit union becoming undercapitalized as of March 31, 2010.

The credit union will submit a net worth restoration plan. As part of its net worth restoration plan, the credit union must achieve a return on average assets of zero percent, .15 percent, and .25 percent by year-end 2010, 2011, and 2012, respectively. The credit union's return on average assets was -1.68 percent at the end of 2009.

The credit union will cease entering into loan participation agreements until such time it demonstates to NCUA that it has a satisfactory due diligence process. As of March 2010, slightly more than 11 percent of its outstanding loans were loan participations.

The credit union is holding 3 private label collaterialized mortgage obligations (CMOs) that have been downgraded below regulatory acceptable levels. NCUA is requiring the credit union to contract with a qualified third party to complete a portfolio analysis of the CMOs and will recognize any other than temporary impairment losses. At the end of the first, the credit union had $41.5 million in CMOs.

The credit union will also stop granting loan modifications until the board develops a loan modification policy and puts in place managerial procedures that meet NCUA's satisfaction. The credit union reported $1.5 million in modified loans at the end of the first quarter.

The credit union will perform a test of its disaster recovery/business continuity program and will contract with a third party to evaluate the security of its information security and technology program.